Woodside's Browse Basin LNG project scuttled

Wednesday, 23 Mar 2016 07:48:16 | Andrew O'Connor

The shelving of the Browse FLNG project is a fresh blow to the oil and gas industry. (Supplied: Woodside Energy)

Woodside Petroleum's ambitious $40 billion floating LNG (FLNG) project in the Browse Basin off Western Australia's Kimberley coast has been shelved because of cost pressures and depressed commodity prices.

Key points:

Browse Basin joint venture partners shelve floating LNG project
Woodside blames "extremely challenging external environment"
Company says it remains committed to developing gas field
Project was due to deliver $1 billion in royalties to WA

Australia's largest oil and gas company announced the decision after an extensive review of the FLNG project to try to drive down the capital cost of the joint venture.

In an announcement to the Australian Securities Exchange, the company said the joint venture partners had "decided not to progress with the development at this time, considering the current economic and market environment".

"While significant progress was made to improve project value, this has been offset by an extremely challenging external environment," the statement said.

Woodside said it remained committed to the "earliest commercial development" of the gas field, north of Broome.

The Browse FLNG project is the latest victim of tumbling oil prices and collapsing confidence in the industry.

The project has been mired in disputes within the joint venture consortium, with the original plan for a giant onshore plant at James Price Point (JPP) being scrapped after a blowout in projected costs to $80 billion and a concerted campaign by environmental groups.

In 2013, the floating platform plan in the remote location 425 kilometres offshore - pushed by key partner Royal Dutch Shell - was approved by the partners and eventually won the backing of the WA Government.

Woodside's website described the development as a mega-project which was "expected to deliver billions of dollars in government revenue, and employ approximately 1000 direct jobs during the operational phase, creating local opportunities during its 40-50 year operations".

The Government had expected to receive more than $1 billion in royalties over the life of the project.

Economic environment not supportive: Woodside

Woodside chief executive Peter Coleman said the decision represented a disciplined approach to large-scale capital investment.

Woodside's Browse Basin LNG project scuttled

Photo: Woodside CEO Peter Coleman says the company remains committed to developing Browse Basin. (ABC News: Andrew O'Connor)

"(It) is consistent with our requirements for a development concept to be commercially robust across a range of scenarios," Mr Coleman said.

"Woodside remains committed to the earliest commercial development of the world-class Browse resources and to FLNG as the preferred solution, but the economic environment is not supportive of a major LNG investment at this time.

"Accordingly, we will use the additional time to pursue further capital efficiencies for Browse."

Woodside holds a 30.6 per cent stake in Browse, while Shell has 27 per cent, BP 13.3 per cent, Petro China 10.7 per cent and a Japanese partnership of Mitsui and Mitsubishi 14.4 per cent.

Woodside said it would now work with the joint venture partners to prepare a new work program and budget to progress development activities, although gave no timeframe for the additional development work.

Disappointment for WA Premier Barnett

WA Premier Colin Barnett comments outside the ABC Studios in East Perth.

Photo: Colin Barnett had remained optimistic the Browse Basin project would proceed. (ABC News: Andrew O'Connor)

The outcome of the long-awaited investment decision by Woodside will come as a bitter disappointment to WA Premier Colin Barnett.

He championed the Browse project as an economic boost to the Kimberley, with a long and politically costly campaign to establish the onshore gas processing hub at JPP near Broome.

Despite Woodside's decision to not proceed with the onshore plant, Mr Barnett remained committed to the long-term development of JPP as a processing facility or supply basis, with the State Government proceeding with the compulsory acquisition of the land.

He remained optimistic Browse project would go ahead, and in June last year the Government and joint venture partners signed an agreement to guarantee the supply of gas to the WA domestic market.

The Browse leases were renewed in 2015 and run through to mid-2020.

The three leases within the Browse project are estimated to contain contingent resources of 15.4 trillion cubic feet of dry gas and 453 million barrels of oil condensate.

Woodside's Browse Basin LNG project scuttled

Key points:

Economic environment not supportive: Woodside

Disappointment for WA Premier Barnett

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