Bloomberg News

Woodside Raises Pluto Cost Estimate 6.4% to A$14.9 Billion

June 17, 2011

(Updates with Moody’s review from third paragraph.)

June 17 (Bloomberg) -- Woodside Petroleum Ltd., Australia’s second-largest oil producer, expects its Pluto liquefied natural gas project to cost 6.4 percent more than previously estimated and be delayed by about six months.

Pluto is now set to cost A$14.9 billion ($15.7 billion), compared with the company’s previous estimate of A$14 billion, Perth-based Woodside said today in a statement. First cargoes of LNG are due in March 2012, according to Woodside, which had earlier slated shipments for September.

Woodside, among LNG project developers in Australia facing a contest for customers and skilled workers, dropped the most in more than seven months in Sydney trading after announcing its third cost increase since November 2009, and Moody’s Investors Service put the company’s Baa1 credit rating on review for possible downgrade. The higher expense and delay at Pluto were attributed to “slower-than-expected progress on the commissioning” of the gas plant in Western Australia state and seven weeks of bad weather.

“Woodside will not be the only company which faces cost overruns and project delays,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a report today. “Rising costs will impact” all Australian ventures planning to liquefy natural gas for export to Asia.

Pluto, at a cost of $3,600 per metric ton of capacity, may now be the most expensive LNG development, Beveridge estimated. Woodside will need an oil price of $100 a barrel “long-term” to justify the investment, he said.

Shares Decline

The Australian oil and gas producer declined 3.8 percent to A$40.80 at the 4:10 p.m. close in Sydney, its biggest drop since Nov. 9. The benchmark S&P/ASX 200 Index rose 0.1 percent.

Moody’s said in an emailed statement that Woodside’s statement triggered the review. “Today’s rating action reflects a weakening in Woodside’s project execution capabilities,” said Moody’s analyst Matthew Moore.

The energy explorer has about A$5.3 billion of bonds and loans outstanding, according to data compiled by Bloomberg.

“While we would like to start up the project as quickly as possible, we will not be doing so until we are satisfied the commissioning work has been completed in a thorough and safe manner,” Chief Executive Officer Peter Coleman said in today’s statement to the stock exchange. “It is important to take a long-term view.”

New CEO ‘Cautious’

Coleman, a former Exxon Mobil Corp. executive who replaced Don Voelte as Woodside CEO at the end of May, may be taking “a more conservative, considered approach,” Di Brookman, a Sydney- based analyst at CLSA Asia-Pacific Markets, said by telephone. “The new CEO is being cautious,” said Brookman, who predicted a A$140 million increase and a one-month delay.

Woodside had sought to make Pluto one of the fastest LNG projects built. The company made the discovery of the gas field in 2005 and decided to proceed with the venture in 2007.

In November, Woodside raised Pluto’s cost estimate to A$14 billion from A$13.1 billion. The company said at the time that the development would be ready to start in August this year, with the first exports scheduled a month later.

That followed an announcement in November 2009 that the expenses would surge by as much as A$1.1 billion. The company said its 2011 production target is now between 62 million and 64 million barrels of oil equivalent. Woodside said in February it expected output of 63 million to 66 million barrels of oil equivalent this year, excluding the Pluto project.

‘Final Delay’

“We think this announcement represents the final delay in Pluto 1 and would not be surprised to see Woodside deliver start-up slightly earlier than announced today,” Beveridge, the Bernstein analyst, wrote in his note. “Coleman will take full opportunity of his new role to draw a line in the sand and announce a target he can deliver on.”

Bad weather also has contributed to a delay at the North West Shelf oil redevelopment project, according to Woodside.

--With assistance from Jacob Greber in Sydney. Editors: Amit Prakash, Alexander Kwiatkowski

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.


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