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AAP News (Australasia): Woodside profit overshadowed by cost overruns (*34% owned by Shell)

Ben Sharples

PERTH, Aug 22 AAP – Woodside Petroleum Ltd’s improved 2007 half year profit has been overshadowed by expected cost overruns at the North West Shelf Joint Venture (NWSJV) and the Otway project in Victoria. Perth-based Woodside posted a first half profit of $610.1 million, 16.3 per cent higher than the $524.35 million reported in the corresponding period of 2006.

Underlying net profit for the six months to June 30 came in at $545.4 million, 10.6 per cent higher than the previous corresponding period. Woodside today indicated that the construction of a fifth liquefied natural gas (LNG) supply train at the NWSJV in Western Australia was facing its second cost overrun.

The original price tag for the expansion was $2 billion, but soaring industry costs prompted Woodside to revise that figure last September to about $2.4 billion. Woodside managing director and chief executive Don Voelte told a conference call today he expected the final cost to be about $2.5 billion. The fifth train is due for completion by the end of 2008. It will add 4.4 million tonnes of production capacity, taking total production to 16.3 million tonnes. Woodside is the operator of the venture, which has five other participants – BHP Billiton Ltd, BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, Japan Australia LNG (MIMI) Pty Ltd, and Shell Development (Australia) Pty Ltd.

Woodside also flagged a 20 per cent cost overrun for the $1.1 billion Otway project. Otway has been dogged by construction delays and was expected originally to begin producing earlier in the year. Woodside forecast first gas sales from Otway in September but indicated “cost pressures due to the delay” would push the total development cost to around 20 per cent over budget. “Otway, it’s in commissioning, I made some comments yesterday that one of these days and before I die, we’re going to get gas to that plant,” Mr Voelte said.

Meanwhile, Woodside said production at its troubled $1 billion Chinguetti project in Mauritania continued to decline, with the company today confirming it was assessing whether to sell the operation. Chinguetti has not lived up to expectations since it began production early last year, suffering a significant cut in reserves and lower than anticipated output. Woodside said it was “considering a range of options in relation to its African assets which may include an exit”. Mr Voelte said Woodside’s entire African portfolio would come under review, including the its Libyan acreage, where a recent offshore drill campaign failed to discover any commercial resources.

The oil and gas producer delivered revenue of $1.87 billion during the six months to June 30, higher by 19 per cent than the $1.57 billion reported in the previous corresponding period of 2006. Woodside attributed the improved performance to an increase in production from its Enfield and Cossack Pioneer projects, and the sale of the Legendre asset in WA. But the company said profit for the half year was negatively impacted by increased depreciation and the strong Australian dollar.

Woodside, Australia’s largest independent oil and gas producer, said it was on target to meet its full-year forecast of 72 to 78 million barrels of oil equivalent (mmboe) for calendar 2007. The company declared an interim dividend of 49 cents per share. Woodside shares closed down one cent to $40.99. AAP bls/ea

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