THE WALL STREET JOURNAL: Australia's Oil Profile Rises: “SYDNEY, Australia -- Not long ago, Australia's oil and gas industry was stuck in neutral. The country's flagship oil and gas company, Woodside Petroleum Ltd., was locked in a nasty takeover battle with Royal Dutch/Shell Group…” (ShellNews.net) 15 Nov 04

Woodside, BHP Billiton

Look Overseas to Fulfill

Growth Ambitions

By PATRICK BARTA

Staff Reporter of THE WALL STREET JOURNAL

November 15, 2004

SYDNEY, Australia -- Not long ago, Australia's oil and gas industry was stuck in neutral.

The country's flagship oil and gas company, Woodside Petroleum Ltd., was locked in a nasty takeover battle with Royal Dutch/Shell Group. BHP Billiton Ltd., another major producer, was struggling to complete a merger and waiting for new projects to flourish.

All the while, a wealth of natural gas sat untapped off Australia's shores, waiting for a buyer.

Today, the world looks a lot different Down Under. Woodside and BHP Billiton have put their distractions behind them and are making big moves overseas. Woodside is exploring in Libya, and it recently announced the latest in a string of oil strikes off the coast of Mauritania.

Meanwhile, China's thirst for energy is accelerating the development of Australia's stranded offshore gas reserves. China National Offshore Oil Corp. is negotiating to buy as much as $23 billion of Australian gas in what would be its second major Australian purchase in recent years. The last deal, in 2002, is expected to be valued at at least $13 billion over 25 years.

All this activity is raising Australia's profile at a critical juncture. At a time when much of the world's oil and gas reserves are in politically unstable and unpredictable countries, Australia is becoming an especially reliable source of energy, with lots of potential for expansion.

The growing international ambitions of its biggest oil and gas concerns are also raising hopes that Australia can unlock a lot of new oil overseas. That could help Asia and other regions meet their soaring fuel demand. While Australia isn't likely to dramatically alter the world's tight supply situation, its companies are among a number of smaller players whose success is heartening to analysts who worry that bigger oil companies aren't spending enough on new exploration.

Many of Australia's latest investments are high-risk. The country's oil companies don't have as much international experience as giants like BP PLC or Exxon Mobil Corp. Earlier this month, Woodside disclosed a second consecutive dry hole in its drilling program off Mauritania.

Australia also still faces hurdles in securing markets for its natural gas. Development of one of the area's largest fields, known as Greater Sunrise, is being held up by a territorial dispute between Australia and the fledgling nation of East Timor.

But many analysts believe Australia is better-placed to capitalize on new energy demand than its less predictable competitors, such as Indonesia and Russia. When Woodside and its partners secured China's first major liquefied natural-gas contract in 2002, for example, it beat out BP, which had large gas reserves in Indonesia.

More recently, Prime Minister John Howard personally lobbied California Gov. Arnold Schwarzenegger to promote a $550 million gas terminal off the California coast that would rely heavily on Australia's gas.

For years, Woodside's business was centered almost exclusively on Australian assets, particularly a single giant gas field off the coast of Western Australia. Woodside used that field, the North West Shelf, to pay for more local exploration.

But in the late 1990s, it realized it was stacking up too much gas that didn't have a market. The company wanted more oil and feared it wouldn't find it in Australia.

Then Royal Dutch/Shell, which holds a 34% stake in the company, launched a hostile takeover. Most observers believe Shell didn't want Woodside to expand into other parts of the world where it would become a competitor. Either way, the deal was rebuffed by the Australian government, which was wary of surrendering the country's gas assets to foreign control.

Getting back on the exploration track, Woodside this year hired Don Voelte, a former Mobil executive with extensive international experience, to become its chief executive.

"If they wanted to stay in Australia and only Australia, I am the last person they would have hired," Mr. Voelte says.

So far, Woodside has announced four sizable discoveries off Mauritania. It plans to begin production from the first field, with 125 million barrels of oil reserves, in early 2006.

It also has projects in Sierra Leone, Kenya, Algeria and Libya. It came to Libya before U.S. companies hit the region after the U.S. eased sanctions earlier this year.

"These frontier areas, they're fairly risky," says Stephen O'Rourke, an analyst at Wood MacKenzie, an international energy consultancy in Edinburgh, Scotland. "But the gamble at the moment appears to be paying off," he says, citing Mauritania.

Woodside aims to increase its annual production to 100 million barrels of oil equivalent by the end of 2007 from about 60 million today. John Hirjee, an analyst at Deutsche Bank in Melbourne, believes production could go as high as 200 million in five years, putting Woodside in the ballpark of BG Group PLC, China National Offshore Oil and other large producers.

BHP Billiton has more international experience than Woodside. But its biggest overseas successes are recent.

The company was created in 2001 from the merger of Australian and London-based mining giants. One of them had spent the last several decades milking a big oil and gas field called Bass Strait near Tasmania.

In recent years, Bass Strait has fallen into decline. Some of the company's previous overseas efforts didn't pan out. Some analysts thought BHP Billiton should dump its oil business so it could focus on its core mining operations.

But now, with oil prices high, the oil business is one of the biggest contributors to BHP Billiton's earnings. Overseas projects that were in the works for some time are coming alive.

The company plans to begin production later this year on the first of what may be several major fields in the Gulf of Mexico. It believes one of them is among the largest fields ever discovered in the deepwater Gulf, with 635 million barrels of oil equivalent it will share with BP.

BHP Billiton also has projects in Brazil, South Africa, Trinidad and Tobago. By the end of the decade, the company says, half of its oil and gas production should come from outside Australia, compared with about one-third or less today.

"I don't think the industry sees us as a newcomer on the international scene" anymore, says Philip Aiken, the president of BHP Billiton's energy business.

Write to Patrick Barta at patrick.barta@wsj.com