According to The Australian Financial Review today, cost reductions in project design and contracting have allowed Woodside Petroleum and partner Mitsui to give the green light for a new $US1.9 billion oil project off Western Australia, despite the slump in oil prices.
The 69 million barrel Greater Enfield project, which lies 60 kilometre off Exmouth, will involve a development cost of less than $US28 a barrel, making it "an attractive project in a low price environment," said Woodside chief executive Peter Coleman, who in April flagged a likely final go-ahead decision about the end of June.
Woodside's $US1.1 billion share of the total cost is less than the circa $US1.2 billion that some analysts had been assuming. Still, it will probably require about $US57 a barrel to break even, a price that is higher than current spot prices and so making it relatively high risk, said Credit Suisse analyst Mark Samter.
"This project enhances the value of our portfolio through low production costs, associated high cash margins and monetising contingent resources," Mr Coleman said. "We are using our strong capabilities and balance sheet to prudently progress attractive investments."
The project had earlier been deferred and the design reworked to take advantage of using an existing production ship operating at the Vincent oil field nearby, and in a phased development that involves initially recovering about two-thirds of the oil in the fields. The decline in drilling and equipment cost due to the soft oil price also improved the cost competitiveness of the project, said Mitsui, which owns 40 per cent.
"These factors have led to our view that economic feasibility of the Greater Enfield Project can be sustained even under prolonged current market conditions, and therefore to our decision to commercially develop these reserves," Mitsui said from Tokyo.
Production is due to start in mid-2019, with the crude expected to be marketed jointly with Woodside through Mitsui's trading arm in Singapore, just as for Vincent.
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