Woodside Petroleum : Scarborough FID Teleconference Transcript

only	Company:	Woodside Petroleum Ltd
	Title:	Scarborough FID Teleconference Transcript
	Date:	23 November 2021
	Time:	08:00 AWST / 11:00 AEDT

Start of Transcript

Operator: Thank you for standing by and welcome to the Woodside Petroleum Ltd, Scarborough final investment

useyour telephone keypad. I would now like to hand the conference over to Meg O'Neill, CEO and MD. Thank you and please go ahead.

d cision presentation. All participants are in a listen only mode. There will be a presentation, followed by a question-

and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on

Meg O'Neill: Good morning, everyone and thank you for joining us for this investor presentation. It is a pleasure to speak with you on what is a very exciting day for Woodside. I would like to begin by acknowledging the traditional

custodians of the land upon which we are presenting today, the Whadjuk Noongar people, and pay my respects to their personale ders past, present and emerging. I also extend my respect to all other Aboriginal nations, the future generations and

their continued connection to country.

Joining me on the call is our Chief Financial Officer, Sherry Duhe.

We issued two major announcements yesterday. The first one was for the signing of a binding share sale agreement for

ur proposed merger with BHP's oil and gas business, which was first announced on 17 August. The second one was

f r ur final investment decisions for the Scarborough and Pluto Train 2 developments.

I'll address the merger first. Our ASX announcement provides additional detail on key material terms in the agreement. The merger with BHP's petroleum business has a compelling strategic rationale and is a transformative transaction for Woodside. The merger creates a combined portfolio of impressive quality, which is more diversified by product split, more diversified by geography and comprised of complementary, long-life, high margin tier one assets.

The transaction is expected to strengthen Woodside's balance sheet and cash generation, supporting our ability to deliver superior returns to shareholders and providing additional funding for our development pipeline, as well as the energy transition.

ForOver the last two months, in addition to negotiating the share sale agreement, we have also been undertaking integration planning which has increased our confidence in securing synergies from the merger and the seamless inc rporation of BHP Petroleum with Woodside from day one. A joint integration planning team has been established with BHP and we have engaged specialist support as we develop a clear plan, resourced for successful integration from day one.

I'd like to turn now to the investment decisions reached on the Scarborough and Pluto Train 2 developments and the presentation pack. I will provide a brief overview of the approved developments, outlining why this is a landmark achievement for Woodside and BHP, our joint venture partner in the offshore resource. We'll then open up the call to a question-and-answer session. Please note the standard disclaimer on slide 2, advising that this presentation does include some forward-looking statements and that our reported numbers are all in US dollars, unless otherwise indicated.

DISCLAIMER: This transcript has been prepared by a third party for Orient Capital Pty Ltd. It may not be accurate or complete and should be verified directly with the issuer. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information contained in this transcript, including any loss or damage you or a third party might suffer as a result of that use.

Let's start with a summary of what the developments will deliver on slide 3. Scarborough is a world-class resource, a globally competitive project and a game changer for Woodside. The development covers 11.1 trillion cubic feet of dry gas and as a result of the final investment decision, Woodside's overall corporate 2P Reserves has increased by

onlyapproximately 158% to over 2.3 billion barrels of oil equivalent. The development will leverage the existing infrastructure of P uto LNG, expanding Pluto with the new, efficient Pluto Train 2 and new domestic gas infrastructure.

You would've seen last week that we announced Woodside has entered into a sale and purchase agreement with Global Infrastructure Partners for the sale of a 49% interest in Pluto Train 2, resulting in a significant reduction in W dside's capital expenditure for Train 2.

Approximately 60% of Scarborough capacity has been contracted. Scarborough is also an appropriate investment from usea d carbonisation perspective. With approximately 0.1% carbon dioxide in the reservoir and a new, efficient LNG train at

Pluto, it will be one of the lowest carbon intensity sources of LNG delivered into north Asia. The significant cash flow will contribute to shareholder returns, and funding of our developments, investment in new energy products and lower carbon solutions.

