Lambert Deep shelved as production dips

PRODUCTION, sales and revenue were all down for Woodside Petroleum in the second quarter and, with low oil and gas prices continuing to bite, the company has decided to leave the Lambert Deep development on the shelf, though CEO Peter Coleman says things should be better next quarter.

Woodside says that following the completion of front-end engineering and design, the North West Shelf project participants have decided to defer the development of the proposed Lambert Deep gas project, widely expected to be its next Australian growth project.

Lambert Deep, which would have developed the Lambert North gas discovery, would have taken gas-condensate to Karratha via the Angel platform from 2019.

The NWSV partners will instead focus on exploration on the North West Shelf, with the aim of developing a larger, more robust project in the early 2020s.

Looking at actual production, Woodside said it produced 6.3% less, 22.2 million barrels of oil equivalent, primarily due to reduced NWS LNG production resulting from the planned major turnaround campaign across the NWS facilities.

However, revenue was down 16% to $US825 million ($A1.1 billion) due to the three month lag in oil-linked LNG contract pricing structures, reflecting the abysmal oil price at the start of the year.

Despite the result, which came in below expectations, with RBC Capital Markets predicting sales production of 22.8MMboe and income of $987 million, the numbers are better than the same time in 2015 with production up 10.4% to 20.1MMboe, although revenue was 8% lower from $898 million.

Coleman praised his team's work on the NWS turnaround, which was delivered ahead of schedule, and for Pluto, which annualised loaded LNG production rate equivalent of 5MMtpa, partially offsetting the production drop.

The NWS turnaround affected the North Rankin Complex, Goodwyn-A platform and Karratha Gas Plant.

Building on recent learnings, the NWS Train 4 turnaround was delivered in 23 days, eight days ahead of plan.

Coleman said that the business was performing well in a challenging external environment, and should see recent price rises flowing through to improved LNG revenue for the current quarter.

"We continue to deliver world-class operational excellence across our assets. This includes completing the North West Shelf Train 4 turnaround eight days ahead of schedule and making further improvements to annualised loaded LNG production at Pluto," he said.

"On Greater Enfield we revamped the development concept and took advantage of market conditions to take an FID and estimate incremental cash costs of less than US$6 per barrel on average for the first five years of production.

Greater Enfield was approved for development at a cost of $1.9 billion, and will develop 69MMbbl as a tie-back to the Ngujima-Yin FPSO, giving Woodside some much needed organic growth.

Also during the quarter the company signed a heads of agreement for long term supply of up to 1MMtpa LNG to Pertamina, expanded its exploration footprint into Gabon with a 40% interest in the Luna Muetse Block, and it increased its 2C contingent resource by 83MMboe through two gas discoveries offshore Myanmar.

It relinquished its interests in WA-396-P, WA-397- P, WA-447-P, WA-449- P and WA-495-P in Australia's Browse Basin, part of an acreage rationalisation in what Coleman has described as a disappointing licencing regime, and its 30% interest in the Tilapia Block, Cameroon was also handed back.

Drilling was confined to three onshore appraisal wells in the Liard Basin with Chevron Corporation, and that trend will continue with two more wells to be drilled this quarter.

The oiler says it has seen exceptional results from the two proof of concept horizontal wells, and as it gains confidence in the world-class deliverability of the basin it expects fewer development wells will be needed for full-scale development of the Kitimat LNG project.

In terms of the next cab off the rank, Wheatstone, Woodside says operator Chevron is targeting first gas in mid-2017.

During the quarter, subsea installation activities at the Woodside-operated Brunello field were completed and the Julimar project remains on budget and on schedule to be ready for start-up before the end of the year.

The Persephone brownfield tie-in work on the North Rankin Complex was completed during the recent integrated turnaround and the project has installed key subsea infrastructure. The project remains on budget and is targeting an earlier start-up in late 2017.

Despite recent concerns that Australian exploration is less interesting to Woodside, the company renewed several permits in the Greater Enfield area of the Exmouth sub-basin (WA-271-P, WA-428-P and WA-430-P) for a further five-year term of exploration.

It sees the opportunity to explore for additional hydrocarbon volumes close to existing infrastructure at low cost.

Looking further out, wells are firming up on Nova Scotia, Morocco and the AGC Profond Block in 2017 and 2018.

Woodside also revealed that it has issued $179 million in senior unsecured notes and $200 million in senior unsecured floating rate notes in recent days for general corporate purposes.


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