Woodside Petroleums Profit May Have Increased on Oil

Tuesday, August 15th 2006

Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, may report higher first-half profit tomorrow after crude oil prices jumped.

Profit before one-time items likely rose 15 percent to A$515 million ($395 million) in the six months ended June 30, from A$448.5 million a year earlier, according to the median estimate of six analysts surveyed by Bloomberg. Analysts predict profit excluding unrealized gains or losses on derivatives in oil and gas sales contracts, and any asset sales, rather than net income.

Woodside was unable to take full advantage of record oil prices owing to storm-related shutdowns, a project delay and lower-than-expected output from an African field. Chief Executive Officer Don Voelte, 53, in June cut the company’s 2006 production target by 5 percent. Crude, which rose to a record in July, averaged 30 percent higher in the first half than a year earlier.

“Woodside’s production in the first half was surely not what we were expecting at the start of the year,” said Brendan Fitzpatrick, an oil and gas analyst at Aegis Equities Research Pty in Sydney. “The flip side is the oil price has been higher than we were expecting six months ago.”

Woodside shares have risen 2.6 percent this year, lagging behind a 5.9 percent gain in the benchmark energy index amid investor disappointment about production levels. Woodside shares today fell A$1.22, or 3 percent, to A$40.20 on the Australian Stock Exchange.

The company, which reports profit about mid-morning Sydney time tomorrow, is trading at 17.1 times estimated 2006 earnings, compared with 8.8 times for rival Santos Ltd. and 9.3 times for Shell, which owns 34 percent of Woodside.

Oil Prices

Tapis crude oil, the Asian benchmark variety, rose to an average $70.32 a barrel in the first half, up from $53.14 a year earlier. In the second quarter, Woodside received 32 percent more in local currency terms for its oil and condensate, or A$90.46 a barrel, according to quarterly figures provided by the company. First-half sales rose 26 percent to A$1.57 billion, Woodside said July 20.

Woodside shares surged to a record A$49.80 on April 19, buoyed by the start-up of the $708 million Chinguetti project in Mauritania. Since then, flows from the field have declined more rapidly than envisaged, contributing to the production forecast cut. The lower output also prompted Woodside to review its 123- million-barrel estimate of reserves at the field.

Woodside may not yet have enough information to announce a downgrade of Chinguetti reserves tomorrow, UBS AG said in an Aug. 10 report.

Enfield, Otway

Woodside still needs to lift output about 40 percent in the second half from the first to meet its revised forecast, which is 21 percent above last year’s figure. It started production at the A$1.48 billion Enfield oil project off Western Australia in July, the largest of its new projects to go come online this year, and is due to start up the delayed Otway gas project off the southeastern coast in the fourth quarter.

“We think 2006 represents the start of a very strong Woodside growth profile, with oil production expected to rise around 90 percent year-on-year in 2006 and overall production possibly doubling in the next four to five years,” UBS said.

Woodside in July moved former Chief Operating Officer Keith Spence to a newly created role in a bid to ensure the company doesn’t fall short of growth targets. Woodside is prioritizing its Pluto and Browse liquefied natural gas projects to avoid any delays from “huge” competition for labor and materials in Western Australia, Spence said in an Aug. 4 interview.

Pluto LNG

The 100 percent-owned Pluto venture has accords to sell LNG to two Japanese utilities starting in late 2010. The project, which the Western Australian government estimates may cost A$5 billion to develop, is set for final approval in the second quarter next year. Woodside found the Pluto field in April 2005.

“Don Voelte has shown that he’s capable of fast-tracking Pluto and getting customers on, but he’s still got to execute on top of that,” said Jason Teh, who helps manage the equivalent of $3.8 billion, including resources stocks, at Investors Mutual Ltd. in Sydney.

“Woodside has been re-rated recently off the back of the global tightening of the LNG market and Pluto will allow them to take advantage of that,” Teh said. “But it may come at a cost because potentially the capital expenditure associated with that project could be quite high.”

Woodside operates and owns one-sixth of the A$19 billion North West Shelf LNG venture, which in 2004 increased capacity by 56 percent by adding a fourth unit and is building a fifth. The A$2 billion budget for the latest expansion is under review amid rising construction costs. The venture, which includes BP Plc and Chevron Corp., started exports to China earlier this year.

Source: www.bloomberg.com