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Browse floating LNG gains traction

Woodside is increasingly confident on a Browse floating LNG (FLNG) final investment decision in late 2016

Browse has moved into front-end engineering and design (Feed) as Woodside is optimistic that costs can be cut to competitive levels. It is eyeing a breakeven return on capital at current oil prices and a long-term return of 12%-15%.

The Perth-based operator signaled that it could slash upstream costs by 20%-30%, although downstream costs remain too high.

“On the downstream, we still have work to do, and we needed to get into the Feed part of the project to knuckle down on that work and firm up what we can do with respect to the construction costs in the yard in Korea and getting efficiencies as best we can,” the company’s chief executive, Peter Coleman, told shareholders.

Woodside is targeting an investment decision in mid-to-late 2016, which Coleman said would “line up nicely” with completion of activities on Shell’s Prelude FLNG project at Samsung Heavy Industries yard in South Korea.

Earlier this year, Anglo-Dutch supermajor Shell, which is a partner in Browse, said that demand could be an extra hurdle for the project along with costs, although delaying projects is likely to lead to a shortage of oil and gas in five to ten years.

Still, the decision to enter Feed coincides with Shell’s move to order an additional three FLNG vessels, suggesting confidence.

Shell’s chief executive Ben van Beurden has said Browse has the potential to be a very attractive project because “the amount of replication that we can do between Prelude and Browse is very, very significant and there are replication benefits within the Browse project itself because it comprises of three floaters.”

Meanwhile, following the release of first half results Woodside’s balance sheet and liquidity remains strong, with Goldman Sachs estimating available liquidity at $3.2bn. Coleman remains positive on more acquisitions especially in 2016 when it expects more distressed companies to sell attractive assets. Its compatriot, Santos, is one such candidate. Its chief executive David Knox resigned last week, paving the way for a comprehensive asset review.

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