Slide 4 contains a range of the key project data. The onshore development will process 5 million tonnes per annum of LNG through the new Pluto Train 2 plus up to 3 million tonnes per annum through the existing Pluto Train 1. The development also delivers 225 terajoules per day of new domestic gas capacity.

personalIn August this year, we announced an updated cost estimate of US$12.0 billion on a 100% basis, comprising US$5.7 billion for the offshore component and US$6.3 billion for the onshore component. With the selldown of 49% of Pluto Train 2, Woodside's share of the total capital expenditure has decreased to US$6.9 billion.

The expected returns from this project are significant. Since the cost update in August and the selldown of Train 2, there has been positive movement in the investment metrics of the development. Importantly, the internal rate of return for the integrated development is greater than 13.5%. As I've said before, Scarborough is a globally competitive project with an all-in cost of supply of LNG delivered to north Asia of about $5.80 per MMBtu which benchmarks well against other projects. The payback period is expected to be around six years.

Slide 5 contains a conceptual image of the full integrated development. The offshore development comprises the floating production unit which will develop the large reservoir through eight wells initially and 13 over the field life. Scarborough gas will be transported by a new approximately 430 kilometre trunkline to the Pluto LNG facility near Karratha in the north west of Western Australia. From there, the gas will be processed through the new Pluto Train 2, the existing Pluto Train 1 or the domestic gas facilities.

Onto Slide 6 which provides a more detailed view of the optimised and mature offshore development and shows some key technical information. With the subsea layout providing flexibility for up to 20 wells and the floating production unit

Foralso having allowance for future tiebacks, we have the infrastructure to process other nearby resources.

M ving onto Slide 7. This contains a detailed view of the onshore development. Pluto Train 2 will run on Optimised Cascade technology operating on a lower emissions intensity and we have already awarded the engineering procurement and construction contracts to Bechtel. The onshore development utilises the existing shared infrastructure from the Pluto foundation project and we will make some plant modifications and upgrades to support the processing of Scarborough gas. The existing world class Pluto LNG facility has proven high reliability and we expect minimal disruptions to the existing operations with these modifications.

If we move to Slide 8, it is increasingly important that new developments contribute to a lower carbon future. The Scarborough gas field contains only around 0.1% carbon dioxide so reservoir carbon emissions are very low, especially in comparison to other Australian projects. Onshore, the proposed design of Pluto Train 2 will have a lower greenhouse

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gas intensity compared to the international average and Australian average. We expect that LNG produced from Scarborough will be a contributor to the decarbonisation efforts of our customers in Asia, particularly given the increased push away from coal.

onlyYou'll see on Slide 9 that we have been hard at work reducing our emissions through our design of facilities. Designing out emissions is always our first preference and one of the three key pillars of our decarbonisation strategy. In many cases, it not only reduces emissions but also cuts costs and increases production of saleable gas. For example, the waste heat recovery process in the offshore design eliminates fired or electrical energy sources for the closed loop heating system. This leads to a saving of approximately 27 kilotonnes of CO2 equivalent every year. These design improvements add up and we are also investigating a number of other opportunities to reduce emissions such as Woodside's proposed solar project near Karratha.

useI want to emphasise the points that we can both develop Scarborough and achieve our emissions reduction targets. We b li ve our carbon business will develop at a scale which will allow us to offset sufficient emissions across our business to realise a 15% reduction in net emissions by 2025 and 30% by 2030 even with adding Scarborough production to the portfolio.

Onto Slide 10 which provides supplementary information such as the commercial agreements which underpin the processing of Scarborough gas through Pluto LNG facilities. On the equity sale of Pluto Train 2 announced last week, we are delighted to welcome GIP to the joint venture and we're looking forward to a long and mutually beneficial

personalrelationship.

Importantly, here are some of the accounting benefits of taking the final investment decision. One outcome will be an i crease in useful life for the Pluto onshore assets resulting in a reduction in annual depreciation expense. In addition, we will be able to capitalise borrowing costs from FID to start-up, reducing net finance costs.

