Woodside Petroleum Ltd., Australia’s second-largest oil producer, said its Pluto liquefied natural gas venture will cost A$900 million ($867 million) more and start about six months later than previously projected.
Spending on the Western Australia LNG project is estimated at A$14 billion, up almost 7 percent from a prior forecast of A$13.1 billion, Woodside said in a statement today. The company attributed the delay to a contractor’s failure to meet design specifications for towers used to burn off excess gas.
Woodside has sought to make Pluto the fastest project of its kind built, with the initial discovery of the gas field in 2005 and a decision to proceed with the venture in 2007. More than a dozen proposed LNG developments in Australia and Papua New Guinea are competing for customers and skilled workers.
“What we tried is unheard of in the LNG industry -- a mega-project accelerated to put us at a leading, competitive advantage,” Chief Executive Officer Don Voelte said on a conference call with analysts and reporters. “Even with this delay, we still have this advantage.”
The project will be ready to start in August 2011, with the first exports scheduled a month after it begins, the Perth-based company said. Woodside previously expected Pluto to start by the end of February, with first exports before April.
Woodside said last month it was dismantling parts of the flare towers because they didn’t meet requirements. The towers are being replaced, it said today. Roger Martin, a Woodside spokesman, said the contractor is John Zink Co., part of Wichita, Kansas-based Koch Industries Inc., according to its website. Koch spokeswoman Katie Stavinoha said she couldn’t immediately comment when reached by phone after hours.
Labor disputes also have disrupted construction at the project site in the town of Karratha.
“We’re disappointed with this,” Voelte said on the call. “We wish we didn’t have the problem.”
Mark Greenwood, a Sydney-based analyst at Citigroup Inc., said last week he expected Woodside to delay the start of the Pluto development until the middle of the third quarter of 2011. Citigroup estimated costs may rise by $360 million.
It’s the second time Woodside has increased its projection of Pluto costs, after saying in November 2009 that the expenses would rise by as much as A$1.1 billion to about A$13 billion.
Moody’s Investors Service today said there were “execution challenges associated with Pluto.” The latest cost increase “places additional pressure on the company’s credit profile and further constrains its flexibility” within the Baa1 rating, Ian Lewis, a Moody’s vice president, said in a statement.
Woodside’s cost increase “was a bit more” than expected, Di Brookman, an analyst at CLSA Asia-Pacific Markets in Sydney, said by phone. She had anticipated an increase of about A$500 million.
The company has deferred a decision on expanding Pluto to next year after its exploration campaign to find more gas off Australia progressed slower than anticipated.
Woodside said drilling is expected to provide the gas to add capacity at Pluto and anticipates an expansion unit would be ready to start by the end of 2014. The Australian company intends to own 90 percent to 95 percent of an additional unit.
Browse on Target
Woodside’s proposed Browse LNG venture in Australia remains on schedule to reach a final investment decision by mid-2012, the company said. Talks to sell Woodside’s share of the Browse fuel continue with potential Asia-Pacific customers, and a preliminary accord with CPC Corp. of Taiwan has been extended to allow discussions to complete the transaction to continue into next year.
“We don’t see any obstacles we cannot overcome,” Voelte said. “We will not build something that doesn’t meet our value system and at this point we see nothing in the road that will stop us from building” at the site in Western Australia.
Woodside and its partners early this year chose a site in the Kimberley region to process gas from the Browse field to meet an Australian government deadline. The Western Australian government moved to take over the site for the venture following the failure of local indigenous groups with claims to the land to reach agreement, Premier Colin Barnett said Sept. 2.
Woodside ranks as the country’s second-largest oil and gas producer after Melbourne-based BHP Billiton Ltd.
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