Australia’s Woodside Energy Group (ASX:WDS) said today that it would book a nearly $4.4 billion expense this year, as changes in its asset depreciation calculation method outweighed a tax benefit and a reversal of an impairment charge.
The country’s biggest independent gas producer said it had reviewed the methodology it follows to calculate depreciation of its oil and gas properties, after taking into account the scale of its portfolio since acquiring BHP Group’s petroleum assets.
Asset value review: impairment reversals and deferred tax asset recognition
Woodside has undertaken a review of the year-end carrying values of its assets in accordance with its accounting policies and the accounting standards. As a result, the 2022 full-year financial statements are expected to recognise a non-cash, post-tax asset value impairment reversal of approximately $630 million (pre-tax value of approximately $900 million) for the Wheatstone asset, primarily due to a revision in short and long term LNG price assumptions.
Woodside also expects to recognise a Pluto petroleum resource rent tax (PRRT) deferred tax asset (DTA) of approximately $1,360 million, primarily due to higher 2022 income, improved future price assumptions and additional volumes processed through the Pluto-KGP Interconnector. The DTA is recognised as a benefit in the PRRT tax line item in the consolidated income statement in the financial statements, and is included in the PRRT line item guidance above.
The Wheatstone impairment reversals and Pluto PRRT DTA will be excluded from underlying net profit after tax (NPAT) for the purposes of calculating the 2022 full year dividend, consistent with prior practice.
Change in application of depreciation policy from 2023
Woodside has undertaken a review of the Group’s depreciation methodology for oil and gas
properties in accordance with its accounting policies and the accounting standards, considering the scale and diversity of the post-merger portfolio and to ensure alignment with common industry practice.
Woodside’s existing accounting policy permits the depreciation of upstream assets on a unit of production basis using either proved (1P) or proved plus probable (2P) reserves. From 2023, upstream oil and conventional gas assets will be depreciated over proved reserves (previously proved plus probable, except for certain assets considered late life). Upstream LNG assets will continue to be depreciated over proved plus probable reserves.
Multiproduct assets are assessed on a case-by-case basis and aligned to the most appropriate method.
This change better aligns with the investment decision making process for oil and conventional gas projects. This change applies to Woodside’s interests in Shenzi, Atlantis, Mad Dog, Greater Angostura, Ngujima-Yin, Pyrenees, Macedon and Bass Strait.
Depreciation of Pluto, North West Shelf and Wheatstone will remain on a proved plus probable basis and all other assets will remain on a proved basis.
The indicative depreciation expense in 2023 is expected to be approximately $4.4 billion. This includes the effect of the expected Wheatstone impairment reversal and any asset value adjustments resulting from the purchase price allocation due to the merger with BHP’s petroleum business.