Woodside Petroleum, the Western Australia operator of the North West Shelf and Pluto LNG plants, said it was keeping up production levels as demand has remained strong in its core north Asian market and its trading team has started trading spot shipments with Chinese buyers.
The Perth-based company said its base business was characterised by reliable, low-cost, high-margin operations which provide resilience to fluctuations in commodity prices.
“LNG and oil production have not reduced in the current environment, and deliveries to customers have continued,” said the company.
“Woodside has a high-quality, investment-grade customer base, and deliveries and performance under contracted arrangements have not been adversely impacted by recent events,” said Woodside.
It outlined its actions over the combined coronavirus and oil and LNG market gluts actions as being aimed at protecting local communities and the health and safety of its people and contractors while deferring some projects and spending.
“Demand has proven resilient for Woodside’s product in core north Asian markets. Woodside’s trading team has recently begun placing some spot production back into China as industrial output and demand restarts,” said Woodside.
“This trading capability, along with Woodside’s shipping capacity, provides flexibility to respond quickly to changes in market dynamics,” it added.
Woodside expected to see full impact of lower oil price late in the second quarter of 2020 due to the lag between the oil price and realised LNG price and was increasing hedging activities.
“The oil price is expected to be volatile at least in the near-term. To reduce exposure to potential further downside and increase revenue certainty, Woodside has hedged 11.85 million barrels of oil between April and December 2020 at an average price of US$33.47 per barrel,” said the company.
“Woodside has also agreed with a customer (unnamed) to fix the price of approximately 2.4 MMboe of LNG production over the same period, to further increase revenue certainty,” it added.
Because of the changed market and the drop in commodity prices and exchange rate issues, Woodside said its 2020 work plan had been reviewed and non-essential activities have been cancelled or deferred.
“Total expenditure in 2020 is forecast to reduce by approximately 50 percent to approximately $2.4 billion,” said the company.
The company has delayed final investment decisions on the Scarborough and Pluto LNG Train 2 developments until 2021as will as target investments in the Browse Basin, offshore northwest Australia.
“Finalisation 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,” explained Woodside.
It also gave an update on its plans for the oil-led project offshore Senegal in West Africa.
“Work on the Sangomar Phase 1 development commenced early in 2020. Woodside is taking early action to proactively manage the emerging impacts of COVID-19 on the supply chain and project schedule,” said Woodside.
"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,” it added.
The company is also making efforts to maintain high production levels by deferring planned maintenance on natural gas facilities LNG Trains.
It made changes to the planned turnaround schedule at the Karratha Gas Plant with the major turnaround for LNG Train 3 deferred to September 2020 and the major turnaround for LNG Train 4 deferred to August 202.
Woodside has also delayed most proposed exploration activities, although some seismic acquisition will continue, reducing overall exploration expenditure by around 50 percent to $75 million.
On the hiring front. Woodside said employee numbers had been frozen but its intake of graduates would continue.