Woodside has decided to reduce its total expenditure for 2020 by 50% in response to global uncertainty, which is almost certain to impact final investment decisions for several projects.
This follows the worldwide financial consequences of the COVID-19 crisis and the oversupply of crude oil and LNG, which has crashed prices.
Woodside said 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.
“We will take appropriate actions to ensure our credit rating remains robust, and that we are well prepared to invest when market conditions stabilise and improve. We are focused on creating differentiating shareholder value,” the company said.
Expenditures halved
In addition to the approximately 50% reduction in forecast 2020 total expenditure, Woodside said it would review of all non-committed activities supporting Woodside’s growth activities resulting in an approximately 60% reduction in Woodside’s 2020 guided investment expenditure.
Woodside’s response means deferral of targeted final investment decisions (FID) for the Scarborough, Pluto Train 2, and Browse projects.
However, 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.
Woodside said 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.
Woodside has hedged 11.85 million barrels of oil between April and December 2020 at an average price of $33.47 per barrel.
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 said.
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.
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.
Woodside’s investment expenditure guidance for 2020 is now $1.7 – 1.9 billion.
