It has been a long, long time coming, but it finally looks like Woodside Petroleum Limited's (ASX: WPL) Browse floating LNG project (FLNG) could happen.
Woodside announced last week that the mammoth project involving partners BP, Shell and a Japanese joint venture, would advance to the front-end engineering and design (FEED) phase which basically puts together a detailed plan and budget to develop the off-shore energy reserves.
So what does the project mean for Woodside? Does it make the company worth buying?
Long-term potential
Woodside's 30.6% stake gives it access to an estimated 4.7 trillion cubic feet (tcf) of dry gas and 138.6 million barrels of condensate (a type of super-light, gassy oil).
That sure sounds like a lot of gas! To convert this gas into something more meaningful, say an equivalent number of barrels of oil, we can divide the 4.7 trillion by 5.7 billion. This is the conversion rate Woodside uses per 1 million barrels of oil and gives us an answer of 824 million barrels of oil equivalent (mmboe).
That is slightly larger than the Proved plus Probable, or '2P', reserves held by Woodside's current flagship Pluto LNG at 4.4tcf (both developed and undeveloped). However it's important to note that the Browse resources are classed as 'contingent' which is a wider estimate for potentially recoverable energy compared to the more pre measure of 'proved' reserves.
Since Woodside's entire production for the full year 2014 was 95.1mmboe across all its producing projects, Browse represents a sizeable asset which will sustain long-term production.
But at what cost?
Woodside has been pretty quiet on its cost estimates for the project which had previously been delayed for being uneconomic. Estimates for a FLNG facility hover around $40 billion in which case the bill for Woodside investors would be around $12.24 billion.
Costs are clearly in the gun for Woodside which noted that the project will seek to make use of existing infrastructure "to support an efficient and cost effective supply chain."
Woodside has currently committed to around US$500 million of capital expenditure per annum between 2016 and 2018, but a green light on the Final Investment Decision (FID) for Browse would push that up significantly from 2017.
Time to buy?
Despite the potential for Browse to sustain Woodside's long-term production I wouldn't buy Woodside today for the Browse project alone. The project is ultimately still uncertain with a long and risky road ahead before any gas starts flowing.
