Australia's Woodside takes $4.37 billion impairment loss on low oil and gas prices

Singapore — ASX-listed Woodside Petroleum will record $4.37 billion in post-tax impairment losses and provisions in its oil and gas producing and exploration assets due to the crash in energy prices and current economic climate, it said July 14.

Australian oil and gas producer Woodside's write-downs in hydrocarbon asset values are in line with recent moves by oil majors like Shell and BP which have written off billions of dollars from their asset valuations in recent months.

Woodside said it will recognize non-cash, post-tax impairment losses of $2.76 billion for oil and gas properties and $1.16 billion for exploration and evaluation assets in its financial statements for the half-year ended June 30, 2020.

It will also take a non-cash, post-tax contract provision of $447 million for its Corpus Christi LNG sale and purchase agreement. Woodside, which has a long-term deal to buy LNG from Corpus Christi in the US, said the provision "reflects more closely connected global gas markets and Woodside's view of likely reduced margins available between North American and other gas markets."

"Approximately 80% of the oil and gas properties impairment losses are due to the significant and immediate reduction in oil and natural gas prices assumed up to 2025, impacting Woodside's products in the prevailing economic climate," Woodside said in a statement.

It assumes a Brent oil price of $35/b and spot LNG price of $3/MMBtu for the second half of 2020, $44/b Brent and $4.4/MMBtu spot LNG for 2021, and $55/b Brent and $6.3/MMBtu spot LNG for 2022.

Woodside said the write-downs were also due to increased uncertainty over longer-term demand due to the pandemic and the risk of higher carbon pricing, although it noted opportunities exist in hydrogen and LNG in a decarbonizing world.

"The unique confluence of events that has unfolded through 2020 will challenge all participants in the global energy sector and we expect to see adjustment of capital allocation priorities by other asset owners as the cycle plays out," CEO Peter Coleman said in a statement.

The $2.76 billion post-tax impairment on oil and gas properties includes $980 million for Wheatstone LNG, $840 million for Pluto LNG, and $320 million for North West Shelf, which are some of Australia's largest LNG projects.

The remainder is split between the Okha FPSO and Ngujima-Yin FPSO in Western Australia, and the Sangomar development in Senegal that was recently reported to have faced delays. The $2.76 billion impairments are all due to revised oil price assumptions.

Out of the $1.16 billion post-tax impairment on E&P assets, the largest was $810 million for Kitimat LNG in Canada that was changed to a standalone LNG facility with different accounting requirements, Woodside said.

The impairments have also reduced Woodside's proved plus probable (2P) reserves from 1.213 billion barrels of oil equivalent to 1.090 billion boe, and proved (1P) reserves from 871 million boe to 780 million boe.