Woodside Petroleum has moved to take advantage of the decline in project construction costs to commit to the $US1.9 billion development of the Greater Enfield oil project off Western Australia, which will also help to support earnings during a period of low oil and gas prices.
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The oilfield is about 60 kilometres off the Exmouth Plateau and Woodside, and its partner Mitsui and Co, are seeking to tap a resource with recoverable reserves of 69 million barrels of oil equivalent. Woodside has a 60 per cent interest in the resource with Mitsui holding the balance.
The project will utilise the existing floating petroleum storage offloading (FPSO) vessel at the nearby Vincent oilfield, which also helps to reduce the final cost of the project, and involves developing several sub-sea production wells.
Woodside said it intended to have the project in production by mid-2019, which is about six months earlier than expected. It has been working on ways to reduce the cost of the project – which is aimed at tapping the reserves of three stranded resources – for several years telling analysts recently it had been able to halve the prospective cost of the project.
It indicated in May its share of the project's cost would be $US1.1 billion to $US1.3 billion, with the confirmation that its share of the $US1.9 billion project of $US1.1 billion coming in at the low end of guidance.
The low oil and gas price, coupled with a rising volume of gas exported from the North West Shelf gas project, which is moving off long-term contract prices, has lifted analyst caution about Woodside's growth prospects over the next few years, especially at a time when the global gas industry is over-supplied.
It is pursuing the development of the Browse Basin and Kitimat gas export projects while also drilling for oil and gas off Burma.
Woodside is targeting about 40,0000 barrels a day of gross output from the project.
"With development costs of less than $US28 a barrel Greater Enfield is an attractive project in a low-price environment," Woodside chief executive Peter Coleman said. "This project enhances the value of our portfolio through low production costs, associated high cash margins and monetising contingent resources."
RBC analysts told clients the economics of the project "are not stellar in the context of an uncertain oil price outlook".
"In sanctioning the 800m water depth Laverda project, Woodside has bucked the trend of global peers by committing to a deepwater development in the current volatile oil environment," it said.
