Woodside Forecasts 33% Jump in Spending Next Year

By Angela Macdonald-Smith

Nov. 13 (Bloomberg) -- Woodside Petroleum Ltd., Australia's second-largest oil and gas producer, said capital investment may jump 33 percent next year as spending increases on building the Pluto liquefied natural gas venture to tap North Asian demand.

Capital expenditure may rise to A$7.3 billion ($4.7 billion) in 2009, up from an estimated A$5.5 billion this year, the Perth-based company said today in a presentation to investors. Woodside plans to raise between $1 billion and $1.5 billion of debt in the first half next year to fund expansion, said Lawrie Tremaine, group financial controller.

Woodside is building the A$12 billion Pluto LNG venture in Western Australia to gain from rising use of cleaner fuels in Japan. Almost three-quarters of next year's capital spending budget will be on the project. A decline in the Australian currency against the dollar means Woodside's U.S. dollar debt can fund more spending, the company said today.

``Pluto is a world-class project, so it is understandable that Woodside would want to progress development as quickly as possible bearing in mind the strong ongoing demand for energy in Asia,'' said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. ``Gearing is currently around 25 percent, which is modest, so one would imagine that the company could take on additional project debt.''

Woodside, 34 percent-owned by Royal Dutch Shell Plc, fell as much as 4 percent in Sydney trading to A$38.38 and was at A$38.40 at 10:09 a.m. local time. The decline compared with a drop of as much as 3.7 percent in the Australian Stock Exchange's benchmark energy index after oil prices fell in New York.

Flat Output

Production next year may be little changed at between 81 million and 86 million barrels of oil equivalent, compared with 81 million to 84 million this year, Woodside said. The company expects to report record annual profit this year before one-time items and higher cash flow, said Mike Lynn, vice president for investor relations.

``We remain well positioned to fund the continuing growth of our business,'' Tremaine said. The company, which has deferred plans to raise additional debt this half, will primarily rely on cash flows generated by its existing projects to fund expansion, he said.

The company currently has $2.05 billion of debt and $1.05 billion of undrawn facilities, it said in the presentation slides, sent to the exchange. Debt in the first half next year is set to rise to more than $4.2 billion, including the additional debt to be arranged next year, it said.

Pluto, Browse

Pluto is due to start shipments in 2010 from Western Australia, more than doubling Woodside's existing LNG output of 2.7 million metric tons a year, from its one-sixth share of the North West Shelf venture. Demand growth in LNG is continuing, yet the pace has slowed, Woodside said. Demand is still expected to exceed supply ``at least until 2015'' as new supply projects are delayed, it said.

Underinvestment in LNG production plants may boost prices for the fuel starting 2012, the International Energy Agency said yesterday in its World Energy Outlook 2008. Before that time there will be a ``massive expansion'' in supply, it said.

Woodside is also seeking to further expand LNG output at the North West Shelf venture, which started up a fifth production unit late August. That unit is experiencing some ``teething problems'' and will probably be shut down for work in the second half of 2009, the company said.

The company is still seeking more gas to underpin an expansion of its Pluto project and is working to develop LNG ventures at the Sunrise field in the Timor Sea and in the Browse Basin off the far northwest coast.

LNG is gas chilled to liquid form for transportation by ocean-going tankers.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net