Browse the Shelf

CY19 is an important year for Woodside Petroleum as it continues to negotiate with its joint venture (JV) partners to backfill the North West Shelf (NWS) facility with Browse gas and expand the Pluto plant with Scarborough gas. We estimate the projects yield only modest returns at current liquefied natural gas (LNG) contract prices.

 

Woodside envisages the Burrup Hub as a singular, integrated facility connecting the existing offshore fields and development projects to both the Karratha and Pluto LNG plants via an interconnecting pipeline. Overall, we estimate this will add US$14–15bn in value to the Browse-NWS participants, while the Scarborough-Pluto partners should see US$6–7bn in incremental value.

 

This suggests some alignment in interest among the JV partners and a strong likelihood that the expansion projects do proceed. However, we expect negotiations to continue around the sequence of gas production, tolling charges, and attribution of capital between plant and field.

 

All the JV partners will benefit from the Burrup Hub plans, although Woodside will clearly see the highest value uplift. This is because the plans are based on backfilling the plants from fields where Woodside has the greatest interest.

 

  • In the case of the NWS project, tying back Browse is likely to be the best option for the JV because the field is big enough to support an 11.4Mtpa pipeline to the plant. This infrastructure could then open up other fields to backfill the plant at a later date.

     

  • For Pluto, Scarborough is likely the most viable option to extend plant life. However, BHP Group (BHP, Hold), which owns 25% of the field, does not have any interest in the Pluto plant, although it does have a stake in the NWS project. Therefore, it is likely that BHP would prefer that Scarborough gas goes through the Karratha plant.

 

Overall, we estimate Woodside’s attributable value in the North West Shelf and Browse assets will increase by almost 100% under the base-case Burrup Hub plans outlined by the company. However, this could also mean it needs to concede ground to get the projects sanctioned. We estimate the value of Woodside’s share of the NWS project at US$4.7bn, Browse at US$2.1bn, Pluto at US$12.9bn and Scarborough at US$1.9bn. We maintain our Hold recommendation with a $32.50 target price.

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