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, 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 allocated to 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 7.7 percent in Sydney trading to A$36.90, its biggest drop for almost five weeks. The decline compared with a 5.2 percent drop in the Australian stock exchange's benchmark energy index after oil prices slumped 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, it said.

``We are sitting with a very strong balance sheet,'' said Chief Financial Officer Mark Chatterji. ``We've got a lot of dry powder.'' 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, Tremaine 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 of next year is set to rise to more than $4.2 billion, including the additional debt to be arranged in 2009, it said.

`On the Hunt'

The economic downturn hasn't caused Woodside to rein in any spending, Chatterji said. It may throw up opportunities for Woodside to invest in projects around southeast Asia, said Chief Executive Officer Don Voelte, adding he would have liked to find a way to participate in Exxon Mobil Corp.'s LNG project in Papua New Guinea.

``I've seen downturns like this before,'' Voelte said. ``Strong companies in recessions and downturns get stronger, good companies get weaker, bad companies go away, but bad companies some times have some pretty good assets. We're always out on the hunt.''

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.

Browse, Sunrise

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 produce as much as 20 percent below capacity before being 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, approval for which has been delayed beyond the original target of end-2008. It is also working to develop LNG ventures at the Sunrise field in the Timor Sea and in the Browse Basin off the far northwest coast. By 2016, Woodside will be the most leveraged company worldwide to LNG, in terms of tons of capacity per million dollars of market value, Chatterji said.

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