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The Wall Street Journal: Woodside Mulls Reserves Downgrade

Woodside Says Oil Output Is Slipping at Chinguetti

Perth Firm Considers
A Reserve Downgrade
For Mauritania Field
July 21, 2006

PERTH, Australia — Woodside Petroleum Ltd. experienced another problem at its emerging Mauritania oil province, revealing Thursday that it may be forced to downgrade reserves at the US$750 million Chinguetti field.

It is the second disappointment for Woodside inside a month, after the Perth-based company downgraded its overall 2006 production forecast by 5%, mostly because of problems at Chinguetti, which was once tipped to hold 120 million barrels.

Woodside also flagged a cost increase at its 2 billion Australian dollar (US$1.5 billion) North West Shelf liquefied-natural-gas expansion in Western Australia state as it struggles with rising labor and material charges.

Shares in Woodside, which is 34%-owned by Royal Dutch Shell PLC, fell 4% to A$43.90, compared with a 2% rise in the broader market. Shares in Hardman Resources Ltd., a junior partner in Chinguetti, fell 7%.

Woodside said production at Chinguetti, in the West African country of Mauritania, has deteriorated since the field’s February start-up, forcing the company to review reserves. Woodside also warned that the production slide would continue in 2006 “unless further well intervention takes place.”

Gordon Ramsay, an energy analyst with UBS, said investors reacted nervously to the downbeat news about Chinguetti, which is Woodside’s first attempt at operating a major overseas oil field.

“This review could lead to a reserves downgrade, which would affect valuations,” Mr. Ramsay said.

Woodside owns 47.4% of Chinguetti, which was discovered in 2001 and originally forecast to produce 75,000 barrels a day. Production has fallen to half that because of problems at two wells.

At the start of July, daily gross production was around 37,000 barrels, down from an average of 41,549 barrels in the second quarter and 59,247 barrels in the first quarter.

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