Woodside Petroleum's credit ratings are under pressure after the oil and gas producer said costs at its Pluto LNG project had blown out by up to 10 per cent.
Woodside Petroleum's credit ratings are under pressure after the oil and gas producer said costs at its Pluto LNG project had blown out by up to 10 per cent.
Standard & Poor's Ratings Services said today it had placed its A- rating on Woodside on creditwatch with negative implications.
Moody's Investors Service changed its outlook on the Baa1 issuer rating of Woodside Petroleum Ltd and Baa1 long term rating of Woodside Finance Ltd to negative, from stable.
The moves came after Woodside said Pluto would likely cost six per cent to 10 per cent more than the $11.2 billion budgeted.
"The additional capital costs to complete the project could put further pressure on Woodside's credit metrics," Standard & Poor's credit analyst May Zhong said in a statement.
"Our concerns regarding the degree to which Woodside's credit metrics had already been stretched by the significant increase in debt to fund Pluto train 1 project were already factored into our negative outlook on the company before today's CreditWatch placement," Ms Zhong said.
"These factors, together with the potential commissioning risks of the project, will continue to pressure the ratings on the company.
"For a company rated at the 'A-' level, we expect a conservative funding approach for large-scale growth projects."
A Woodside spokesman said contingencies were made for possible increases in costs above the budgeted figure when the final investment decision for the project off Western Australia was made.
Hartleys energy analyst David Wall said the cost blow out was not unexpected, nor did it alarm him.
He said companies often deliberately put ambitious budget targets on projects to pressure workers to constrain costs as much as possible.
"They try to put a target that is potentially achievable at a stretch ... it is why a lot of things run over-schedule as well," he said.
Woodside owns 90 per cent of the Pluto project, with joint venture partners Tokyo Gas and Kansai Electric each with a five per cent stake.
The company said the project was 82 per cent complete and is on track to deliver first gas from the Pluto field at the end of 2010 and first liquefied natural gas (LNG) in early 2011.
If it remains on schedule, Pluto will become the fastest developed LNG project in Australia, from its discovery in 2005 to first gas.
The Pluto gas field, estimated to contain a total dry gas recoverable reserve volume of 4.4 trillion cubic feet, is about 180 kilometres north-west of Karratha, offshore from WA.
Woodside shares finished down $1.41, or 2.81 per cent, at $48.69.
The announcement is below:
Woodside has completed its most recent review of the cost and schedule of the Pluto foundation project.
The review concluded that the project is 82% complete and remains on schedule to deliver first gas from the Pluto field at the end of 2010 and first liquefied natural gas in early 2011.
Depending on the drawdown of project contingencies, the final cost of the foundation project is expected to be 6% to 10% over the $11.2 billion approved by Woodside at the time of the final investment decision in July 2007.
The expected increase in cost is due to lower than budgeted productivity in both onshore and offshore construction.
