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Bloomberg: Woodside May Approve Pluto Plant Expansion as LNG Demand Soars

By Angela Macdonald-Smith

Feb. 20 (Bloomberg) — Woodside Petroleum Ltd., the Australian oil and gas producer part-owned by Royal Dutch Shell Plc, may decide this year to expand its biggest liquefied natural gas project as prices and demand for the fuel soar.

Woodside aims by the year-end to approve Pluto 2, an addition to the A$12 billion ($11 billion) first-phase project tapping gas from fields off northwestern Australia, Chief Executive Officer Don Voelte said today on a conference call. The expansion may be followed in 2009 by approval of another project, Sunrise LNG, in the Timor Sea, the company said.

The Perth-based company’s stock rose 4.6 percent on optimism its plan to bolster LNG output will leave the company well-placed to benefit from demand it forecasts will more than double by 2015. Expanding existing plants typically reaps a higher profit than building new ones, according to analysts.

“These projects when you expand them, the incremental economics are fantastic, that’s always been the case,” said Stuart Baker, an oil and gas analyst at Morgan Stanley in Melbourne. “The valuation implications are pretty significant. If that happens the stock is going to move quite a bit higher, I’d suggest.”

Woodside gained A$2.33 to A$53.59 in Sydney trading, beating a 0.9 percent increase in the Australian Stock Exchange’s benchmark energy index.

Woodside still needs to secure gas supplies before it can approve an expansion, Voelte said on the call. It’s likely that the company will at least partly use gas from other companies, meaning Woodside may own less than the 90 percent stake it has in the first stage of Pluto, he said. The second unit will cost less than the first, said Chief Financial Officer Mark Chatterji.

Tripling LNG

The first Pluto production unit, which is set to almost triple Woodside’s LNG output, is worth about A$10 a share for the company’s valuation, and the second unit could be worth more depending on the arrangements for gas supply, Baker said. The project may start up at the end of 2012, Voelte said.

The three biggest partners in the Sunrise venture, Woodside, Shell and ConocoPhillips, have all agreed to move forward “rapidly” on that venture, Voelte said on the call. That project may be ready to start up as early as 2013, a year after Pluto 2, he said.

Woodside is scheduling 2010 for approval for a third project, Browse LNG, though there are “clearly issues” with building a third plant so soon after the others because of labor and construction constraints, Voelte said.

Woodside may not be able to meet all the dates it set for LNG project approvals, said Aiden Bradley, an oil and gas analyst at ABN Amro Australia Pty in Sydney.

Profit Drop

“There are too many factors that they don’t control to be definitive on the timetable,” Bradley said.

Woodside today reported a 28 percent drop in full-year profit on a loss from the sale of fields in Africa and higher exploration costs.

Net income dropped to A$1.03 billion in the year ended Dec. 31, from A$1.43 billion a year earlier, Woodside said in a statement. Profit before one-time items slid 15 percent to A$1.18 billion, in line with a A$1.2 billion median of 12 analyst estimates compiled by Bloomberg.

Woodside said last month it would book a loss of about A$230 million on the sale of its stake in the Chinguetti oil field in Mauritania, which limited gains in production last year. Shortages of drilling rigs are driving up exploration expenses, adding to costs incurred for unsuccessful wells Woodside drilled in Libya, Kenya and Australia.

Dollar Effect

A gain in the Australian dollar almost canceled out the effect of higher prices, Chatterji said. Unsuccessful exploration costs jumped 24 percent to A$524.1 million, while an increase in the cost of sales cut reported earnings by A$186 million.

“On the whole they managed costs reasonably well,” said Andrew Blakely, an energy analyst at Macquarie Group Ltd.

The company cut its estimate of the widest category of oil and gas reserves by 24 percent, due to stricter regulations and field downgrades in Australia.

Earlier this month Woodside agreed to buy Shell’s oil interests in the North West Shelf venture for $398.5 million, increasing output and reserves. The acquisition may result in an upgrade to Woodside’s full-year output forecast, which the company maintained today at between 80 million and 86 million barrels of oil equivalent, an increase of as much as 22 percent from last year.

Sales rose 11 percent to A$3.84 billion on gains in production and prices. Including the Mauritanian interests that were divested sales rose 5 percent to A$4 billion.

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

Last Updated: February 20, 2008 01:06 EST 

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