Two deals involving more than $US10 billion in oil and gas assets were revealed yesterday as the restructuring of the embattled sector gets underway.
In the first Woodside Petroleum (WPL) will pay $US3.75 billion ($A4.6 billion) for assets in Australia and Canada owned by Apache Corporation, while in the second, Spanish oil major, Repsol, confirmed it would pay $US8.3 billion for control of big Canadian independent, Talisman (a company with significant assets in Western Australia).
The move by Woodside is a bit of a gamble, and new, while the Repsol deal we told you about yesterday.
Just as Newcrest Mining (NCM) took the brave step on Monday in outlining plans for a big new multi billion dollar gold mining project in PNG (with Harmony Gold of South Africa), so too has Woodside moved to spend billions on a major expansion of its oil and gas assets.
To many investors Woodside should be pulling back and cutting costs to adjust to falling world oil prices, but it’s gone ahead to spend upwards of $A3.6 billion on grabbing shares in a couple of huge LNG projects – one offshore Western Australia, the other in western Canada and an offshore WA oil field.
WPL YTD – Woodside buys $4.6bn Apache assets
The deals were announced yesterday as the company confirmed that the slide in world oil prices had delayed the floating Browse Basin LNG project for perhaps a year or more, the first major delay of an oil and gas project in Australia.
The size of the deals is such that it should put paid to any speculation that Woodside is going to do a major oil takeover or enter a new big LNG project around the world in the next year or so.
"Woodside’s ongoing disciplined approach to capital management and acquisition evaluation has resulted in this counter-cyclical, value-adding growth opportunity. It is immediately accretive to Net Profit after Tax, Earnings per Share and operating cash flow. Previous guidance on dividend payout ratio and target gearing is unchanged,” the company said yesterday.
And for any shareholders or others worried about spending billions in the current climate for oil and gas, Woodside had a ready answer yesterday – the purchase price is at a discount to the costs sunk in the projects by Apache.
Woodside yesterday said it had agreed to pay about $US2.75 billion ($A3.6 billion) for the stakes in two liquefied natural gas projects in Australia and Canada held by Apache Corporation.
Woodside has bought Apache’s 13% stake in Chevron’s $US29 billion Wheatstone LNG project in Western Australia (second after Gorgon in the two Chevron LNG projects). This purchase will lift Woodside’s production starting in 2016 when the venture is due to begin output.
And there’s another Chevron link in Canada where Woodside has moved into Apache’s proposed 10 million tonnes a year Kitimat LNG venture on Canada’s Pacific (west) coast, where Woodside will take 50% of the project alongside Chevron. Kitimat is yet to see work start on its construction.
The Kitimat deal includes Apache’s exploration areas totalling 320,000 acres in the Horn River and Liard basins in British Columbia, giving Woodside its first upstream gas position in western Canada, where it has been working to progress its own LNG export terminal in British Columbia.
A small bonus is that it also includes Apache’s 65% interest in the new Balnaves oil venture off Western Australia, thought to be producing about 30,000 barrels a day as well as producing gas for Wheatstone.
Woodside chief executive Peter Coleman said in a statement the assets were “a natural fit” with the existing portfolio and met investment hurdles.
He said the “counter-cyclical" deal would add value, immediately increasing net profit and operating cash flow.
“We have taken a disciplined and patient approach to identifying the right growth investment,” Mr Coleman said in the statement yesterday.
"We are now in a position to take advantage of challenging market conditions and use cash reserves and existing debt facilities to acquire very high quality assets."
Apache has been under pressure in the US from shareholders to either sell its LNG interests and/or consider a spin-off or divestment of all its international interests.
Despite the sliding oil prices Woodside is generating lots of cash from its Pluto LNG venture, which started production last year. It needs to reinvest this cash for future growth, as well as rewarding shareholders.
Efforts to promote other growth projects, including the James Price Point LNG project and the proposed Leviathan gas investment in Israel, failed, leaving it short of new ventures to further increase production.
This includes the Browse Basin LNG project. Woodside is now looking to exploit the Browse Basin gas deposits with a floating LNG project but yesterday said the planning would be slowed with a delay in moving the project into the detailed engineering phase.
A decision on starting front-end engineering and design (or FEED) was due by the end of the year but Woodside said that decision had now been delayed until mid-2015 as the partners sought a cheaper way of developing the project in light of the collapse in crude prices, with the final investment decision now put back 9 months or more to mid 2016.
Woodside is the major equity holder and operator of the Browse Joint Venture, which aims to commercialise the Venture’s three gas and condensate fields, Brecknock, Calliance and Torosa, which lie in the Indian Ocean, 425 kms north of Broome in Western Australia.
For existing shareholders, Woodside had good news with the company retaining dividend payout guidance at 80%. And the company says it believes its credit rating will be unchanged by the purchases.
“Our capital commitments on both sanctioned projects and sustaining capital are expected to be at a low level of approximately $US$0.8 billion each year over the next three years,” Mr Coleman said yesterday.
The sale still leaves Apache with oil and gas interests in Western Australia. a share in the Harriet gas venture and in several other oil and gas fields, as well as exploration areas in the Carnarvon, Exmouth and Canning basins. It also keeps its 49% stake in fertiliser producer Yara Holdings in WA.
Woodside shares eased 2.6% to $34.56.
