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Banking on Burma, Woodside Energy powers up

The Australian oil and gas firm Woodside Energy has exploration blocks off Burma's coast. (Photo: Facebook / Woodside Energy)

Burma is the centre of attention for Woodside Energy following the Australian company’s discovery of gas off the coast of Arakan State last year. It is now preparing to invest around 25-­30 percent of its exploration budget in Southeast Asia to help realise the potential of the region.

Headquartered in Perth, Woodside has a global presence and an annual exploration budget of around US$350 million. Asia is a very mature market for oil and gas in terms of both exploration and production as well as market penetration, according to Woodside CEO Peter Coleman.

“Our focus really is on Myanmar at the moment,” he said in an interview with Asia Focus.

“We’re looking at Myanmar for a couple of reasons. One is that we were an early entrant into Myanmar. Secondly, we looked at the geology of Myanmar, particularly the Rakhine [Arakan] basin, and we found that there were potential opportunities there, although it would probably be gas, and we have been successful in acquiring exploration acreage there. We will start a four­-well drilling programme in January of next year.”

Woodside also sees Burma’s economy opening up and requiring more and more energy, while the growth of its neighbouring countries will also drive demand.

“A lot of Myanmar’s indigenous [energy] supply was in fact going to its neighbours and as they use it to grow their economies, it is pretty easy to see that if neighbouring countries are growing at that sort of rate that there is potential for Myanmar to grow at that rate,” Coleman said.

Woodside is also looking at the possibility of supplying oil and gas in Indonesia. The Thailand market, on the other hand, is ”pretty well full,” he said.

The company has a knowledge­-sharing partnership with PTT Plc but there is no direct business between the two companies.

“This is a good example of where collaboration can actually work even when companies are not doing business together,” he said.

Despite the low prices that have challenged the industry for the past two years, Coleman said some companies have been doing ”quite well” by changing the way they operate. The upside is that low oil and gas prices make the conventional fuels more competitive as energy sources.

“As markets grow, people are looking more and more toward oil and gas, particularly gas in Asia as an energy source, whether it be for transport fuel or for industry, so I would say that if there is a positive out of low prices, it means the energy we produce is now more affordable to a lot of Asian markets and we are starting to see people switch fuels and go more and more toward gas,” he said.

“For us it is not about surviving, it is about making choices and designing a business plan where you make long-­term choices to ensure that if the oil price does go low, then your business is still strong. For us that is the conscious choice of the company, that we chose not to do something when prices were high simply because if prices did go low, then it would have been difficult for us as a company.”

That prudent approach to a highly cyclical commodity market has allowed Woodside to maintain a strong balance sheet and still pay some $7 billion in dividends to their shareholders over the past five years. It has maintained its 80 percent dividend payout ratio in 2016.

In 2015, Woodside produced 92.2 million barrels of oil equivalent (MMboe) while reducing its break­even cash cost of sales to $11 per barrel of oil equivalent, representing a 22 percent reduction from 2014. Nevertheless, production in 2015 was actually 3 percent lower than in 2014 and sales revenue was down 36 percent on lower prices. The average price of Brent crude last year was $53.60 a barrel, 46 percent lower than the year before.

The company expects to produce between 92 million and 95 million barrels this year, as it is among the few oil and gas companies that have continued to invest in new exploration ventures even as global oil prices were sinking. When the cycle picks up again, Woodside will be in a good position to make more investments, said Coleman.

Its acquisitions last year included the Wheatstone LNG project (a pipeline and onshore plant located near Onslow in the Pilbara region of Western Australia); the Balnaves oil field in the Carnarvon basin offshore northwest Australia; and the Kitimat LNG project in northwestern British Columbia in Canada.

The company is also preparing to invest $2 billion in the Greater Western Flank Phase 2 (GWF­2) project with the initial startup expected in the second half of 2019. It is the fourth major gas development in the North West Shelf (NWS) area off Australia in the past seven years. NWS represents a total investment of more than $34 billion and is a joint venture involving six major international companies including Woodside, which has a 16.67 percent stake.

Other partners include Chevron, BP and Shell.

The icing on the cake last year for Woodside was the discovery of gas in Block A­6 in the Arakan Basin.

Woodside has also been using the lower-­price environment to drive down costs to enable cost­-competitive development opportunities, said Coleman.

“With respect to cost-cutting and getting more efficient, we are no different from anybody else in the industry, where we went through a very large cycle and inefficiency grew into our businesses, so we have to take stock and go back and reflate by cutting those inefficiencies out,” he said.

Shell has been cutting thousands of jobs around the word this year after reporting an 87 percent slump in its annual net profit to $1.94 billion in February. Woodside and other Australian oil and gas companies, including Origin Energy and Santos, have also shed hundreds of employees in the past year as they adjust to the sharp fall in earnings.

But Woodside’s appetite for investment is still apparent as it acquired a 65 percent stake in a production­sharing contract off Senegal and Guinea­ Bissau in February 2016. The deal could increase contingent resources by 230 percent in a “best estimate,” it said. It is also adding more natural gas assets to its 8.7 trillion cubic feet in Australia after a deal worth $250 million with BHP Billiton in November. Meanwhile, the Wheatstone LNG development, a flagship for the company, is expected to start operations by mid­2017.

If Woodside finds something in Burma that is in line with its development plan, it will definitely pursue the opportunity there, said Coleman. The next two years, he said, would be “very important in Myanmar” as the company starts drilling in blocks that were awarded in 2013 and 2014.

“The next two years will be very important to see if there actually are resources there that are commercial and then we will work through the commerciality part of it,” he said.