Woodside’s rough 2006 has ended on a bright note with the company finally meeting its reduced production goals, but this has come at a cost.
The coming year looks much tougher than 2006 did a year ago: oil price volatility is still with us and the trend is still pointing down. It fell to within sight of $US 50 a barrel in New York yesterday after a short rise the day before.
That’s the lowest since May 2005.
Woodside’s costs look higher, thanks to the new drilling campaign needed in the Enfield field on the North West Shelf and the less than stellar efforts of the Chinguetti field off the West African coast.
But it is intent on expanding exploration and is moving towards approval of the huge multi-billion dollar Pluto LNG project.
But 2006 could have been a year that was so much better for the company.
It started optimistically with a forecast of production for the 12 months of 76 million barrels of oil equivalent (thanks to the Enfield project starting and Chinguetti ramping up). But that was to remain just a forecast and it was cut once to 72 million barrels and a second time in the second half of the year to the range 67 million to 68 million barrels of oil equivalent.
Woodside’s said that full-year output reached 67.9 million barrels, matching the second recasting of the forecast in November when the company promised investors that it would lift its game.
Full-year sales jumped 39 per cent to $A3.810 billion, thanks to that 14 per cent increase in production and higher oil prices.
But it could have been so much better. Based on the full year sales and production figures Woodies received around $A 56.11 for each barrel of oil equivalent produced.
If production had been able to reach the original forecast of 76 million barrels of oil equivalent, then gross revenues would have topped the $4.2 billion mark.
What saved WPL was the surge in world oil prices during the year which saw the price run up to an all time high of $US 78.80 a barrel in New York in July.
That original estimate of 76 MBOE would have been a rise of 27 per cent on a year earlier. The combination of that sort of increase in output and a price rise of 40 per cent or more would have produced an explosion in earnings at the company.
Hopes of that outcome saw the shares chased all the way past $A 49 before the first readjustment of production targets was revealed in around May.
The shares fell, edged higher as the world price jumped mid year and then have tracked the declining world price since then.
Yesterday they jumped firstly on the production report to touch $A36.57 and closed around $36.60, up 90c on the day. They are now around 26 per cent under the all time high but world prices are now 35 per cent off their peak.
The final quarter of 2006 seems to have gone fairly well, almost according top the original script.
Sales jumped to $A 1.1 billion in the three months ended to the end of December from $A 758.9 million a year earlier, while output rose 28 per cent, to 19 MBOE. However sales income was down in the fourth quarter compared to the third quarter because of lower oil prices.
LNG shipments from the North West Shelf venture rose to 57 cargoes in the quarter, five more than a year earlier.
Output at Enfield, 40 per cent owned by Mitsui of Japan started in July and never hit its nominal output figure of 100,000 barrels a day. In fact it averaged a very average 39,892 barrels a day. That’s why the six new holes will be drilled on the field, starting in late March, to bolster production.
Production at Woodside’s Chinguetti field in Mauritania fell to 23,390 barrels a day in the quarter due to natural decline at the field. A new production well started drilling last month, which Woodside says is intended to maintain output at between 20,000 and 30,000 barrels a day. Production started in November, peaked at 75,000 barrels a day and then tumbled.
The shortfalls at Enfield and Chinguetti, detailed above, explain the recasting of the forecasts last year.
More encouragingly Woodside said the expansion of the North West Shelf’s LNG production to add a fifth processing train is on schedule to start shipments in the fourth quarter of next year.
But offsetting that the start-up of the $A 1.1 billion Otway gas project in Bass Strait, delayed from last year, has incurred further costs and a revised start date was not revealed by Woodside.