M ving onto Slide 11. This is a stylised and indicative graph of what our capital spend will look like for Scarborough across the next five to six years with our first cargo targeted for 2026. The intention of this stylised chart is to demonstrate how peak capital spend in 2023 is matched to some of the key workstreams on the project to give an indication of the integrated project schedule. This capex profile also includes the cost of Train 1 modifications.

The key contractors for the offshore project are McDermott for the FPU; Subsea Integration Alliance for the subsea hardware, risers and flowlines; Valaris for drilling; and Europipe, Boskalis and Saipem for the trunkline pipe. Our relationships with the contractors are strong and we have high confidence in the contracting strategy used for the

roject. As at today, 90% of the total development contractor spend is lump sum or on a provisional sum basis [Clarification: lump sum or on a fixed rate basis].

Onto Slide 12. We are in a strong position as we move into the execute phase of the development. We have taken a Fornumber of steps to mitigate risks, front-end loading the scope definition and execution planning in order to improve

utcome certainty. For example, commodity risk is being mitigated by locking in 75% of steel pricing which will be achieved by the first quarter of 2022 and we have agreed the rise and fall mechanisms for labour costs.

Our primary regulatory approvals to support FID are in place and we have proven experience in working around any dynamic COVID challenges which may occur, particularly given our recent experience developing our Sangomar oil project.

If we move to Slide 13. I want to take this opportunity to once again highlight that the final investment decisions will set Woodside on a transformative path. We are developing a world class resource with 11.1 trillion cubic feet of gas and an 8 million tonne per annum development. We have taken steps to de-risk the developments and are making strong progress as we move into the execute phase, targeting first cargo in 2026.

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The integrated development will provide long term returns with project economics of greater than 13.5% for internal rate of return, a cost of supply of about US$5.80 per MMBtu and an approximate six year payback period. This is expected

onlyto deliver significant cashflow and enduring value to shareholders.

As we look to the future, our customers are looking for affordable, clean energy. The Scarborough developments will be amongst the lowest carbon intensity projects for LNG delivered to north Asia. Importantly, our corporate emission reduction targets remain unchanged. With the proposed merger with BHP's petroleum business underway, final investment decisions for Scarborough and Pluto Train 2 and all of our recent announcements on new energy investments, I am very excited about this company's future. We will continue to maintain this momentum to deliver lower carbon and low cost energy in the decades to come. I'd now like to open up this session to your questions.

useOp rator: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be

announced. If you wish to cancel your request, please press star 2 and if you are on a speaker phone, please pick up the handset to ask your questions. Your first question today comes from Tom Allen with UBS. Please go ahead.

Tom Allen: (UBS, Analyst) Morning Meg and congratulations on the two announcements overnight. I was just hoping you could please clarify the change in the Scarborough economics that are arising from the FID? So the IRR is

150 basis points higher, the breakeven cost to supply to north Asia on a DES basis looks about 15% lower. I just wanted

to confirm if it was the lower capex from the Train 2 selldown driving that change and if you could break out the moving personalparts please?

Meg O'Neill: Well, thanks Tom. Great question. The key driver for the improvement in the economic metrics is the selldown of our participating interest in Train 2. So we've gone from 100% to 51% including the additional funding from GIP of approximately US$835 million, significantly improves our economic metric. So we think it's a very attractive

pr ject.

Tom Allen: (USB, Analyst) Yes, it does make sense. Just making sure there was nothing else missing there. The high level merger terms released overnight refer to certain legacy assets and liabilities from BHP's petroleum business that will remain with BHP. Could you please clarify what these are?

M g O'Neill: Yes, Tom we haven't disclosed any of those specifics. But you'll be aware that BHP has been in the p troleum business for many decades. This is - and they've bought and sold assets over time. So this really just

protects Woodside's shareholders from any assets that might have been sold in the past to ensure that we don't have any exposure [Clarification: Certain liabilities in connection with certain specified assets sold by BHP will remain with

BHP].

