Remote North Atlantic drilling offshore Newfoundland has lost out in competition against LNG and lower-cost Gulf of Mexico wells for investment by top Australian producer Woodside Energy Group Ltd.

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The Perth-based firm dropped Grand Banks exploration licenses, acquired in its June merger with BHP Petroleum, that fetched work bids of C$822 million ($616 million) in 2018. A cancellation penalty of C$205 million ($154 million) is forecast.

While Woodside did not immediately give an explanation for shelving the Canadian oil prospects, CEO Meg O’Neill foreshadowed the decision while releasing the firm’s first-half 2022 stockholder report earlier this month.

Liquefied natural gas is “our core product” and industry analysts predict demand for it will increase faster than current production or projects now under construction can grow for the next decade, said O’Neill.

“The LNG story is now more than just Asia with Europe emerging as a major demand center as Western Europe seeks to reduce reliance on Russian pipeline gas. Woodside is ideally placed to supply both Asian and European markets,” said O’Neill.

From Woodside’s point of view, the oil side of the firm should concentrate on properties most likely to achieve production efficiently for reasonable costs in short periods of time, added O’Neill.

“From a focus perspective, one of the things that we are going to be doing is ensuring that our exploration activities are very clearly oriented towards assets that can be matured quickly,” said O’Neill.

“I think our industry unfortunately has a bit of a track record of finding things where you have a technical success but commercially struggle to move them forward.”

Woodside only put limited oil drilling targets into the Australian merger while BHP had a large portfolio of consortium interests. Participation continues in the Atlantis, Shenzi, Mad Dog, Trion, Starman and Hoodoo projects in the Gulf of Mexico.

In Newfoundland, disappointed officials accepted the Woodside withdrawal as “a strategic decision” in a notoriously volatile industry and observed that oil development is not over in the Canadian share of the North Atlantic.

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Equinor ASA and BP plc continue to drill offshore on the Grand Banks for the forecast $9.4 billion Bay du Nord project that won national government approval last spring. Cenovus Energy Inc. and Suncor Energy Inc. are working on restoring production lost during the Covid-19 pandemic.

The Newfoundland government also announced support for an ExxonMobil Canada offshore well earlier this month. The aid came from a provincial program that refunds license deposits if companies extend drilling beyond initial wells.