Browse 'Great Escape' in doubt

ANALYSTS are unconvinced that Woodside Petroleum’s fourth crack at commercialising its remote trio of Browse Basin gas-condensate fields will get over the line despite CEO Peter Coleman’s insistence that no single asset or investment decision will “make or break the company”.
Browse 'Great Escape' in doubt Browse 'Great Escape' in doubt Browse 'Great Escape' in doubt Browse 'Great Escape' in doubt Browse 'Great Escape' in doubt

Karratha gas plant.

In theory, that proposition rings true for Woodside, particularly considering its peers' positions.
 
Oil Search is chasing PNG LNG growth but has timing and high gearing concerns; Santos has an uncertain Gladstone LNG earnings outlook; and Origin Energy has high gearing and is shifting back towards utilities business.
 
However, Coleman's attempt to assuage investors and convince his fellow North West Shelf Venture partners that Browse should be developed through Karratha at this week's investor day did not make it through analysts' filters unscathed.
 
Coleman framed Browse's development within the second of his three "five-year horizons", with a final investment decision planned in 2020 and first production slated for about 2025.
 
Extending the life of the largely depreciated North West Shelf plant has become a major focus for Woodside and its NWSV partners over the last two years as the point of increasing ullage in the early 2020s approaches.
 
Chevron Australia general manager, asset development Gerry Flaherty called for collaboration to produce an "interconnected basin" with hubs to match the resource concentration with where the plant capacity is, to stay competitive beyond 2023.
 
While Flaherty suggested three hubs - a tentative NWS hub, a Gorgon-Jantz-Wheatstone-Pluto hub and an Exmouth-Scarborough hub, both Scarborough and Greater Gorgon are now vying with Browse to go through the Karratha gas plant.
 
Citi's Dale Koenders noted that Scarborough was considered 2-3 years behind Browse but warned that there was still the risk of Browse missing out on NWS backfill opportunities and he said there was a potential downside to LNG and oil pricing.
 
Yet after multiple Browse development concepts having come and gone, including a dual-track Burrup pipeline/James Price Point onshore options, near-shore barge LNG, floating LNG and now a reprise of the Burrup tie-back, RBC Capital Markets' Ben Wilson is getting weary.
 
"Is the Burrup v2.0 re-run different this time?" he pondered, while downgrading his price target on the Perth-based oiler from $31 to $30.
 
The arguments in favour of Coleman's proposal are a derisked 900km pipeline to the Burrup Peninsula and looming NWS ullage and falling offshore development capital costs, with Woodside noting the Browse upstream plus Burrup pipeline cost is about 60% lower than the $70 billion-plus James Price Point concept. 
 
Yet Wilson said that while the Burrup idea reboot had merit, RBC was "not yet rushing to update our models again and feel investors should not have to pay yet for this chunk of Woodside's 2C resource".
 
He compared following the Browse LNG saga to watching a re-run of The Great Escape and hoping Steve McQueen made it this time around.
 
"We have seen this movie before and no matter how much we want him to make it, he ultimately falls short every time," Wilson quipped.
 
With Browse comprising more than 40% of Woodside's 2C resource base - close to 1 billion barrels of oil equivalent - excluding the very long-dated Liard Basin resource in Canada, Coleman's push to back Browse in is understandable.
 
However, Wilson warned that the concept was "too long dated and subject to too much uncertainty for us to credit value for yet".
 
Koenders said that while Woodside's management was doing a good job with prudent capital allocation in recent months and strong potential for building a track record of exploration success, the investment thesis on Perth oiler was still "difficult".
 
Maintaining a ‘neutral' rating on Woodside, Koenders said Citi sees a definitive concept selection on Browse early next year and he appeared to back Coleman's reasoning as it remains the only resource on the NWS that likely to be ready in time for development because it has already gone through front end engineering and design twice, with significant design optimisation each time.