Resources: Woodside Sold Off Again On Pluto Woes Worries

Another rough day for Woodside Petroleum with the company's shares hitting a new 52 week low of $39.87 as investors continued to sell after Friday's shock cost blow out and delay to its Pluto LNG project in WA.

At the same time world oil prices continued falling, taking the drop in the past three weeks to more than 11%, another reason why Woodside shares have been falling recently.

Global oil prices fell under $US92 a barrel for West Texas Intermediate and to around $US112 for Brent type crude.

The shares fell 2.2%, or 89c, to $39.91 yesterday, on top of Friday's drop of 3.8% or $1.61.

But the gas project problems remained the major catalyst for a nervy market.

There's now a six-month delay before first cargoes of LNG are shipped from Pluto, and an extra $900 million in costs.

The first cargoes of LNG are now expected to be shipped to Japanese customers Kansai Electric Power and Tokyo Gas next March, whereas shipment was originally planned for this September.

The $900 million overrun will take Pluto's costs to an estimated $14.9 billion, up from the original $11.2 estimate when the go-ahead was given in 2007.

Woodside said the project was "95 per cent plus" complete in December of last year and former CEO Con Voelte told the AGM in April:

"The final project which I wish to mention is Pluto, where construction will soon come to an end. The commissioning process is already underway across the plant.

"Pluto has not been without challenges but, when Woodside's performance is matched against the performance of recent projects built by many of our peers, it's world-class and there are plenty of reasons for Woodsiders to feel proud. "

There was no inkling of any more delays and the first quarter production and exploration report, issued a day earlier said: "Pluto LNG Foundation Project: has transitioned to an 'operating' site with the introduction of natural gas into the plant in early March. Start up is targeted for August 2011 and LNG one month later".

Nor did the former CEO make any reference to delays or cost overruns in a number of departure interviews he gave to various media outlets.

While many analysts had expected a revision, some were surprised at the size of the overrun and the extent of the delay.

According to Macquarie, the additional $900 million in costs means the project will cost 24% more than the original budget, and suggested that Woodside may need to close a near-term funding gap of about $1bn in order to maintain its BBB plus credit rating from Standard & Poor's.

(Moody's put the company's debt on a negative outlook on Friday afternoon, after the announcement of the delay and overrun to the ASX.)

"While S&P has historically shown leniency with delays to Pluto start-up, it may now take a firmer approach, especially with Pluto 2 and Browse apparently close to sanction as this shortfall could grow," said Macquarie analyst Adrian Wood.

"As a result, we do not think a second equity raising to fund Pluto over-runs can be ruled out."

At the time of a big gas strike at the Xeres well, Woodside was talking about a final investment decision on its major expansion of Pluto (or Pluto 2) by the end of the year and the final call for its Browse LNG development by the end of 2012.

Now those are up in the air, according to analysts.

It is instructive that the announcement was the first major statement from Woodside's new CEO Peter Coleman who is in his fourth week in the job after taking over from Mr Voelte.

For that reason this could be a 'cleaning of the decks' by the new man in charge after the old one has gone. It happens all the time in corporate life, especially in listed companies.

Pluto's progress has been delayed several times in the past as Woodside handled strikes by construction workers, a shortage of skilled labour and the reinstallation of gas flare towers that weren't cyclone-proof.

On Friday, Woodside said the delay has been caused by seven weeks of bad weather and "slower than expected progress" on the commissioning of the onshore LNG plant, suggesting that final adjustments have had to be made following a final checking process.

"While we would like to start up the project as quickly as possible, we will not be doing so until we are satisfied the commissioning work has been completed in a thorough and safe manner," Mr Coleman said.