Woodside Petroleum says its key Browse gas project must be able to break even at current low prices before getting the go ahead next year.
The energy giant is being battered by weak oil and gas prices in an oversupplied market, but is determined to market Browse liquefied natural gas (LNG) despite the turbulent conditions.
Chief executive Peter Coleman said the spot market would be oversupplied in the short to medium term as the company focused on long-term contracts to its traditional buyers.
“At the moment, we’re in the middle of a storm,” Mr Coleman said.
Woodside has dramatically cut its dividend to shareholders, in line with analysts’ expectations, after falling oil and gas prices drove a 39 per cent dive in its half year profit.
Despite the challenging conditions, the company says it’s in a much better financial position than many of its peers.
Mr Coleman said the Browse joint venture partners would make a long awaited investment decision in the second half of 2016.
“The project will need to deliver an acceptable return at the current expectations of oil pricing, meaning it needs to break even at the sorts of oil prices we’re seeing in the marketplace today,” he said.
Woodside was also looking at how much volume it would pump into the already oversupplied market.
The company recently received Commonwealth environmental approval for Browse after agreeing to enter an engineering and design phase.
Fat Prophets analyst David Lennox said Browse ran the risk of being delayed if a majority of partners could not agree on a final investment decision, he said.
“You’d expect that now’s not the time to be negotiating long term contracts because of where current prices are and that’s an added inhibitor to Browse going ahead,” he said.
Woodside holds a 30 per cent stake in Browse, while joint venture partners Shell, BP, PetroChina and a venture between Mitsui and Mitsubishi have the remaining share.
The company made a net profit of $US679 million ($A924.63 million) in the six months to June 30, down from $US1.1 billion for the same period a year ago.
Woodside has slashed its interim dividend more than 40 per cent to 66 US cents per share.
It also removed $163 million from the business in the half as part of its $800 million target in cost savings by the end of 2016.
Mr Lennox said weaker profit was expected given the low oil price environment and a drop in sales volumes.
WOODSIDE SLASHES DIVIDEND AMID WEAK PRICES
* Half year profit down 39pct to $US679m ($A924.63 million)
* Revenue down 28pct to $US2.56b
* Interim dividend down 45 US cents to 66 US cents