Royal Dutch Shell Group .com

The Wall Street Journal: Woodside Picks Up Momentum As It Prepares to Tap New Fields




June 7, 2004


PERTH, Australia -- As Woodside Petroleum Ltd. prepares for the biggest exploration venture in its 50-year history, investors in the Australian energy company are betting that new oil finds will push its share price to new levels.


Buoyed by soaring crude oil prices and West African discoveries, Woodside's shares have risen 45% during the past year, roughly three times as much as Australia's benchmark S&P/ASX 200 share index. There could be more to come.


The company's shares Friday closed at 16.47 Australian dollars (US$11.44) each, down eight cents apiece, after oil prices eased amid signs that members of the Organization of Petroleum Exporting Countries will increase production this summer.


"The bulls are still running with the oils," says Deutsche Bank energy analyst John Hirjee, who has a "buy" recommendation on Woodside despite the fact the stock is getting close to his A$17 per-share price target.


UBS, another long-time backer, also rates the company a buy with a price target of A$19.95, or roughly 20% above current market levels.


Both brokers are enthusiastic about the momentum behind Woodside, which fended off a hostile takeover bid of A$10 billion, or about US$7 billion, three years ago from Royal Dutch/Shell Group, which holds 34% of the company.


Valued at A$11 billion, Woodside was founded in 1954 and has grown into Australia's biggest petroleum company mainly on the strength of liquefied natural-gas production and, more recently, oil. It operates the giant North West Shelf LNG project offshore Western Australia that ships mostly to Japan. Currently undergoing an A$2.4 billion expansion, the venture plans to begin contract sales to China in 2006.


Competing with rival operations in Indonesia, Russia and Qatar, Woodside and its Shelf partners also are targeting the U.S. West Coast. Woodside owns one-sixth of the North West Shelf. The other partners are BHP Billiton, Royal Dutch/Shell, ChevronTexaco Corp., BP PLC and Japan Australia LNG, which is an equal joint venture between Mitsubishi Corp. and Mitsui & Co.


Australian Prime Minister John Howard last week lobbied California Governor Arnold Schwarzenegger on BHP Billiton's proposed US$500 million LNG import terminal off the Los Angeles coastline. Gas from the Shelf would be the main supply source for the floating plant, which is the subject of stiff opposition from environmentalists in California.


The mix of LNG and oil is proving to be a heady brew for Woodside investors. In April the stock touched a record high of A$17.09. It is a strong turnaround for a stock that slumped to near A$10 early last year on worries about Woodside's growth strategy following some failed attempts at overseas acquisitions in 2002. The unsuccessful deals, overseen by former chief executive John Akehurst, included a potential takeover of Denver-based oil group Westport Resources Corp. and a failed tilt at BP's former Veba assets.


But the departure last July of Mr. Akehurst, viewed as Shell's nemesis during the Anglo-Dutch oil major's failed bid, energized the stock as investors bet on a more-harmonious boardroom.


The arrival in April of CEO Don Voelte, a former Mobil executive with broad international experience, also pleased investors looking for Woodside to build its overseas presence.


Deutsche Bank expects Mr. Voelte to enjoy a honeymoon period for the next three years as Woodside delivers "unprecedented" growth from a A$4 billion development spree that could nearly double its production.


Woodside has approved three projects since March, including a US$600 million oil development announced this week off the coast of Mauritania, called Chinguetti. Owned 54% by Woodside, it will become the company's first major producing asset outside of Australia in 2006.


Three more developments will be considered this year, including a further expansion of the North West Shelf.


Deutsche Bank's Mr. Hirjee believes the shelf's A$1.6 billion expansion to build a fifth processing "train" or production unit, which depends on Woodside's securing extra sales in Japan and Korea, will be well received by investors.


"We certainly haven't factored in Train Five in our valuations," he said.


Woodside, along with its much smaller joint venture partner Hardman Resources, is also attracting speculators ahead of a 20-well Mauritania drilling program scheduled to begin in August.


All the development activity should ensure Woodside performs strongly in the near term, according to Daiwa Securities, though the broker downgraded its rating from accumulate to hold as the share price breached its A$16.50 target price.


Nevertheless Daiwa analyst Mark Pervan is still upbeat on the stock. "I think that it could surprise on the upside if oil prices remain strong," he said.


"Woodside have found themselves in a hot area [Mauritania] and want to make the most of this diversification," Mr. Pervan said. "It is a smart move in this current [oil price] environment."


Mr. Pervan is also encouraged that Woodside's overseas push may overturn long-held perceptions that Shell restricted Woodside's offshore growth to focus on its Asian gas strategy.


For its part, Shell said it is "happy" with its 34% stake in Woodside. Tim Warren, chairman of Shell Australia, said last week that he is "very excited" with the Chinguetti go-ahead, adding that Shell is willing to lend its technical expertise.


Write to Stephen Bell at

Click here to return to Royal Dutch Shell Group .com