Woodside Scraps $40 Billion Browse Project After Gas Slump (2)

Woodside Petroleum Ltd. and partners including Royal Dutch Shell Plc scrapped plans to develop the $40 billion Browse liquefied natural gas project in Australia after the plunge in oil and gas prices.

Australia’s second-largest oil and gas producer won’t go ahead with the floating LNG development after completing engineering and design work, the Perth-based company said Wednesday. Citing an “extremely challenging” market, Woodside said the Browse venture will prepare a new plan and budget for developing the gas resources off Western Australia.

More than $400 billion of proposed energy projects have been delayed since mid-2014 and pushed into 2017 and beyond as oil prices slid about 60 percent in the past two years, according to consulting firm Wood Mackenzie Ltd. The LNG market in particular is facing an oversupply as U.S. exports add to a wave of shipments from Australia.

“We’ve got a glut of LNG at the moment and a large number of potential projects out there,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said today by phone. “The interesting question for Woodside is, ‘What will they do next?’ This removes an organic growth driver.”

No Firm Sales

Woodside had intended to make an investment decision on Browse in the second half of 2016. The company said last month that the project needed further cost reductions and didn’t have any firm sales. Mark Wiseman, a Sydney-based analyst at Goldman Sachs Group Inc., wrote in a report last month that at current oil prices Browse was “highly unlikely” to make significant progress toward approval.

Shares in the company dropped 0.6 percent to A$27.22 at 11:44 a.m. in Sydney, taking their decline this year to 5.2 percent.

“Woodside remains committed to the earliest commercial development of the world-class Browse resources and to FLNG as the preferred solution, but the economic environment is not supportive of a major LNG investment at this time,” Chief Executive Officer Peter Coleman said in the statement.

PetroChina Co., BP Plc and Japan Australia LNG Pty, a venture between Mitsubishi Corp. and Mitsui & Co., are also partners in Browse, according to Woodside’s website. UBS Group AG in 2014 estimated that developing the three Browse fields would cost about $40 billion.

“Going forward, Woodside’s focus will be on delivering phased and sustainable developments that balance capital exposure and revenue with the realities of the commodities cycle,” Coleman said in a separate e-mailed statement.

(Updates to add analyst's comment in fourth paragraph.)

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Andrew Hobbs, Sungwoo Park

By: James Paton

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