Australian LNG major Woodside is bracing for a $4.37 billion impairments hit following an asset value review.
The company is expected to take a $2.76 billion hit in its financial statements for the half-year ended June 30, 2020, for oil and gas properties. It will also recognize a $1.16 billion impairment loss for exploration and evaluation assets.
Woodside said in its notice on Tuesday that 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 $447 million.
This boosts the combined impact of the impairments and the onerous contract provision to $4.37 billion.
Woodside noted that its balance sheet strength and liquidity are not materially impacted.
Approximately 80 per cent 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, the company said. The outlook for its core product, natural gas to Asia, and the opportunities for Woodside’s targeted future products such as hydrogen and ammonia remains particularly strong. 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 that will inevitably arise both during and subsequent to this period of market uncertainty.
“We’ve taken some tough decisions over recent months in response to the COVID-19 pandemic and oversupply in our key markets,” Coleman said, adding that the company boasts low gearing and high liquidity. Woodside also announced significant expenditure reduction activities in March.
“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.