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Woodside stalls project plans amid oil market rout

Chief executive Peter Coleman on Wednesday said Woodside would delay making final investment decisions on Scarborough until 2021 and Browse until 2023, and use the time to consider ways to make the projects more competitive. While stressing Woodside’s commitment to the projects were unwavering, he said questions surrounding the growth plans were to be expected, given the turmoil gripping the oil and gas industry as lockdowns wipe out demand on a never-before-seen scale.

“That’s why we’ve been firm about what our development plans are, because we are trying to take some of that noise and that concern out of the market,” he told The Age and The Sydney Morning Herald.

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“The good thing about it is Woodside has multiple options with respect to the way that we develop these projects rather than just be bound to a single option. We have a good base case that we fully support and continue to progress, but if things change then they will change for the better.”

Although forecasting lower prices for oil and LNG, Mr Coleman was more optimistic than others in the industry about the longer-term demand for the fuels. He disputed the suggestion by BP chief executive Bernard Looney and others that there was a risk that the world’s thirst for oil may never fully recover from the virus-inflicted downturn.

“I think you are crystal ball-gazing if you develop a view that the world has permanent demand destruction,” he said.

“What that assumes for the short- to mid-term is that airline travel will not return to anywhere near the levels it was pre-COVID-19. It may take some time to recover and that will be based on travel restrictions in place by host governments. But I just can’t see for the life of me that people are going to stop travelling by airline.”

Following a wave of revisions by top global oil producers including BP and Shell, Woodside this week revealed $US4.37 billion ($6.3 billion) in write-downs that have left no part of the business unscathed, affecting WA oil and gas assets, LNG plants and exploration licences.

The company said it expected the benchmark Brent oil prices would be as low as $US35 a barrel this year, $US44 in 2021 and increasing to $US65 by 2025. For LNG, Woodside said it forecast LNG prices of $US3 per million British thermal units this year, $US4.4 in 2021 and $US8 in 2025.

Its long-term forecasts are more upbeat than some of its competitors, including BP, which predicts an average Brent price of as low as $US55 a barrel over the coming five years.

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RBC Capital Markets’ Gordon Ramsay said despite the impairments, Woodside’s balance sheet remained “in a healthy state” and was impressive compared to others in the sector with relatively low gearing affording it the flexibility to weather market volatility while still investing in growth.

But he said weak markets posed risks around the timing for Scarborough and Browse. “Forecast internal rates of return for these projects in the low double digits leaves little margin for error,” he said.

JP Mogan’s Lyndon Fagan said the implications of Woodside’s write-downs for the viability of growth projects could be “significant”.

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