Tom Allen: (USB, Analyst) Okay. Okay. Thanks for that. Then just the last one was with Scarborough now sanctioned Forand post-merger, Woodside will own a third of the North West Shelf. Could you just share the plan to better utilise and backfill North West Shelf going forward? So following that five year contract to accelerate Pluto via the Interconnector acr ss to the Karratha Gas Plant, interested also how that new pipeline might be utilised beyond that initial five years?

Meg O'Neill: Yes, it's a great question, Tom, and obviously with the offshore resource being now in decline for North West Shelf, we are very keen to keep the plant as full as we possibly can. So last year, we signed the early ORO agreements between North West Shelf and Pluto and between North West Shelf and Waitsia to be able to start processing gas from those resource owners on a tolling basis through the North West Shelf.

North West Shelf Joint Venture continues to actively solicit gas from other potential shippers. So there is you know more conversations in that way, but the current terms that have been agreed are for that limited time period from Pluto.

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Tom Allen: (USB, Analyst) Okay. Thanks Meg and congratulations again.

onlyMeg O'Neill: Thanks Tom.

Operator: Thank you. Your next question comes from Mark Wiseman with Macquarie. Please go ahead.

Mark Wiseman: (Macquarie Group, Analyst) Oh, yes. Hi Meg. Thanks for taking the question. I just wanted to ask on the reserve booking if you could just clarify. It looks like your 1P booking sort of approximates BHP's P50 number and y ur 2P booking looks like it's the full sort of 11.1 Tcf. Could you maybe just talk through how difficult it is to estimate resource size at the field and what the key drivers will be?

useM g O'Neill: Yes, it's a great question, Mark. So I think everybody on the call will be aware that the Scarborough field was discovered more than 40 years ago and has had a number of wells drilled over time. One of the things that Woodside did in 2018 - well, in 2019 after we had taken over operatorship from ExxonMobil was to do really a ground floor assessment of all the data.

So we used the most modern seismic processing technology which is called Full Waveform Inversion seismic processing technology. We looked at all of the raw data and we integrated that into our analysis of the resource. One of the outcomes of that is the 11.1 Tcf that we have booked on a 2P basis [Clarification: Woodside booked on a 2P basis

personalits 73.5% interest in the 11.1 Tcf field, being 1,433 MMboe]. We have had our work very closely reviewed. So we had a number of ex-ExxonMobil folks come in and take a look at the work that our team had done.

Again, just recognising the magnitude of the change we wanted to have that external view. We also had our reserves certified by GaffneyCline who does this full time. So we have a great deal of confidence in our reserve booking.

Mark Wiseman: (Macquarie Group, Analyst) Okay, thank you and so has BHP got access to that data or have they just taken a more conservative stance on some of the assumptions?

Meg O'Neill: So BHP absolutely has access to all of the work that we have done. Look, I think it's probably worth noting that there are a couple of reasons for the difference in reserves assessments of BHP's. Some are what I'll call sort of housekeeping. So the way we handle fuel and flare is a little bit different.

The conversion rate that we use is different. Again, because of just different reporting bases. Perhaps points to note is the Scarborough fields are gigantic; 800 kilometres square in size. That's an area the size of Singapore. So when you make assumptions around sand distribution you can end up with a bit of different views.

I'll just reiterate Mark, that we have had our estimates reviewed by GaffneyCline, who were very supportive of the Forconclusions that we've drawn.

Mark Wiseman: (Macquarie Group, Analyst) Okay, thank you. I just had a couple of other quick questions. One just on the lump sum portion of the contract. I think you've said greater than 90% is lump sum or fixed rate. I was wondering could you confirm how much is truly lump sum?

Meg O'Neill: Mark, we haven't commented. We haven't split out those differences.

Mark Wiseman: (Macquarie Group, Analyst) Okay. Just on the dom gas marketing; I think you'd signed 125 terajoules a day to Perdaman. I assume they're poised to take FID shortly now. What are your plans with the other 100 terajoules a day of dom gas capacity?

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