Project sanctions take the hit as Woodside halves spending plans

Australian energy giant Woodside has made a decision to reduce its total expenditure for 2020 by 50% as a response to the uncertainty in the global environment. As a result, final investment decisions for several projects will be impacted. 

The current uncertain global investment environment arising from the spread of COVID-19, combined with an oversupply of crude oil and LNG, has led to a significant decline in prices, requiring decisive and swift action.

Woodside said on Friday it is taking a prudent approach to cash flow management, given the considerable uncertainty in the near-term investment environment and the magnitude of forward capital investment decisions.

Key features of Woodside’s response include changes to Woodside’s 2020 work plan resulting in an approximately 50% reduction in forecast 2020 total expenditure and review of all non-committed activities supporting Woodside’s growth activities resulting in an approximately 60% reduction in Woodside’s 2020 guided investment expenditure.

Furthermore, Woodside’s response includes deferral of targeted final investment decisions (FID) for Scarborough, Pluto Train 2, and Browse projects.

The company said it is continuing to progress capital investments in Sangomar Field Development Phase 1 (Sangomar), Pyxis Hub, and Julimar-Brunello Phase 2.

Woodside’s production guidance remains unchanged at 97 – 103 MMboe.

According to the companty, the full impact of lower oil price will not be realized until late 2Q 2020 due to the lag between the oil price and the realized LNG price.

Oil price is expected to be volatile at least in the near-term. To reduce exposure to the potential further downside and increase revenue certainty, Woodside has hedged 11.85 million barrels of oil between April and December 2020 at an average price of $33.47 per barrel.

Expenditures halved 

Woodside’s 2020 work plan has been reviewed and non-essential activities have been cancelled or deferred.

Total expenditure in 2020 is forecast to reduce by approximately 50% to approximately $2.4 billion. This includes an approximately $100 million reduction in operating expenditure and an approximately 60% reduction in investment expenditure to $1.7 – 1.9 billion.

Future external spend has been minimized by reallocating required activities to internal Woodside resources.

Employee numbers have been frozen but graduate hiring will continue, Woodside noted.

Some of the impacts of this reduced expenditure are deferral of most proposed exploration activities, although some seismic acquisition will continue, reducing overall exploration expenditure by approximately 50% to $75 million.

Woodside said that the FID for Scarborough and Pluto Train 2 would be delayed to 2021 and the FID for the Browse would also be delayed.

Finalization of commercial agreements and regulatory approvals will continue for Scarborough, Pluto Train 2, and Browse and there will be some ongoing engineering work in preparation for final investment decisions.

Work on the Sangomar Phase 1 development started in early in 2020 and Woodside said it is taking early action to proactively manage the emerging impacts of COVID-19 on the supply chain and project schedule.

“We are working with contractors, the Government of Senegal and our joint venture partners to evaluate options to reduce total cost and near-term spend whilst protecting the overall value of the investment,” Woodside said.

As a result of these changes, Woodside’s investment expenditure guidance for 2020 is now $1.7 – 1.9 billion.