Global Insight Perspective | |
Significance | Cyclone Isobel has forced operators up and down the coast of Western Australia to halt crude production. The Woodside-operated Cossack Pioneer and Legendre fields, as well as Santos's Mutineer-Exeter field are amongst those that have been shut in as a result of the storm. |
Implications | The loss of upwards of 162,000 b/d in capacity represents a substantial disruption to Australia's daily oil production. Isobel was a comparatively weak storm, receiving only a one-point rating out of five. |
Outlook | The shut-ins are expected to be short-lived, with full production expected to resume by the end of the week at the latest. Australia's offshore oil and gas industries and the markets they serve will remain vulnerable to seasonal disruptions of this sort. |
Upstream Exposure
Upstream operational breakdowns at the hands of seasonal storms have been an issue of major consequence over the past year (see "Related Articles") and the vulnerability of Australia's upstream industry to disruption has been made plain yet again today. The first tropical cyclone of the year, Isobel, hit Western Australia late yesterday evening.
Although relatively weak—Isobel only received a one-point rating on the five-point scale of storm severity—the cyclone has still resulted in a shut-in representing almost half of the country's crude production capacity. Leading domestic independents, Woodside Petroleum and Santos, have reported at least 162,000 b/d of offshore oil production at some of the country's major fields as currently out of commission. The most notable sites affected by the cyclone include Woodside's 100,000-b/d Cossack Pioneer field, and Santos's 55,000-b/d Mutineer-Exeter field.
The prognosis for supply disruptions is not as dire as one might expect. Certainly, it is not to the degree seen earlier this year. The storm has weakened after making landfall this afternoon, and while the high winds expected may well play havoc with local weather across Australia, offshore operations should be able to resume without much delay. Woodside is particularly optimistic that it will be able to resume production at Cossack Pioneer, Australia's largest crude field, at some point today, with full capacity due by tomorrow. The Legendre field that Woodside operates is set to come back onstream by the end of the week, while Santos has yet to outline its timetable for the resumption of production at the Mutineer-Exeter field.
Outlook and Implications
Some of Australia's leading offshore production sites were left unscathed by this cyclone. They include Woodside's North Rankin and Goodwyn offshore natural gas platforms. However, the underlying prospect of widespread disruption must remain a concern for operators and offtakers alike. They've been lucky this time. The temporary knocks taken by share prices, such as those seen today with Woodside down 1.6% to A$37.68 (US$29.91) and Santos losing 1% of its share value in trading to close at A$9.79, will balance out over time given the fundamental strength of the companies' portfolios. Still, incidental losses are sure to follow the interruption seen. For consumers, the shut-in may well support higher prices at the pumps.
The worst possible implication could register in foreign investment. It is in the country's offshore basins that the greatest upside for oil and gas exploration is to be found, and yet little can be done to offset the risk to operations that are faced year by year. The commerciality of some prospective developments in Australia's north and westerly offshore basins cannot help but be negatively affected by the promise of the shut-ins that have to be expected from the annual cyclone season.
Related Articles
Australia: 1 March 2006: Cyclones Shut In Further Offshore Production in Australia
Australia: 23 January 2006: Cyclone Daryl Prompts Shut-In by Australian Offshore Producer
Australia: 9 January 2006: Tropical Cyclone Clare Shuts in Western Australian Oil and Gas Production