Don Voelte, chief executive of Woodside Petroleum. Photo: Erin Jonasson
WOODSIDE Petroleum says costs on its Pluto liquefied natural gas project off Western Australia have blown out by up to $1 billion.
The global energy giant said a recent review showed that the $11.2 billion Pluto project, which is 82 per cent complete and is set to deliver its first gas in 2011, would now cost between 6 and 10 per cent more than estimated when a final investment decision was reached in July 2007.
That would mean an increased capital cost to Woodside of between $600 million and $1 billion for its 90 per cent stake.
''The expected increase in cost is due to lower-than-budgeted productivity in both onshore and offshore construction,'' the company said in a statement to the Australian Securities Exchange.
Shares in Woodside fell $1.41, or 2.8 per cent, to $48.69, as the broader market slipped 1.3 per cent lower.
Investors were prepared for the possibility of a cost blow-out after Woodside had said in August, when releasing its interim results, that the next six months would be critical for capital expenditure.
Analysts expressed concern, though that, as more contracts were rolled out for the rival $43 billion Gorgon project, Woodside's ability to boost Pluto could be under threat.
Woodside chief executive Don Voelte outlined plans in August to triple production output from Pluto by 2014, with front-end engineering and design work currently under way on two additional trains of LNG.
That would mean that three Pluto trains would be in progress before the Chevron-led Gorgon project produces first gas.
Deutsche Bank said it was ''not entirely surprised'' by Woodside's announcement but said it was likely to intensify competition between the two major west-coast LNG developments.
''We are concerned this could imply the company is struggling to source sufficient and appropriate skilled labour, an issue that could impact the planned expansion of Pluto given the Gorgon project is likely to strongly compete for skilled labour,'' Deutsche said.
It said risks of further blow-outs appeared low but that ''we will await the company's investor day [on Tuesday] for details on CY10 [2010] funding''.
''We have assumed a 10 per cent increase in total capital expenditure to $12.32 billion,'' Deutsche said.
Standard & Poor's put Woodside on creditwatch, saying it expected a more conservative funding approach for large-scale growth projects.
