Both Woodside and Santos posted third quarter sales that were dragged down by lower LNG prices, but both expect that the September quarter will be the trough for prices.
Santos posted higher revenues than Woodside, at $US797 million ($1.12 billion), helped by record production, with a marginal 2 per cent increase from the June quarter.
Woodside posted sales of $US699 million, down 9 per cent from the June quarter and 42 per cent below a year earlier. The average price Woodside got for LNG slid to $US3.90 per million British thermal units, less than half the $US8.70/MMBTU received in the September quarter of 2019.
Weaker sales were expected for the oil and gas producer in the September quarter due to the lag effect between oil prices and LNG contract prices, which was on full show in the period.
However, spot LNG prices – which better reflect the market fundamentals of the underlying commodity than contract rates – have already more than tripled since record lows in April, when they hit $US1.85/MMBTU.
“If you look at spot delivered prices for December of $US6.50/MMBTU, that’s a number we haven’t seen all year,” Ms Duhe said.
“But when you look at how the recovery has been, particularly in markets across Asia-Pacific, which is our traditional customer base, they seem to be doing quite well and fully recovered if not continuing back on growth trajectories, and that’s what we think will need to happen as we get into 2021 as well.”
Santos chief executive Kevin Gallagher said he expects higher LNG prices in the December quarter on both contract and spot rates, also pointing to prices above $US6/MMBTU for late this year.
The reworked Scarborough option involves increasing upstream LNG capacity from 6.5 million tonnes a year to 8 million tonnes a year by increasing the size of the pipeline from the offshore field. The capacity of the planned second LNG train at the Pluto site near Karratha remains at about 5 million tonnes a year, with the extra output processed at the first Pluto train and at the North West Shelf venture.
Credit Suisse analyst Saul Kavonic said the upsizing could reduce the break-even price for the Scarborough project by up to US35¢/MMTBU, making a difference to the economics.
“Scarborough is a globally competitive project that can deliver LNG into north-east Asia at under $US5/MMBTU,” he said, noting that the long-term marginal cost of LNG is closer to $US7/MMBTU.
“But it still can take a brave board to sanction any large capex project before market conditions improve,” Mr Kavonic added, signalling a go-ahead isn’t a given.
Woodside’s second major growth project, the $US20.4 billion Browse venture, remains firmly on the backburner with no progress reported in the quarter.
Ms Duhe said work on Browse was “quietly happening in the background” on cost optimisation and commercial terms for gas processing at the North West Shelf. In the meantime, a preliminary deal was done in the quarter for processing gas from the onshore Waitsia field held by Mitsui and Beach in the North West Shelf LNG plant.
Woodside remains in the mix for Chevron’s one-sixth stake of the North West Shelf venture, with Ms Duhe reiterating its readiness to potentially pre-empt another buyer taking that stake.
“We know that asset very well and we know absolutely what we think it’s worth, and we’ll keep that closely in mind as we follow this going forward,” she said.
Woodside also wants to sell down its expanded stake in the Sangomar oil project in Senegal, although Ms Duhe suggested that may only happen once construction is further advanced. Likewise, Woodside’s efforts to sell a stake in the Scarborough project are likely to be ramped up again once the rework of the project is settled and commercial arrangements are finalised for gas processing.
RBC Capital Markets analyst Gordon Ramsay said Woodside’s large LNG projects look “fundamentally challenged”, but he expects Woodside will push forward on Scarborough, although he is less optimistic on Browse.
Shares in Woodside dipped 1.6 per cent to $18.27.