June 17, 2011 / 1:55 AM / 7 years ago

UPDATE 3-Woodside delays Pluto LNG start again as costs balloon

* 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 (Reuters) - 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 and inflation.

“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 said.

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.

AUSTRALIAN CHALLENGES

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 Perth.

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.

FINAL DELAY?

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

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