Tensions bubble up at Woodside's Senegal oil project
A decision on the go-ahead for Woodside Petroleum's $3 billion SNE oil project in Senegal is set to go down to the wire as discussions on project funding are hampered by an arbitration process set to kick off next week that could result in the Australian major's ouster from the venture.
The final investment decision on SNE is due to be taken by the venture this December half, with a view to starting production from the 200 million barrel first phase in 2022.
But chief executive Peter Coleman told investors that the arbitration initiated by junior partner FAR Ltd over the deal that brought Woodside into the venture was hampering talks around funding.
Should the outcome favour ASX-listed FAR, which argues its pre-emption rights over the $US430 million stake sold to Woodside were overlooked, Woodside could be pushed out.
The stalemate meant the Woodside-led SNE venture looked set to miss a June 30 deadline to re-submit a development plan to the Senegal government. The petroleum industry is already fuelling controversy in Senegal over alleged improper payments related to a separate gas deal, the Financial Times reported last week.
"The arbitration is affecting the project financing ... because the project financiers want to know who actually is in the joint venture," said Mr Coleman, who has described FAR's claim as "frivolous".
"If Woodside is in the joint venture that’s great, if Woodside is not in the joint venture then they’ll find it very difficult to project finance the project," he told investors on a site tour in Karratha, Western Australia.
Woodside – a joint party to the arbitration alongside ConocoPhillips which sold it the stake in SNE – has signalled it is not considering a settlement with FAR. The first stage of the arbitration process starts in Paris on July 8.
But that leaves the funding in limbo, as lending banks await certainty over ownership. London-listed Cairn Energy and Senegal's state-owned Petrosen are partners in the field.
Suggestions that Cairn is looking to sell its stake in SNE add further uncertainty.
Mr Coleman suggested that FAR, owner of 15 per cent of SNE, its only development asset, has the most riding on the project.
"The joint venture partners in my view are as motivated or more motivated than Woodside because particularly for at least one of them it’s a single asset," he said, describing the Senegal government also as "very motivated to more forward".
Some sources suggest FAR, with a market value of just $433 million, is reliant on project-based funding while the others can fund their share on their balance sheets.
But FAR chief executive Cath Norman rejected that suggestion and blamed Woodside for a delay in re-submitting the development plan.
"The company does not have any funding issues for its commitment to SNE that are related to arbitration and any delay in the process is a matter for the operator," Ms Norman told The Australian Financial Review.
The dispute comes on top of joint venture issues for Woodside in its two large LNG growth projects in Western Australia, which are wrestling to agree terms for gas processing.
But Allan Gray portfolio manager Simon Mawhinney was relaxed about the hurdles on SNE.
"It is causing delays in getting project finance, but the actual finance for it is not an issue for Woodside," he said. "These things get resolved."
Mr Mawhinney acknowledged a risk Woodside gets ousted from the project but said its long-dated nature meant there was "very little value attached to Senegal if any" in its share price.
"I think Senegal is potentially a very good asset, but as an investor in Woodside I don't think you pay for it," he said.
UBS analysts told clients after returning from the site tour that they still expected a final go-ahead on SNE this December half.