JOHANNESBURG (miningweekly.com) – Australian oil and gas producer Woodside on Wednesday announced that it had entered into a binding agreement to buy ExxonMobil’s share of the Scarborough gas field, in the Carnavon basin as part of a A$2.5-billion share sale.
The transaction involves an additional 50% interest in WA-1-R, which contains the Scarborough gas field and will result in Woodside holding a 75% interest upon completion by the end of next month.
Completion of the transaction is subject to pre-emption rights and customary regulatory approvals.
The acquisition would deliver greater alignment, control and certainty for the project, Woodside CEO Peter Coleman said in a news release.
“Our Burrup Hub concept is advanced by our announcement today of an increased stake in the Scarborough gas field. The development concept involves maximising existing infrastructure at the Pluto liquefied natural gas (LNG) plant to meet a market gap that we expect will emerge from the early 2020s,” he said.
Wood Mackenzie principal analyst Saul Kavonic commented that the acquisition might bring on the next wave of Australian LNG investments, particularly brownfield through backfill and leveraging existing infrastructure.
“Despite the distance and dry nature of the gas, a Scarborough development via existing infrastructure at the Burrup will be amongst the lowest cost pre-final-investment-decision (FID) LNG projects in the world because of the synergies. With viable economics, the obstacle has always been joint venture (JV) alignment. With Exxon out, and the motivated Woodside now in the driver's seat, the alignment hurdles are now largely cleared away,” he said in an emailed statement.
Kavonic added that Scarborough could be developed as backfill to Pluto, with some molecules also sent to the North West Shelf producing asset, either complementing, or competing with, a development at Browse, on the Dampier peninsula. He said that a small expansion at Pluto might also make sense to accelerate the Scarborough gas development.
The A$2.5-billion accelerated entitlement offer would not only facilitate the Scarborough acquisition, but would also provide funding for the SNE Phase 1 development, in Senegal, and would assist in progressing the development of the Browse project, to a targeted FID.
These projects, Coleman said, were a continuation of a previously announced strategy of unlocking the Burrup Hub and developing oil in West Africa.
Kavonic commented that, although the Browse economics look “do-able”, they were less robust to downside risks compared with Scarborough. “JV alignment within and between the NWS and Browse JVs remains the big obstacle, suggesting FID is uncertain and delays are highly likely.”
The equity raising would take the form of a fully underwritten prorate accelerated renounceable entitlement offer with retail rights trading under which shareholders would be entitled to acquire one new Woodside share for every nine shares held on the record date, at a price of A$27 a new share. The price represents a 10.3% discount to the dividend adjusted theoretical ex-entitlement price of A$30.11.
The entitlement offer comprises an institutional element and a retail offer for shareholders in Australia and New Zealand.
“Today’s raising puts Woodside and our shareholders in a strong position. It will allow us to develop new supply that we expect to be materially value,” Coleman added.
Meanwhile, Woodside announced an 18% jump in full-year profit to $1.02-billion in the period ended December 2017. Production was 84.4-million barrels of oil equivalent (mmboe) and sales revenue was $3.62-billion.
The improved financial performance was driven by higher prices for its products and sustained low production costs.
Woodside generated free cash flow of $832-million in the year under review.
“The safe start-up of Wheatstone LNG Train 1 was a significant milestone for the company and we look forward to the delivery of LNG Train 2 and the domestic gas facility this year, while supporting the operator to optimise lifting costs and maximise production rates,” Coleman said.
The $34-billion Chevron-operated Wheatstone JV produced its first LNG in October last year, and at full capacity, the LNG facility will supply 8.9-million tons a year of LNG for export to customers in Asia. The project’s domestic gas plant also has the capacity to produce 200 TJ/d of domestic gas for the Western Australian market.