Woodside Petroleum (ASX:WPL)
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Woodside Petroleum Ltd. (WPL.AU) said Friday that it is evaluating the cost and schedule of the A$13 billion foundation stage of its Pluto liquefied natural gas project after it discovered parts of the development might not be cyclone-proof.
Tapping fields containing 5 trillion cubic feet of natural gas offshore Western Australia state, Pluto is Woodside's most important development project.
Not only will related sales to Asian utilities boost Woodside's revenue considerably, it is one of few LNG developments to come on line globally in 2011.
A March, 2011 first LNG target date was notably absent from Woodside's third quarter update Friday. "A comprehensive periodic cost and schedule evaluation is underway; the results of which will be available in November," Woodside said.
It is not clear whether Woodside will be pushing back completion of the project it said was 94% finished as at the end of September. Externally sourced back-up LNG supplies are available to meet scheduled customer deliveries in the event of a delay, the company said earlier this year.
Construction of Pluto has been dogged by industrial action from construction workers over their accommodation arrangements and crane drivers over pay, as Australia's resource-driven economy continues to run hot. Woodside in November hiked its cost estimate for Pluto by 6%-10% after experiencing a shortage of skilled workers.
It said Friday that all key heavy lifts were completed at the onshore Pluto site in August and LNG storage tanks are complete.
But the Perth-based company said that the design of some onshore flare towers doesn't comply with its own wind loading specifications. "Some sections of the flare towers are being dismantled in preparation for the approaching cyclone season and corrective action," Woodside said.
A spokesman for the company told Dow Jones Newswires that Woodside has conducted reviews on Pluto's cost and timing about every six months since a final investment decision was made on the project in 2007.
"With the timing of the report so close, it made sense to wait for the review to be completed before providing an update on those matters," the spokesman said, adding that Pluto is still targeting first LNG in March.
Still, the spokesman said Woodside doesn't yet know if work on the flare towers will materially impact the project's timing and cost estimates.
Woodside wants to build another two LNG projects -- Browse and Sunrise -- to meet a projected surge in demand for cleaner-burning fuels from Asia. It also wants to double, then triple, Pluto's size.
It said Friday that onshore front-end engineering and design studies for an expansion of Pluto to two, then three production units are complete. The company, however, needs to discover more gas, or source it from third parties, before it can sign off on the expansion by a 2011 target.
A new exploration well, Moyet-1, commenced drilling on Sept. 6 but only the top section of the hole was drilled due a need for the rig to go elsewhere, Woodside said. It will revisit Moyet-1 and plans to drill Remy-1 in the current quarter.
Australia's second-biggest oil company behind BHP Billiton Ltd. (BHP.AU) reported an expected 11% fall in production to 18.3 million barrels of oil equivalent for the three months to Sept. 30 compared with the previous corresponding period. It reiterated annual production guidance of 70 million-75 million BOE.
Third quarter revenue rose 15% to A$1.03 billion from A$897 million amid higher prices for oil and LNG.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com