Woodside to take $6.3b hit on lower oil and gas prices
Angela Macdonald-SmithSenior resources writer
Jul 14, 2020 – 5.34pm
Woodside Petroleum will take $US4.37 billion ($6.3 billion) of write-downs and charges in its first half results after following European major producers in slashing expectations for oil and gas prices over the next few years, while doubling expectations for carbon prices.
The hit, which amounts to $US5.7 billion before tax, includes $US3.92 billion of impairments on oil and gas assets including all its LNG plants in Western Australia and its oil fields, as well as on undeveloped gas fields and exploration licences.
Woodside has written down the value of its stake in Chevron's Wheatstone LNG project in Western Australia. Supplied
Also included is a charge of $US447 million on losses on US LNG purchase contracts Woodside signed up to several years ago but are now out of the money.
Still, chief executive Peter Coleman noted the strength of Woodside's balance sheet still allowed it to take advantage of acquisition opportunities expected to arise due to the "unprecedented market uncertainty".
Mr Coleman has already signalled Woodside is interested in Chevron's one-sixth stake in the North West Shelf venture which is up for sale.
The oil and gas producer also voiced confidence in the outlook of its core product – gas sold into Asia – despite the current crisis and likely carbon prices.
"Woodside's disciplined approach to financial management gives us options to pursue inorganic growth opportunities as and when they emerge," Mr Coleman said. while also pointing to ambitions to develop the Scarborough and Browse gas fields off Western Australia.
The move by Woodside follows hefty write-downs flagged by Shell, BP and ENI in Europe, which all axed their assumptions for oil prices. ASX-listed Oil Search advised of write-downs on Monday, although confined those largely to undeveloped exploration licences in Papua New Guinea rather than its PNG LNG venture.
Write-downs were largely expected at Woodside and Santos ahead of their first-half results in August. Woodside will now bring forward its June quarter report by a day to Wednesday morning, when Mr Coleman and chief financial officer Sherry Duhe will front investors on a conference call.
Undeveloped assets
The biggest write-down – of $US1.4 billion before tax – is at the Chevron-run Wheatstone LNG venture in WA, which Woodside bought into through a deal with Apache in late 2014. Woodside now values its stake in the project, which ran over budget, at $US3.02 billion.
The value of Woodside's Pluto LNG venture has reduced by $US860 million to $US8.8 billion, while the North West Shelf venture stake was impaired by $US450 million to $US1.9 billion.
Two oil ventures in WA saw smaller write-downs, while the $US4.2 billion Sangomar oil project in Senegal, which has only just starting construction, was devalued by $US320 million to $US400 million, with "country risk" playing a part.
The losses on some of the WA assets include reductions in deferred tax liability for Petroleum Resource Rent Tax caused by the lower valuations.
Other impaired assets include the Kitimat LNG project in Canada that was also part of the Apache deal and which was already partly written down, and the stalled Sunrise LNG project in the Timor Sea. The gas resources held in the Greater Pluto area off WA have also been downgraded.
The oil prices Woodside is assuming have been reduced by 20-30 per cent for the next several years. It now puts Brent in 2021 at $US44 a barrel, down from $US63 used last year. Brent prices for 2025 have been axed from $US80 to $US65.
Assumed carbon prices, in contrast, have been doubled to $US80 per tonne from the $US40 Woodside used in an investor briefing in November.
Wood Mackenzie senior analyst David Low said most of the impairments weren't surprising but singled out the hike in the carbon price.
"This could lead to the future write-down of [Woodside's] carbon-intensive assets or make a push towards carbon capture and storage for such assets critical for their monetisation," he said.
The charges won't impact the first-half dividend, Woodside advised.
Angela Macdonald-Smith writes on the resources industry with a focus on energy, including gas, oil, electricity and renewables. Connect with Angela on Twitter. Email Angela at amacdonald-smith@afr.com
Woodside Petroleum