Bloomberg: Woodside Petroleum Reduces 2008 Production Forecast (Update4)

By Angela Macdonald-Smith

 Nov. 15 (Bloomberg) — Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, cut its forecast output for next year by as much as 20 percent because of slower start-ups of new projects and the sale of fields in Africa.

The expected production of 80 million to 86 million barrels of oil equivalent will still be about 15 percent above this year’s output, Don Voelte, chief executive officer of Perth-based Woodside, said today. After 2008 output may not rise again until 2011, he said. The shares dropped the most in six years.

Woodside, 34 percent owned by Royal Dutch Shell Plc, has failed to meet output targets for the last two years as ventures in Australia, Africa and the U.S. were delayed or produced less than forecast. Rising material prices and labor shortages have raised costs and slowed oil and gas projects, crimping Woodside’s anticipated increase in production.

The forecast “for next year is probably below what most people would have been expecting,” said Neil Boyd-Clark, who helps manage the equivalent of $6.3 billion at ABN Amro Asset Management in Sydney. “They’re trying to be a little bit more circumspect about the guidance they’re giving on the production side given their recent history.”

Woodside fell A$3.80, or 7.3 percent, to A$48.20 in Sydney trading on the Australian Stock Exchange, its lowest in eight weeks.

`Turning Point’

Last year, Woodside indicated 2008 output of about 100 million barrels. In September it agreed to sell its Mauritanian business, reducing output in Africa and focusing resources in Australia where it’s building the A$12 billion ($11 billion) Pluto liquefied natural gas project, to be followed by LNG projects in the Browse Basin and Timor Sea.

“The best years are yet to come,” Voelte said at an investor briefing in Sydney. Pluto is “a turning point” for the company, he said.

Woodside expects “a material and significant gap in LNG supply out to 2015 and beyond,” helping boost prices toward parity with oil, said Reinhardt Matisons, marketing president. Demand may more than double to 380 million tons a year by 2015, from 180 million, just as output slips in Indonesia and timing slows for plant start-ups in countries including Nigeria, he said.

The market has changed from a “window” of opportunity for sales to an “open corridor” with no end in sight until at least 2015, Voelte said. The company aims to start up a new LNG unit every two years, he said.

Browse, Sunrise

The first production unit at Pluto is due to start up by the end of 2010, which may be followed two years later by a second unit at the Western Australian site, then by two production units at the Browse project and Sunrise in the Timor Sea, Chief Financial Officer Mark Chatterji said.

Woodside in September signed an accord to sell as much as A$45 billion of LNG from Browse to PetroChina Co. and more agreements are “coming,” with buyers both in China and elsewhere, Voelte said.

The company is considering selling more assets in Africa as it focuses on expanding LNG in Australia, Voelte said. The exploration business in Libya, where offshore drilling has been “disappointing,” may be sold, while the exploration budget will fall 44 percent next year, as capital spending may jump to more than A$5 billion, he said.

`Good Sense’

“They’ve still got some pretty attractive assets in the LNG space which will underpin their medium-term growth prospects,” ABN’s Boyd-Clark said. “There’s certainly a change in the LNG market and to the extent that they have gas that can be developed it makes awfully good sense to commercialize that gas in as a short a timeframe as they can.”

Production next year will be boosted by a full year of output from the Otway and Stybarrow projects in Australia, and from the “new, improved” Enfield oil venture, Voelte said. Projects due to start up next year, such as the Neptune oil field in the U.S., the Vincent and Angel projects in Western Australia and the expansion of the North West Shelf venture’s LNG production, will also drive growth.

Still, Vincent oil output will rise more slowly than expected, as will Stybarrow and Neptune, while the sale of the Chinguetti field in Mauritania and of Legendre in Australia means the increase won’t be as big as earlier forecast.

The 2008 forecast “is a disappointing outcome, given the series of production downgrades we have seen during 2007,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney.

`Too Optimistic’

Earlier output estimates were overly optimistic, Voelte said.

“Where we’ve gotten into trouble is being is too optimistic of how fast we’re going to ramp up our development projects,” Voelte told reporters. “We’ve been erring too much on the positive side of good news there.”

The North Rankin 2 gas project on the North West Shelf may cost A$5 billion and may be approved in the first half of next year, Woodside said. BHP Billiton, BP Plc, Chevron Corp., Shell, Mitsui & Co. and Mitsubishi Corp. have stakes in the venture.

Exploration spending next year will be about A$260 million, down from A$465 million this year.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected]

Last Updated: November 15, 2007 01:25 EST