Not all resource spending is being cut, trimmed or stopped.
It seems some projects do stack up, even in oil and after a near $US100 a barrel drop in price in the past five months.
There are still examples of where big resources are prepared to spend, despite the gathering gloom and the continuing slide in world prices.
The slump in demand for oil and the drop in global prices form the all time high of $US147.27 in July to around $US48 a barrel yesterday, hasn’t deterred the North West Shelf oil and gas partners from finding $A1.8 billion to revamp and extend the life of the Cossack project off the northwest coast of WA past 2020.
The investment to replace the production ship will prolong output from the Cossack, Wanaea, Lambert and Hermes fields and allow output from potential discoveries in the area, BHP Billiton said in a statement released yesterday.
It came a week after BHP pulled the plug on its Rio Tinto bid, and announced the spending of $US4.8 billion on its Pilbara iron ore expansion project, in the same area of WA.
The redevelopment project will start shortly and will be completed by early 2011, it said.
The Shelf group agreed last May to replace the production vessel at the field instead of refitting the existing Cossack Pioneer ship because it would cost about the same while shortening the required production shutdown. Cossack, which has been in operation since 1995, produced 60,863 barrels a day of oil in the third quarter.
Woodside’s share of the joint venture’s redevelopment costs is $A600 million after buying out Shell’s oil interests in the area earlier in the year. Woodside owns one third of the project.
The redevelopment work includes the purchase of a floating storage and offloading facility that will be converted into a floating production storage and offloading facility (FPSO).
It will replace the existing FPSO – Cossack Pioneer – in 2010. The companies said that associated subsea infrastructure would also be replaced.
Woodside executive vice president North West Shelf, Eve Howell, said in a statement to the ASX that the decision to redevelop was a vote of confidence by the joint venture participants in the future of the project.
"This redevelopment decision will ensure continued safe and reliable production from these fields for many years to come," Ms Howell said.
Other joint venture participants are BHP Billiton Ltd’s petroleum division, BP, Chevron and Japan Australia LNG (MIMI) Pty Ltd.
Woodside said the fields have produced 395 million barrels of oil since production began in 1995.
The Lambert field was discovered in 1973 and the underlying Hermes field was found in 1996. The Wanea and Cossack fields were discovered in 1989 and 1990.
The FSOP (the new ship) will be the Okha which will be converted in Singapore.
“We anticipate this project will generate over 10 million barrels of oil (BHP Billiton’s share) during its life and it will also extend the life of these fields beyond 2020,” BHP’s oil chief, Mike Yeager said in the company’s statement.
But while BHP (and Woodside) are willing to spend in the oil sector, in steel making raw materials it’s another thing.
BHP said that it was cutting manganese output from its big South African operation for the rest of this year and for 2009 by more than 20%. It’s cut of37% over a year.
Manganese is an important ingredient in some types of steel.
The cuts are expected to reduce ore production by 21% and alloy production by 23% in the year to June 2009.
"We said on 22 November that global market conditions were proving challenging for the steel industry and its raw materials providers," BHP Billiton head of ferrous metals and coal Marcus Randolph said in a statement to the ASX.
"Manganese ore and alloy are entirely dependent on the carbon steel industry and are therefore directly impacted by the current weak steel markets."
Mr Randolph said the company will continue to monitor the situation and when it sees a recovery it will be well placed to restart full production alloy capacity.
"In ore, the development activities and rebuilding of depleted stocks will also allow us to react quickly to any recovery in the market," he added.
BHP Billiton owns 60% of Samancor, with the remainder held by Anglo American Corp.
BHP shares rose yesterday gently after the big sell off Tuesday. They closed up 78c, or nearly 3% at $27.81. (Rio shares fell again, down $2.30, or 5.6%, to $36.85). Woodside shares fell $1.03 to $31.38 on the weaker oil price.
