Woodside expands Scarborough gas plan as oil slump drags down LNG prices in its wake

Australia's Woodside Petroleum Ltd posted a 42% fall in third-quarter revenue on Thursday, missing analysts' estimates as realized prices were weaker than expected, but the company said it expects prices to have bottomed out for now.

The country’s top independent gas producer slashed jobs and put its two major gas projects earlier this year on hold when oil and LNG prices crashed due to the coronavirus pandemic.

But it said it has used the delay to work on boosting capacity at the $11 billion Scarborough project by 20%.

“What it means is we’ll bring more gas on sooner, so it moves from 6.5 million tons per annum that we’ll be processing up to about 8 (mtpa),” Chief Financial Officer Sherry Duhe said.

BHP Group is a 25% stakeholder alongside Woodside in the Scarborough project, off Western Australia, which includes building a second LNG production unit, or train, at Woodside's Pluto LNG plant.

They aim to make a final investment decision in the second half of 2021, with the base case plan to run all Scarborough gas through Pluto LNG trains 1 and 2.

RBC analyst Gordon Ramsay said Woodside would likely push ahead with Scarborough, but he viewed it and Woodside’s bigger Browse project as “fundamentally challenged”.

Woodside’s revenue for the quarter ended Sept. 30 dropped to $699 million from $1.16 billion a year earlier, while output rose to 25.3 million barrels of oil equivalent (mmboe) from 24.9 mmboe a year earlier.

Revenue was well short of RBC’s estimate of $776 million, as the realised price for Woodside’s products nearly halved to $26 per barrel of oil equivalent. Most of its LNG sales are tied to oil prices on a three- to six-month lag, so the third quarter reflected poor oil prices hit earlier this year.

The company expects stronger prices in the current quarter and the first quarter of 2021, with oil prices having improved.

“We certainly hope that we’re past the worst of it,” said Woodside CFO Duhe.

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