Woodside Says Able to Raise All Funds in Debt Market

By Angela Macdonald-Smith and Heidi Couch

Feb. 20 (Bloomberg) -- Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, said it can raise the as much as $1.7 billion in funding it needs this year from the debt markets, without relying on asset sales.

“We expect our external funding requirement for the year to be in the range of $1 to $1.7 billion, but we expect that we can source all of those fundings from the debt markets,” Chief Financial Officer Mark Chatterji said today. “If you realize investor proceeds, the amount of debt we would need would go down.”

Woodside, 34 percent-owned by Royal Dutch Shell Plc, said Feb. 18 it will take on debt, cut spending and may sell assets to fund expansion in liquefied natural gas, mostly the A$12 billion ($7.7 billion) Pluto project. Oil has slumped about 74 percent since July, cutting cash flows for the Perth-based company, while credit markets remain “difficult to access,” Fitch Ratings said.

“They are obviously aware of the difficulty involved with financing and the fact that it isn’t as easy to do it now as it has been,” said Tim Barker, who helps manage more than $54 billion of assets at BT Financial Group in Sydney. Depending on prices offered for assets and the price of oil, Woodside may still consider an equity raising, he said.

Woodside dropped 15 cents, or 0.5 percent, to A$33.37 in Sydney trading, beating a 1.8 percent slide in the Australian stock exchange’s benchmark energy index.

Bonds, Banks

Woodside had debt of $2.05 billion at the end of December and un-drawn facilities of $1.05 billion. The debt is rated A- by Standard & Poor’s Ratings Service and Baa1 by Moody’s Investors Services.

Gearing, or the ratio between debt and debt-plus-equity, rose to 29 percent as at Dec. 31, up from 15 percent a year earlier, JPMorgan Chase & Co. said in a Feb. 18 report.

The additional debt “should be able to be raised, most likely through the U.S. bond market” Sydney-based JPMorgan analyst Mark Greenwood said in the report. “We believe that Woodside will pull every lever at its disposal before it taps the equity market.”

Woodside, because of its LNG focus, will probably also be able to access financing from Japanese banks, which have a history of supporting investment in LNG to underpin energy supplies into the domestic market, said Gavin Madson, a Brisbane-based associate director at Fitch Ratings. Japan, Woodside’s biggest customer for LNG, is also the world’s largest buyer of the fuel.

Rating ‘Comfortable’

Woodside’s BBB+ rating from Fitch would be “comfortable” even if the company takes on the maximum debt it is considering, Madson said.

“Woodside’s access to capital has not been interrupted,” Chatterji said in a Bloomberg Television interview.

The company signed loan agreements of $1.5 billion last year with Japan Bank for International Cooperation, the government’s main overseas lender, and other banks, and agreed additional debt of $800 million in January.

“I’ve got a high regard for Woodside’s financial management and I guess if they say they can do it, probably they can,” said Peter Chilton, who manages the equivalent of $356 million at Constellation Capital Management Ltd. in Sydney. “But you have to say with the combination of low oil prices, any production hiccup with the operations or any setback to asset sales just make it a bit tougher.”

Asset Sales

Any asset sales will be outside the company’s LNG-focused areas of Western Australia and the Timor Sea, Chief Executive Officer Don Voelte said this week. Woodside may sell its Otway natural gas project off southeast Australia, which may raise as much as A$800 million, Macquarie Group Ltd. said in a Feb. 19 report.

The company is also deferring or cutting A$500 million of spending, though the LNG ventures won’t be delayed, Chatterji said earlier this week.

The Pluto project, which will more than double Woodside’s LNG output once it starts up at the end of 2010, should be between 85 percent and 90 percent complete by the end of the year, Chatterji said.

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