THE AUSTRALIAN FINANCIAL REVIEW
07 Dec 2011
Dan Hall and Peter Kerr
Western Australia’s largest proposed resource development, the $30 billion Browse liquefied natural gas development off north-western Australia, has been dealt a blow after the WA Supreme Court determined that state government actions to secure land for a proposed gas hub at James Price Point were unlawful.
The decision will put pressure on Woodside and its partners BP, Chevron, BHP Billiton and Royal Dutch Shell to push back a final investment decision on the project from the proposed mid-2012 schedule.
Woodside issued a two-line statement saying it did not believe the decision would delay the Browse project, but washed its hands of the issue.
“The provision of the land for the Browse LNG Precinct is a matter for the state [government],” a Woodside spokeswoman said.
“We do not believe that this result will impact on the project schedule.”
However, shareholders and analysts took a more pessimistic view as another $560 million was wiped off Woodside’s market value.
Daiwa Securities analyst David Brennan questioned whether the project would now go ahead.
“We know so little about where they are in this process and that’s one of the biggest reasons why Woodside’s share price is always going to be under a cloud,” Mr Brennan said.
“I don’t understand the comment that this won’t impact Woodside because it clearly would. Maybe Woodside doesn’t want to do the project and this will make the decision for them.”
Woodside has a 47 per cent stake in the Browse development and was planning to be in a position to make a final investment decision by mid-2012. The company had decided to progress with a controversial plan to process gas from Browse at the James Price Point site near Broome rather than piping gas to the North-West Shelf venture, where its partners are already stakeholders.
The plans to press ahead with the proposed gas hub had attracted strong protests from locals concerned about the environmental impact.
On June 30, a native title agreement was executed between Woodside, the state government and the Goolarabooloo Jabirr Jabirr native title claim group to enable the development to go ahead. The state government issued three land acquisition notices to landowners so the Browse proponents could develop James Price Point. But Chief Justice Wayne Martin said yesterday the notices were unlawful because they did not contain a description of the land required.
Justice Martin said his declaration did not prevent WA Lands Minister Brendon Grylls from issuing further notices of intention to take land.
West Australian Premier Colin Barnett attempted to brush off the significance of the win. However, in doing so he revealed there could be a six-month delay to the project.
“It won’t hold up the development, in my view,” he told reporters in Geraldton yesterday.
“The companies are yet to make a final investment decision. They will probably get to that point in 12 months’ time. So there is plenty of time to reissue these documents.”
Mr Barnett said the government would simply move to reissue notices to get around the court’s decision.
“When the original notice of intent to acquire the land was issued, an area of some 7000 hectares was delineated,” he said.
“What the court said is you have to identify the exact 3500 hectares. That can be done, it will be done.”
But Bell Potter analyst JohanHedstrom said the Supreme Court’s decision was just one of many uncertainties hanging over Browse.
“We don’t have a commitment to make the investment decision, only a commitment to be in a position to make a final investment decision,” he said. “There are a lot of hurdles before the project can go ahead.”
The Supreme Court’s decision is the latest damaging incident that has wiped billions off the Woodside’s market value.
On November 25 Woodside disappointed investors with its 2012 production outlook and lack of progress on major growth projects.
Decision may give Woodside excuse to ditch plan
Comment: Angela McDonald-Smith
The vision of an LNG export hub on the Kimberley coast, held dear by former Woodside boss Don Voelte and WA Premier Colin Barnett, is looking as if it might remain just that, a vision.
Yesterday’s court decision will only undermine the project’s already fragile momentum with the all-important LNG buyers. For potential gas customers, aware of the discord between the Browse partners over the onshore site, nervous about rising costs of greenfield LNG projects and spoilt for options on supply given the wave of new projects, there are few reasons to commit to a long-term contract for Browse gas.
While Woodside was insisting yesterday that its targeted schedule for Browse remained unchanged – that is, to be ready to take a final investment decision in mid-2012 – in reality a go-ahead in that time has looked unlikely.
The Browse partners have about 12 million tonnes a year of LNG to sell – a lot in anybody’s book – and the only sign of interest from customers over the past five years has been a preliminary sales accord with Petrochina, since expired, and another with Taiwan’s CPC Corp, which has never been firmed up.
The huge cost of the project – put at $35 billion or more by several analysts – is also a concern given its place well down the queue of LNG development projects makes it more susceptible to cost overruns and delays. Some of Woodside’s partners, most notably BHP Billiton, have also highlighted the significant technical challenges the project faces. Whatever Woodside says, yesterday’s ruling provides yet another hurdle for an already severely challenged project and must shorten the odds that gas from the Browse fields will eventually be processed at Karratha instead of James Price Point.
The longer the delay in developing the gas, the weaker the economic argument in favour of James Price Point becomes. Using Browse gas as “backfill” for the North-West Shelf venture could only see it commercialised post-2020, but in a lower risk, cheaper project.
This latest development may just provide Woodside’s new boss, Peter Coleman, with an excuse to ditch the James Price Point plan, presumably to sighs of relief from his partners, not just environmental groups.