Woodside Petroleum, Australia’s biggest independent gas and oil producer, launched a surprise A$2.5 billion (US$1.96 billion) share sale on Feb. 14 to raise funds to take control of and develop a long-stranded gas field off the country’s west coast.
Woodside said on Feb. 14 it had agreed to pay $744 million for ExxonMobil Corp.’s 50% stake in the Scarborough Field, a project that has been stuck on the drawing board for nearly 40 years due to factors including its remote, deepwater location.
The company said that soaring international demand for gas meant the time was right for the acquisition with the field expected to feed an expansion of its Pluto LNG plant in the state of Western Australia.
“The difference between supply and demand is opening up very, very quickly,” said Woodside CEO Peter Coleman, adding that Chinese appetite for LNG was growing rapidly.
But some analysts underscored the challenges of developing the field, with Ben Wilson at Royal Bank of Canada describing the site in a broker note as “deep, distant, dirty and dry.”
The move puts Woodside, seen as short on near-term growth prospects, in control of Scarborough with a 75% stake, working with BHP Billiton on a project now estimated to cost up to $9.7 billion.
The rest of the money raised through the A$2.5 billion offer to existing shareholders will be used to support work on Scarborough, the Browse LNG project in Australia and the SNE oil development off Senegal.
Analysts said that even with the large equity raising Woodside may have to come back to investors in a few years to fund the development of Scarborough and Browse. Woodside has a market value of A$26 billion.
“There’s a lot of money to pay,” Macquarie analyst Andrew Hodge said.
The company announced the Scarborough deal after reporting an 18% rise in annual profit of $1.02 billion, just short of analyst forecasts.
Woodside’s shares were on a trading halt for the offering, which closes on Feb. 15. It is offering one new share for every nine shares owned at A$27 a share, a 13% discount to Woodside’s last trade.
Gas Up?
The company also said it was pushing out a final investment decision on the Browse LNG project off Western Australia to 2021, a year later than last flagged and now estimated to cost $15 billion to get to startup.
“A lot of Woodside capital is due to be chewed up in coming years with the Senegal, Scarborough and Browse developments,” said Saul Kavonic, an analyst at consultants Wood Mackenzie.
“All face uncertainties and risk delays ... but Scarborough could now prove the most 'do-able' of the three.”
BHP Billiton welcomed Woodside’s expanded role in Scarborough.
“This development could enhance the commercial viability of Scarborough and the region,” BHP’s petroleum president Steve Pastor said in a comment emailed to Reuters.
Part of the $744 million cost of the stake in Scarborough will only be due when the project, which is in 900 m of water with no liquids to boost the value of the gas, gets its final go-ahead.
“Exxon [isn’t] in the habit of making dumb decisions. They probably see more future in Qatar, PNG [Papua New Guinea], Mozambique and Golden Pass [in Texas],” said Andrew Blakely, an analyst at fund manager Perpetual.
Meanwhile, Woodside on Feb. 14 said the North West Shelf LNG joint venture is pursuing arbitration on an LNG contract dispute with Korea Gas Corp. (KOGAS).
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