Woodside crafts new LNG expansion plan after striking Exxon deal

By Perry Williams on 2/14/2018

SYDNEY (Bloomberg) -- Australia’s  Woodside Petroleum finally got what it wanted from Exxon Mobil. And it only cost $744 million.

As far back as 2013, Exxon planned to develop a floating liquefied natural gas venture for the Scarborough field offshore Western Australia. Woodside had a different idea. After buying into the project in 2016, it tried to convince the world’s largest publicly traded oil company to send the gas onshore to its own LNG plant. With no sign of an agreement, the Perth-based company said Wednesday it will buy up Exxon’s stake, gaining control of the development.

The purchase, funded as part of a broader A$2.5 billion ($2 billion) share sale, may accelerate development of the remote gas project to help feed an expansion of the Pluto LNG plant and meet demand from Asia, CEO Peter Coleman said on an earnings call Wednesday.

Woodside may pay as much as $7.9 billion of the estimated $9.7 billion cost of delivering the Scarborough project, which includes a pipeline and a second Pluto LNG train, according to a company presentation. BHP Billiton holds a quarter stake and a final investment decision is due 2020, with production scheduled to start in 2025.

Funding its share of Scarborough and the development of its Browse LNG venture with no near-term production pay-off may cause concern among Woodside investors, JPMorgan Chase & Co. analyst Mark Busuttil said in a research note Wednesday.

Raising capital at the current point in the oil cycle “is a bold move and somewhat premature in our view,” Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co. in Hong Kong, said in an email. “While the stock will react negatively to this announcement, there is method in the madness if you believe in LNG market growth.”

Woodside requested its shares temporarily halt trading until it announces the outcome of the institutional component of the share sale. The company also announced full-year net income of $1 billion, in line with analyst estimates.

For Exxon, Scarborough’s once-promising 7.3 trillion cubic feet of gas fell out of favor with the energy giant as more profitable, less risky LNG opportunities arose in places like Papua New Guinea and Mozambique. Still, the company remains wedded to the floating-production model: ships built to process and export crude are linchpins of Exxon’s plans to harvest massive offshore crude discoveries in Guyana.

Woodside will also use funds from the share offer to develop its SNE oil project in Senegal and bring its Browse project to a final investment decision by 2021, a year later than previously planned. Up to 10 million tons of LNG could be developed from Browse at the North West Shelf complex at an overall project cost of $20.5 billion with Woodside funding up to $6.3 billion of the planned capital expenditure.

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