Pain At Pump Keeps Woodside Revenue Warm

The Age

Friday April 21, 2006

ROD MYER, ENERGY REPORTER

SPIRALLING oil prices continue to bolster Woodside Petroleum's bottom line, with revenue for the March quarter rising 25 per cent to $719.9 million.

This was despite production falling 5 per cent because of a warm northern hemisphere winter and the recent cyclones off the coast of north-western Australia.

Sales volumes were even lower than production volumes, falling 4.2 per cent below the previous quarter and 7.2 per cent below the first quarter of last year.

But on the day oil climbed above $US72 a barrel, Treasurer Peter Costello warned investors not to put all their cash into the resources sector. "This boom has been going for two or three years (and) we think there is a couple of years left in it," he said.

"If you put all your eggs into resource companies, you will be in as bad a situation in a couple of years' time as people who put all their eggs in the tech basket (in the late 1990s)."

ABN Amro oil analyst Aiden Bradley said Woodside's performance was slightly below his expectations but in the full year the company should make up for lower sales by boosting LNG shipments into northern hemisphere markets.

Overall production was down but the Chinguetti oil field in Mauritania contributed $33 million to the result, its first flow of cash to the bottom line. Mr Bradley said Woodside's overseas forays, to Mauritania, North Africa and the Gulf of Mexico, had not produced the returns it had hoped for. But the rapid run-up in world oil prices meant returns across the business were so strong that this did not matter.

The average oil price for the first quarter was $US63.34 a barrel, compared with $US49.85 in the same period a year earlier. Because Woodside's export prices for liquefied natural gas were linked to the oil price, returns across the bulk of the business improved dramatically.

Woodside treats its LNG contracts with secrecy. But analysts said March-quarter revenue showed the LNG price formula tapered off as oil prices reached high levels.

The company managed to get prices equivalent to 79 per cent of the average oil price for the quarter, compared with 82 per cent a year earlier, Mr Bradley said.

A Woodside spokesman said a $US1 rise in the oil price would boost annual profits by $30 million, while a rise in gas prices of $US1 per million BTU would boost profits by $20 million. But a US1? rise in the Australian dollar would cut $24 million from profits, he said.

Mr Bradley said strong demand for oil, brought about by the strength of the world economy and the growth of China, was pushing up prices and underwriting Woodside's profits. But this scenario was likely to ease in the medium term.

Most oil companies believed oil prices would return to levels in the $US30s in two years, he said. Deutsche analyst John Hirjee said in a research note he was expecting oil prices of $US45-50 a barrel in 2008. The world was not facing an oil shortage, he said, rather the end of cheap and easy-to-get-at oil.