Australia's Woodside Petroleum Ltd says costs for its Pluto liquefied natural gas (LNG) project have blown out by A$900 million (US$865.89 million) and that it will take another six months to begin production while it rebuilds equipment that falls short of design specifications.
The oil and gas producer says the Pluto project, offshore from Karratha in Western Australia, will cost A$14 billion, up 6.9 percent from its prior estimate of A$13.1 billion.
Woodside is rebuilding several flare towers used to burn off waste gas because it says they don't meet design requirements to withstand expected wind speeds.
Woodside chief executive Don Voelte said he was disappointed with the cost overrun and delays.
"From our point of view, yes we are disappointed with this," Mr Voelte told investors on a conference call on Tuesday.
"We wish we didn't have the problem, but for safety sake and other reasons we had to get it fixed."
Despite the setback, Mr Voelte said he was "still very pleased" with the Pluto project's accelerated development.
Mr Voelte said that from discovery (in 2005) to production would have been 76 months even with Pluto's revised August 2011 start-up date, which was "unheard of in the LNG industry".
"It is a good platform and will serve Woodside investors for decades to come," he said.
The first LNG cargo will be exported one month after the start-up date next year, which had been put back from February.
Woodside's share of production from Pluto is expected to be beween five million and nine million barrels of oil equivalent in 2011.
Woodside said it was continuing its search for gas to support Pluto's expansion to a second production train and beyond.
Mr Voelte sought to reassure investors that exploration activity in the inner and central hubs of Pluto was coming along as expected.
"We expect to find the volumes we require and we're well along that way."
Woodside has drilled nine wells in the central hub region in search of its second expansion train.
Mr Voelte said he expected to build another train from nearby exploration opportunities, the inner and central hubs.
Woodside would "either find an additional train or two, or backfill the first two trains at Pluto from our future discoveries in the Claudius area and potentially the Cazadores hubs," Mr Voelte said.
At 1420 AEDT, shares in Woodside were up 16 cents at A$41.86 after an intraday high at A$42.12.
Mr Voelte said Woodside was happy to have its independence after major shareholder Shell offloaded 10 percent of its Woodside stakes on to the market earlier this month.
"We are happy where we will end up with this, which is an independent company with Shell off our register," he said.
"It is what we kind of wanted over time.
Responding to a question, Mr Voelte said there would have been a better way for Shell to exit the business.
"At the end of the day what happened happened and we are looking forward now to the future."
Woodside confirmed it expected its total production to be in the middle of 70-75 million barrels of oil equivalent (MMboe) in 2010.
The company is targeting underlying production, excluding the Pluto project, of between 63 MMboe and 66 MMboe in 2011.
(C) 2010 Asia Pulse Pte Ltd.
