WITH increased competition facing liquefied natural gas supply, Woodside Petroleum has urged the Australian industry “to do all they can” to address cost and productivity challenges, even heeding its own advice by telling shareholders it has launched an internal cost-cutting program.
Speaking at the company’s 2014 annual general meeting in Perth in April, Woodside chairman Michael Chaney said 2013 was a big year for the Australian giant, with significant progress made across its core business, particularly when it came to leveraging capabilities and growing its portfolio.
The company also boasted record production of 87 million barrels of oil equivalent and achieved a net profit after tax of US$1.75 billion.
Woodside kept shareholders content, posting a full-year dividend of 249 cents per share, representing a massive 92 per cent increase on the prior year which reflected the board’s policy of paying out around 80% of underlying profit while circumstances permit.
During 2013, the company made the decision to start basis of design work for a floating LNG development concept for the Browse project after determining use of an onshore plant at James Price Point was an “unattractive commercial proposition.” Woodside chief executive and managing director Peter Coleman confirmed to shareholders at the AGM that the estimated project cost for the onshore option had blown out to around A$80 billion.
The Browse joint venture partners now expect a decision to move into FEED later this year, with a final investment decision targeted for the second half of 2015.
With global LNG demand expected to more than double by 2030, Mr Chaney said this made room for suppliers to snap up their piece of the pie.
However, Australia had a big advantage take a large share of the growing demand, with the Asia Pacific region making up about 70% of global LNG demand. Currently, seven of the 12 LNG projects under construction globally are in Australia, accounting for more than 70% of new capacity under construction worldwide.
However, Mr Chaney stressed that Australia shouldn’t, and couldn’t, rely on the proximity factor, as the market was experiencing increased competition for supply into the Asian market from both traditional and emerging suppliers.
Addressing shareholders, Mr Chaney said the US was set to become a global LNG exporter in 2016, with supply on track to approach 40 million tonnes per year by 2020.
“In this environment, it is clear that the Australian LNG industry, Australian governments and our people need to do all they can to address cost and productivity challenges,” he said.
“Policies that promote workforce mobility and flexibility and reduce red and green tape will play an important role in keeping our sector globally competitive.”
Mr Chaney said industry also had a role to play in keeping Australia cost competitive, one of the motivators he said had led to Woodside taking “significant steps towards becoming a more productive, more innovative and cost-competitive organisation.”
“Woodside is focused on driving down costs through new project management solutions and control of the back-office,” Mr Chaney said.
“Internally, we have launched a productivity program to cut operating and corporate costs and to ensure that we deliver the very best value for our shareholders.”
Mr Chaney didn’t elaborate on the figures of the expected cost reductions but said Woodside would be providing more detail to the market during its investor briefing in May.
Providing an update on the company’s drawn-out attempt to get involved in the mammoth Leviathan project in Israel, Mr Coleman said the decision to hold off on executing definitive agreements that would have finalised its entry into the Leviathan joint venture was a tough one but one which was in shareholder’s interests.
“This was a difficult decision and not one that we took lightly,” he said.
Woodside missed a 27 March deadline to complete the multi-billion dollar deal for a stake in the Leviathan offshore project as talks with the Israeli government over tax terms remained incomplete.
“Discussions continue with the parties and the Israeli Government with a view to resolving the remaining issues and executing definitive agreements,” Mr Coleman said.
Mr Coleman said that while Woodside’s commitment to growth was strong, its commitment to making disciplined investments that offer attractive returns to our shareholders was even stronger.