OSH Oil Search Limited

   By Robb M. Stewart 
 

MELBOURNE, Australia--Woodside Petroleum Ltd. (WPL.AU) flagged a dip in production this year despite expecting continued growth in liquefied natural gas output, which helped drive volumes in 2016 to the second-highest on record for the Australian oil-and-gas company.

Production is expected to fall to between 84 million and 90 million barrels of oil equivalent in 2017, after hitting 94.9 million last year, the Perth-based company said Thursday.

Production of LNG is forecast to build on a record level last year, helped by the anticipated start-up of the US$34 billion Wheatstone LNG project in Western Australia being developed by Chevron Corp. (CVX). However, Woodside said that is due to be offset by a decline in oil output and an expected drop in domestic natural gas as its equity stake in pipeline volumes from the North West Shelf project in Australia's west falls as planned.

The company begins the new year in a strong position, Chief Executive Peter Coleman said. Reliability in Woodside's various LNG operations had been consistently strong last year and the company's production performance was "outstanding," he said.

The company also benefited in the final quarter of 2016 from the strengthening crude-oil price, which helped lift sales revenue for the period and helped offset a dip in fourth-quarter LNG output as higher ambient temperatures impacted the capacity of operations that chill natural gas to a liquid that can be easily stored and transported.

Woodside's earnings were almost wiped out in 2015 by hefty impairments and the plunge in oil prices from over US$100 a barrel in the summer of 2014 to less than US$30 a year ago, cutting net profit by 99% to just US$26 million. Oil is now hovering above US$50.

The company derives most of its earnings from LNG through output from the North West Shelf project, which has been operating since 1984, and the Pluto LNG plant that began producing in 2012.

Woodside said it expected an increase in LNG contract prices in the first three months of this year. Pricing formulas for LNG are linked to the crude price, although due to a lag the price Woodside achieved for its LNG was lower in the fourth quarter than a year earlier.

The company said its sales revenue rose 2.1% on-quarter to US$1.01 billion in the final quarter of last year, although it slipped 8.9% on-year. Revenue for the year was down 15% at US$3.8 billion from US$4.5 billion in 2015.

Output in the quarter reached 23.8 million barrels, down 5.4% on the prior quarter and 4.1% lower than a year earlier.

The quarterly production and revenue performance came in a little above RBC Capital Markets' forecasts, analyst Ben Wilson said, adding guidance for 2017 was in line with his expectations.

The Wheatstone venture is a key component of Woodside's near-term growth strategy and is due to contribute more than 13 million barrels annually once both production lines are fully operational, Mr. Coleman said.

The company also is about to start appraisal work on discoveries in Senegal and Myanmar, which Mr. Coleman said would complement exploration work in Australia and elsewhere.

A little over a year ago, Woodside abandoned an attempt to build a regional oil-and-gas champion after a takeover bid for Oil Search Ltd. was rejected as too low, and last March the company and venture partners including Royal Dutch Shell PLC shelved plans for a floating gas-export operation off Australia's west coast due to the fall in oil prices.

Woodside has instead focused on grabbing undeveloped oil and gas discoveries to bolster its reserves and growth profile, including natural-gas assets in the Carnarvon Basin on the Pilbara coast of Western Australia state and stakes in oil finds off Senegal. It bought Apache Corp.'s 13% stake in the Wheatstone project in 2015.

The company managed to keep a rein on capital expenditure in 2016, bring in spending US$250 million below its previous forecast of US$1.4 billion. It said Thursday expenditure was due to drop about 8% this year.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

January 18, 2017 19:57 ET (00:57 GMT)

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