It is a body blow for Woodside, for which Browse was its next big growth opportunity outside the North West Shelf, where it is developing the Greater Western Flank Phase 2 and is expected to make a final investment decision on the Lambert Deep development later this year.
JP Morgan believes all of Woodside's growth LNG projects - Browse, Sunrise and Kitimat - are not viable at current oil prices.
The Browse joint venture, which includes FLNG developer Shell, was not expected to make any decision on Browse until mid-year, but considering the current economic and market environment the partners elected to pull the trigger early, after it became clear that the three-field Browse Basin development was not viable following the completion of front-end engineering and design.
Having launched bravely into the FEED process last year focusing on a possible phased development based on up to three floating LNG vessels after an earlier onshore option at the controversial James Price Point location was canned, many hoped Browse would squeak through FID considering service costs have fallen dramatically with the oil price.
However, the decision to cease development shows Woodside and its partners believe there needs to be a structural shift in global energy prices before it can resume work.
Since entering FEED Woodside has been focused on delivering targeted cost savings and value enhancements, CEO Peter Coleman said this morning, but all the pencil-sharpening in the world to improve the value of the project could not make a silk purse from the sow's ear considering the extremely challenging external environment of low oil prices and an over-supplied gas glut.
"We have undertaken a comprehensive and rigorous process to assess all elements of the development," Coleman said this morning.
"The decision represents a disciplined approach to large-scale capital investment and is consistent with our requirements for a development concept to be commercially robust across a range of scenarios."
He praised the high quality of technical and non-technical work completed, particularly with Shell on transforming the massive onshore project into a much cheaper floating option.
Coleman added that the company was committed to "the earliest commercial development of the world-class Browse resources" as an FLNG project, but said the economic environment was "simply not supportive of a major LNG investment at this time".
"Accordingly, we will use the additional time to pursue further capital efficiencies for Browse," he said.
The Browse partners, cognisant of the resource potential and the political pressure that could again be brought to bear under Labor and Liberal's use-it or lose-it rhetoric, will now prepare a new work program and budget to progress development activities.
"Woodside intends to leverage the high quality work delivered to date, which includes the involvement of the state government to agree key principles for domestic gas and supply chain arrangements and the state and Commonwealth governments to manage maritime boundary changes," the oiler said.
Reaction
Commonwealth Resources Minister Josh Frydenberg told Energy News this morning's announcement was "unfortunate".
"Importantly, Woodside has said that it is not walking away from the project and remains committed to it," he said.
Australia has been the great beneficiary of more than $200 billion of production capacity investment in our LNG sector over the past decade.
"Despite this challenging time, Australia's energy and resources sector remains strong, contributing around 10 per cent of our GDP and employing around 300,000 Australians."
He said the government recognised that Woodside announced a more than $2 billion investment in the Greater Western Flank Phase 2 project and that the $70 billion Gorgon project had just started up, and that the government will continue to work proactively with the industry to "... ensure Australia remains a competitive and attractive investment destination, particularly during these challenging times for the sector."
Independent market analyst Peter Strachan said this morning's announcement had been widely anticipated.
"There is no point whipping a dead horse until June," he said.
"The decision will have been the same in June as March, so they can disband the team and cut some costs."
Strachan's advice to Woodside is for Coleman to bide his time in looking for new development options.
"Internally, they don't have much to go ahead with right now. Their recent discoveries in Myanmar are nowhere near the development stage, so in terms of new developments the cupboard is bare," he said.
"They have plenty of contingent reserves though. We know the hydrocarbons are in the ground, and we know they will flow at a reasonable rate, but the test pf commerciality is in the cost to do so and the price they can get from the gas," he said.
He says the management team at Woodside under Coleman has shown a willingness to walk away from investments that don't make sense, such as its bid for Oil Search and axing the Leviathan investment, offshore Israel.
"The best decisions they have made lately have been to walk away from things and not pursuing Oil Search at a higher price, because by waiting the oil price has fallen 40%," he said.
Given it is now cheaper to buy hydrocarbons in the ground or existing production than it is to find them and Woodside's balance sheet was among the best of any oil and gas company having ended 2014 with $2 billion of net cash, and had only taken on debt for the Apache transactions, he said Coleman was not under pressure to do anything.
"They bought the Apache assets, and I think over time those will be seen to be a very cheap acquisition … and when we get back to $US75-80 per barrel they will look pretty good," Strachan said.
"They have plenty of reserves and resources, and I think that patience will be the key. The more that Coleman can sit on his hands, they wealthier shareholders will be. I don't think people will be reward for aggressive corporate acquisitions.
"The cheapest thing for Woodside will be to pick up individual assets from the knackers' yard. Companies like Hess and Apache and Chesapeake are seriously indebted and blowing smoke, and a loot are looking at bankruptcy protection or administration."
Woodside is looking for first gas from its Wheatstone development and US gas exports, and in the meantime can examine the market for bolt-on opportunities over the next six months.
While the politicians will be disappointed, Strachan said the modelling shows that Browse will only work at an oil price at $US85/bbl.
Fat Prophets analyst David Lennox believes Browse was probably at a breakeven point at current prices, and would be more robust in an improved market.
The Browse retention leases were renewed in 2015 and the current term of the leases ends in mid-2020.
Woodside's participating interest in the Browse resources is 30.6% giving it a net 2C share of 4.9 trillion cubic feet of dry gas and 142.6 million barrels of condensate.
Browse is a joint venture between Woodside (30.6% and operator), Shell (27%), BP (17.33%), Japan Australia LNG (14.4%) and PetroChina (10.67%).
Citi believes global LNG markets will require a further 60MMtpa of supply by 2025, and 170MMtpa by 2030, suggesting Browse's time in the sun may be just a few years off.
