Investors are becoming increasingly concerned that Woodside Petroleum's (ASX: WPL) growth options are rapidly dropping like flies. A week after announcing that it had abandoned plans to build a LNG plant at James Price Point in Western Australia for its Browse gas fields, Woodside has announced that it has ceased talks with other gas field owners to add additional trains to its Pluto LNG venture.
With a decision on Browse expected to take at least another two years, and Pluto expansion canned, two of Woodside's major LNG projects are now on hold, and a third, the Sunrise LNG project is in limbo, due to a disagreement with East Timor over how the resource should be developed. East Timor, like the West Australian government, wants the LNG plant to be built onshore, in East Timor.
Investors welcomed the decision to abandon the massively expensive LNG plant at James Price Point, with costs likely to have blown out past the initial estimate of $45 billion. Speculation is now mounting that both Browse and Sunrise will most likely be floating LNG plants, which cost a fraction of the onshore plants.
Announcing its first quarter production figures today, Woodside's Pluto LNG helped the company record a 55% increase in production to 21.9 million barrels of oil equivalent, and revenues of US$1.45 billion. While the cash is certainly flowing in, pressure is mounting on Woodside to either return capital to shareholders, or increase investment to sustain future growth.
With Australia's high costs and strong Australian dollar, Woodside is more than likely to pour the funds into its projects in Myanmar and offshore Israel – although there are questions over that project too.
One of our largest export gas customers, Japan, has called for price cuts on Aussie gas, with Asian countries paying the highest prices for gas globally. That could impact on other LNG projects including Santos Limited's (ASX: STO) Gladstone LNG and Origin Energy's (ASX: ORG) Australia Pacific LNG.
Foolish takeaway
Shareholders are unlikely to see a capital return in the short-term. Woodside is more likely to invest in exploration and expansion of its long-term producing assets like the North West Shelf. As long as the investment generates good returns, shareholders will be rewarded in the long run.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woodside and Origin.
