* Pluto project now 12 months behind original schedule
* Project costs climb almost $1 bln to $15.7 bln
* Weather, design fault largely to blame, shares down 4 pct
(Recasts, adds analyst quotes, context)
By Mark Bendeich and Rebekah Kebede
SYDNEY/PERTH, June 17 Australian energy firm
Woodside Petroleum delayed the planned start-up of its
flagship Pluto LNG project by another six months, reported an
almost $1 billion cost blowout and trimmed its overall
production guidance for the year.
The first LNG shipments from Pluto are now scheduled for
March 2012, a year behind the original target, and costs are
seen rising by A$900 million to A$14.9 billion ($15.7 billion)
as a design fault and weather-related issues delayed the
project, Woodside said on Friday.
The delay comes at a time when gas firms worldwide are
racing to develop LNG projects and capture a wave of demand from
Asia and Australian LNG projects are facing rising labour costs
"The history of these projects are that they always take
longer and they cost more than project proponents have hoped ...
there's no question that the cost of LNG projects constructed in
Australia is high, it just goes with the territory," Jeff
Barker, a partner at Resource Investment Strategy Consultants
(RISC Pty Ltd), said.
The difficult environment and remote locations of
many of the Australian LNG projects and some productivity issues
may influence the ability to bring projects on time, Barker
The 4.3 million tonne per annum (mtpa) Pluto project,
developing gas fields offshore of the northwest Australian
coast, was previously scheduled to produce its first LNG cargo
in September, which was a delay from an original target of
March. Woodside blamed a design flaw and labour shortages for
some of the previous delay.
Woodside shares fell almost 4 percent after news of the
latest delay in their sharpest daily fall in seven months.
Analysts said the repeated delays might foreshadow some of
the challenges ahead for the A$200 billion worth of proposed LNG
projects in the pipeline in the country.
There are currently plans to double Australia's LNG
production from around 20 mtpa currently to 40 mtpa online by
2015, although analysts are skeptical due to a history of delays
and cost overruns like Pluto's.
Woodside started building Pluto at a time when Australia had
essentially no LNG projects underway and there was no direct
competition for resources. But the situation has changed now
with several projects being built concurrently, triggering
competition for labour and other resources.
"When we do go ahead with Wheatstone, Prelude, the Gladstone
projects, Ichthys, Pluto expansions, Gorgon expansions... it
really does raise questions as to how are we (Australia) going
to cope? And how optimistic are we with all these timetables and
costs?" Johan Hedstrom, an analyst with Southern Cross in Sydney
said, naming a few of the projects either currently beginning
construction or slated to go forward soon.
"It's a little bit nerve-wracking for companies that are
putting on new greenfield projects."
Australia's LNG projects are already among the most
expensive in the world, costing between $6 and $8 per million
British thermal units (mmBtu), while most non-Australian
projects cost less than $6 per mmBtu.
"Perhaps Woodside and other companies in the same position
haven't quite got their head around the costs involved ...
there's a lot of pressures on them to come up with the goods and
in doing that they might not be as conservative as they can be,"
said Peter Kopetz, an analyst with State One Stockbroking in
Woodside also trimmed its company-wide 2011 production
target to between 62 and 64 million barrels of oil equivalent,
down from between 63 and 66 mmboe.
Although Australian projects may have more delays, this one
is likely to be the final one on the Pluto project and the new
start-up estimate is likely a conservative one in part due to
the new leadership at Woodside, analysts said.
Woodside's newly appointed chief executive Peter Coleman,
who took over from former Woodside chief Don Voelte in May, is
likely unwilling to take any chances given Pluto is his first
major project as chief, industry watchers said.
"We think this announcement represents the final delay in
Pluto 1 and would not be surprised to see Woodside deliver a
start up slightly earlier than announced today," said Neil
Beveridge, an analyst with Bernstein Research said.
Some analysts pointed out that while the project has had
extensive delays, the timeline for Pluto was relatively
aggressive for industry standards.
"Assuming Woodside's March target is met, first gas will
have been achieved in less than seven years from discovery,
compared to other LNG projects across the world that timeline
remains impressive," Craig McMahon, an analyst with Wood
Mackenzie in Perth said.
($1 = 0.947 Australian dollar)
(Reporting by Mark Bendeich and Rebekah Kebede in Perth;
Editing by Ed Davies and Balazs Koranyi)