Woodside's Pluto stuck in first gear

Where to now for Australia's largest pure oil and gas play?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 22, 2012 12:52 pm AEST

Woodside Petroleum Limited (ASX: WPL) today reported a 4.5% increase in underlying half year profit to US$865m, despite its $15 billion investment in its Pluto liquefied natural gas (LNG) project appearing to have mixed results. The company declared an interim dividend of 65 cents per share, up from 55 cents last year.

While production of oil and gas rose 7% in the first half mainly thanks to Pluto, the company announced that it has been unsuccessful in its drilling program to find more gas, which would have allowed the company to add another processing facility (train) to its Pluto project. The company is now in discussions with owners of gas fields in the area that could supply Pluto.

Woodside will also be looking to speed up development at its other two potential LNG projects, Browse, off the north coast of Western Australia, and the controversial Sunrise project, which lies in the Timor Sea between East Timor and Northern Australia. BHP Billiton Limited (ASX: BHP) holds an 8% stake in the Browse project, along with global oil and gas companies Shell, Chevron, MIMI and BP. Chevron has recently announced that it was selling its 17.5% stake in Browse to Shell, in exchange for assets and US$450m in cash.

The market appeared to view that announcement as positive, with Shell and Woodside to own almost 60% after the sale, and could speed up development of the project. Browse is expected to be given the go ahead early in 2013.

According to a report by the Bureau of Resources and Energy Economics, around Australia there are currently seven LNG projects under construction, with a total value of over $164 billion. The Bureau reports that in full operation, these projects would increase Australia's LNG export capacity from the current 24 million tonnes a year to over 80 million tonnes a year.

Santos Limited (ASX: STO) is developing the Gladstone LNG project, while Origin Energy Limited (ASX: ORG) is participating in the Australia Pacific LNG operation. Both projects are based on Curtis Island, off the coast of Queensland, near Gladstone.

The Foolish bottom line

Woodside has a solid portfolio of currently producing oil and gas assets. The company's long-term success though appears to rest on LNG, and its ability to further develop its Pluto, Browse and Sunrise projects.

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Motley Fool writer/analyst Mike King owns shares in BHP & Woodside. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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