Woodside has undertaken a review as of 30 June 2020 of the carrying values of its assets in accordance with the Group’s accounting policies and the accounting standards. As a result, the financial statements for the half-year ended 30 June 2020 (Financial Statements) are expected to recognise non-cash, post-tax impairment losses of US$3.92 billion,1 comprising:
- $2.76 billion for oil and gas properties (including deferred PRRT and income tax assets/liabilities), and
- $1.16 billion for exploration and evaluation assets (including deferred PRRT and income tax assets/liabilities).
The Financial Statements are also expected to include a non-cash, post-tax onerous contract provision for
the Corpus Christi LNG sale and purchase agreement of US$447 million.
The combined impact of the impairments and the onerous contract provision is a post-tax loss of US$4.37 billion.2 Woodside’s balance sheet strength and liquidity are not materially impacted.
Approximately 80% of the oil and gas properties impairment losses are due to the significant and immediate
reduction in oil and natural gas prices assumed up to 2025, impacting Woodside’s products in the prevailing
economic climate. Additional contributors are increased longer term demand uncertainty impacted by the
COVID-19 pandemic and macroeconomic dynamics, and increased risk of higher carbon pricing.
Despite the challenges of the current environment, the fundamentals of Woodside’s business remain strong,
particularly the outlook for our core product, natural gas to Asia, and the opportunities for Woodside’s
targeted future products such as hydrogen and ammonia. LNG is advantaged as an energy source in a
decarbonising world.
Woodside CEO Peter Coleman said the company is in a strong position to take advantage of opportunities
which will inevitably arise both during and subsequent to this period of unprecedented market uncertainty.
“We’ve taken some tough decisions over recent months in response to the COVID-19 pandemic and
oversupply in our key markets, but Woodside’s focus remains on cash preservation, capital discipline and
maintaining the strength of our balance sheet. This will ensure we can deliver appropriate returns to
shareholders and maintain our investment grade credit rating over the long term.
“We have low gearing and high liquidity, and announced significant expenditure reduction activities in March. Woodside’s balance sheet provides a resilient, long-term basis for creating shareholder value. “The unique confluence of events that has unfolded through 2020 will challenge all participants in the global
energy sector and we expect to see adjustment of capital allocation priorities by other asset owners as the
cycle plays out.
“Woodside’s disciplined approach to financial management gives us options to pursue inorganic growth
opportunities as and when they emerge, at the same time supporting our strategy to develop the
Scarborough and Browse gas resources located offshore Western Australia through our proposed Burrup
Hub when the time is right.
“Although these are difficult and uncertain times, the medium-term outlook for Woodside’s growth prospects
and for our core product, natural gas, is positive. In the longer term, our commitment to innovation and new technologies will ensure we can also take advantage of emerging markets for hydrogen and ammonia which will be a crucial part of the world’s transition to a lower-carbon future,” he said.
The outcome of the asset value review is subject to final Board approval and review by the external auditor,
and will be published in the Financial Statements in the Half-year Report 2020 on 13 August 2020.
The post-tax impairment losses above include:
- a $0.35 billion reduction of the PRRT deferred tax asset for Pluto, due to the revision of long-term oil price assumptions and the consequent reduction in recognised general expenditure to be deducted over the project life; and
- a $0.23 billion reduction of the PRRT deferred tax liability for Ngujima-Yin, due to the reduction in the
asset’s carrying value.
Change to Reserves Statement
The expected impairment of WA-404-P has resulted in a reclassification of the Greater Pluto (WA-404-P)
Proved (1P) Undeveloped Reserves of 91 MMboe and Proved plus Probable (2P) Undeveloped Reserves of
123 MMboe, to Best Estimate (2C) Contingent Resources of 123 MMboe.
Woodside’s overall Corporate Best Estimate (2C) Contingent Resources have increased from 5,950 MMboe
to 6,073 MMboe, the overall Corporate Proved plus Probable (2P) Reserves have decreased from 1,213 MMboe to 1,090 MMboe, and the overall Corporate Proved (1P) Reserves have decreased from 871 MMboe to 780 MMboe.
Asset value review commodity pricing and discount rate assumptions
The Financial Statements will include a comprehensive disclosure of key estimates and judgements related
to the asset value review.
The range of post-tax discount rate assumptions is 7.5-11%.
Woodside has revised its long-term Australian carbon price assumption to US$80/tonne.
Onerous contract provision for Corpus Christi
The Financial Statements are also expected to include a non-cash, post-tax onerous contract provision for
the Corpus Christi LNG sale and purchase agreement of US$447 million.
This provision reflects more closely connected global gas markets and Woodside’s view of likely reduced
margins available between North American and other gas markets. The applicable discount rate is the US
20-year Treasury long-term bond rate.
Under AASB 137 Provisions, contingent liabilities and contingent assets, a contract is considered onerous
where the unavoidable cost of meeting obligations under the contract exceed the benefits expected to be
received.
Other financial impacts
As a result of the impairment losses and onerous contract provision, Woodside’s gearing at 30 June 2020 is
expected to be approximately 19%. Woodside’s target gearing range is 15-35%.
The depreciation expense for oil and gas properties in H2 2020 is expected to reduce by approximately
$3/boe.
Dividend
Calculation of the 2020 interim dividend, to be announced on 13 August 2020, will exclude the impacts of the impairment losses and onerous contract provision on net profit after tax.
