woodside hits another mauritania snag

UPDATE:Australia's Woodside Hits Another Mauritania Snag


By Stephen Bell Of DOW JONES NEWSWIRES PERTH -(Dow Jones)- Australia's Woodside Petroleum Ltd. (WPL.AU) hit another snag Thursday at its emerging Mauritania oil province, revealing it may be forced to downgrade reserves at the US$750 million Chinguetti field.
It is the second disappointment for Woodside inside a month, after the Perth-based company downgraded its overall 2006 production forecast by 5%, mostly because of problems at Chinguetti which was once tipped to hold 120 million barrels.
Woodside also flagged a cost increase at its A$2 billion North West Shelf liquefied natural gas expansion in Western Australia as it struggles with rising labor and materials charges.
Shares in Woodside, which is 34% owned by Royal Dutch Shell (RDSB.LN), fell 4% to A$43.90, compared with a 2% rise in the broader market. The stock reached a low of A$44.39 soon after the Mauritania problems were revealed in Woodside's second quarter production report. Shares in Hardman Resources (HDR.AU), a junior partner in Chinguetti, fell 7%.
Woodside said that Chinguetti production has deteriorated since the field's February startup, forcing it to review reserves. It also warned that the production slide will continue in 2006 "unless further well intervention takes place".
Gordon Ramsay, an energy analyst with UBS, said that investors reacted nervously to the downbeat news about Chinguetti, which is Woodside's first attempt at operating a major overseas oilfield.
"This review could lead to a reserves downgrade, which would affect valuations," Ramsay told Dow Jones Newswires.
Discovered in 2001, Woodside owns 47.4% of Chinguetti, which was originally forecast to produce 75,000 barrels a day. Production has fallen to half that because of problems at two wells. At the start of July, daily gross production was around 37,000 barrels, down from an average of 41,549 barrels in the second quarter and 59,247 barrels in the first quarter.
A Woodside spokesman said the company plans to drill up to three in-fill wells in the second half, although the details are yet to be finalized.
Ramsay from UBS said that the extra wells are unlikely to contribute to production until late this year "at the earliest". Chinguetti was a key factor, along with weather-related problems in Australia and the Gulf of Mexico, in Woodside cutting its calendar 2006 production forecast by four million barrels to 72 million barrels of oil equivalent.
Faces Cost Blowout At North West Shelf Project The review of reserves at Chinguetti, which will include an updated development plan, is Woodside's latest setback in the West African country.
In March the company settled a dispute with the Mauritanian Government over production contracts, but in May was forced to deny allegations from an Australian Greens Senator that it bribed a Mauritanian foreign official. An Australian Federal Police spokesman said the bribery allegation remains under investigation.
Woodside is also fighting rising cost pressures caused by a China-driven mining and energy boom in Australia. In particular, it said Thursday that a "comprehensive cost review has been initiated" on the expansion of the Woodside-operated North West Shelf, scheduled to make its first shipments in the first quarter of 2008.
The review is due to be finished before the end of September. "It looks like Train Five will cost a bit more (than forecast)," UBS's Ramsay said, referring to the next LNG production plant.
However, Woodside believes that the rising costs will be offset by strong LNG prices and a regional supply shortfall from 2008 to 2012.
Chief executive Don Voelte is racing to capture that market opportunity via Pluto, the company's 100%-owned LNG project that some analysts forecast may cost around US$6 billion.
Recent appraisal drilling has lifted Pluto's gas resources by 14% to 4.1 trillion cubic feet. Woodside said the project remains on schedule to ship its first LNG to foundation customers, Tokyo Gas and Kansai Electric, by late 2010.
Woodside reported record sales of A$848 million for the second quarter ended June 30, up 27% on the year-earlier A$666 million, driven by high energy prices.
Production rose 8.8% from the first quarter to 15.6 million boe from 14.3 million boe. However, compared with the second quarter of 2005, production was down 1.4%.
Investment bank Goldman Sachs JB Were said the second quarter was disappointing as it was "below our expectations at both the production and revenue line". Macquarie Bank said the production was "obviously lower than forecast and we anticipate an earnings downgrade on further review".
-By Stephen Bell, Dow Jones Newswires; 61-8-9245-6408; [email protected] -Edited by Ian Pemberton Order free Annual Report for BP plc
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