1. business and industrial
2. energy
3. natural gas

ASX Announcement
Woodside Petroleum Ltd.
ACN 004 898 962
Woodside Plaza
240 St Georges Terrace
Perth WA 6000
Australia
Tuesday, 16 December 2014
ASX: WPL
OTC: WOPEY
www.woodside.com.au
WOODSIDE PURCHASES APACHE ASSETS - TELECONFERENCE
On Tuesday, 16 December 2014 at 8.30 am AWST Woodside hosted a teleconference to discuss
Woodside’s purchases of Apache assets.
The transcript of the briefing is attached, which includes clarifications to comments made during the call.
Contacts:
MEDIA
INVESTORS
Michelle Grady
W: +61 8 9348 5995
M: +61 418 938 660
E: michelle.grady@woodside.com.au
Craig Ashton
W: +61 8 9348 6214
M: +61 417 180 640
E: investor@woodside.com.au
Company:
Title:
Date:
Woodside Petroleum Limited
Woodside Purchases Apache Assets
16 December 2014
This document should be read in conjunction with the Woodside Purchases Apache Interests in Key Assets
ASX and associated slide pack which is available on the company’s website, www.woodside.com.au.
Start of Transcript
Peter Coleman: Good morning, everyone, and thanks for joining us. The purpose of this morning's
teleconference is to give you an overview of the acquisition that Woodside's just announced this morning. I'm
joined by Lawrie Tremaine, our Chief Financial Officer.
Before I take you through the rationales and benefits of the acquisition I probably need to say a few words
about Browse. We also announced this morning a revised schedule for Browse FEED has been agreed by
the joint venture. Woodside, as operator, has completed the basis of design work, as well as key pre-FEED
work, and we're now focussing on additional strategic activities within the joint venture.
These include continuing to progress our primary approvals and managing the impacts of the marine
boundary change affecting the Browse retention leases. We see the decision to move FEED to mid-2015 as
a positive one for the project as we remain very committed and focussed on taking it forward.
Why the change? We've seen, obviously seen, a very substantial shift in market conditions, and we actually
believe it provides a good opportunity for us to seek significantly lower cost outcomes for the Browse FLNG
development, primarily drawing on lessons learned from other projects and other cost changes that we're
seeing in our own business. So I want to be clear this morning that the decision on Browse is very much a
separate decision to the one of our acquisition of Apache's assets.
So with that as a preamble, let me move on to the Apache acquisition. I won't talk to every slide in the pack,
but I will spend a few minutes giving you an overview of our thinking, and then we'll open up the call to Q&A.
I think that's really where the value is this morning.
If I can move to the acquisition itself, Woodside's entered into a binding transaction with Apache Corporation
that delivers value adding growth while demonstrating disciplined capital management. The transaction
overview is provided on slide three in the pack. Under the agreements we're acquiring Apache's interest in
Wheatstone LNG and Balnaves Oil in Western Australia, and Kitimat LNG in Canada for an aggregate
purchase price of US$2.75 billion.
Now, what this acquisition includes is a 13% interest in the Wheatstone LNG project and a 65% interest in
the Julimar-Brunello upstream development, Apache's 65% equity of the Balnaves Oil project and a 50%
interest in the Kitimat LNG project which includes approximately 320,000 net acres in the Horn River and
Liard Basins in British Columbia. As many of you know, the Liard Basin is arguably amongst the top shale
gas resources in the world.
2
We're very pleased, naturally, to have done the deal. We've taken a very disciplined and patient approach to
identifying the right growth investments for Woodside. And if you look at the nature of the assets, they're very
consistent with the strategies that we've outlined previously. The acquisition itself will be immediately
accretive to net profit after tax, earnings per share and operating cash flow, and we are fully funding the
purchase through existing cash and debt.
Our capital commitments on sanctioned projects and sustaining capital are expected to be at a low level of
about US$800 million per year for the next three years. And, importantly, it should be noted that we're
maintaining our previous guidance on dividends and expect our credit ratings to be unchanged.
This transaction delivers a reserve uplift of 19% in proved reserves and a 20% uplift in proved plus probable
reserves. It builds Woodside's development pipeline and, naturally, will increase our LNG production profile.
The assets themselves are a natural fit to our current portfolio and provide very much value enhancing
opportunities for our business. You'll find a detailed breakdown of each of the assets in the back of your
packs, and slide four provides a quick overview.
Wheatstone LNG is a world class asset. It delivers material near term production and cash flow for
Woodside. Capital spend on Wheatstone is well advanced, and we've bought into the project at a discount to
sunk costs. The Balnaves Oil floating production storage and offloading facility provides immediate
production and fits well within our existing asset portfolio. In Canada the Kitimat resource may contain up to
40 Tcf of potential recoverable resource – Woodside share - and provides us immediate entry into an
emerging LNG growth province.
Before I open the call to questions I want to move to slide 10. Woodside is committed to making disciplined
investment decisions. In addition to the metrics I highlighted earlier, this acquisition enables us to optimise
our near term capital structure in line with our stated gearing targets of 10% to 30%. The acquisition does not
impact our ability to fund future growth initiatives.
On timing, we expect the acquisition will be implemented effective 1 July 2014 and it's subject to regulatory
approvals, pre-emption for both Balnaves Oil and Kitimat LNG projects and joint venture participant consent
for the Kitimat LNG project.
With that as an opening, I'll now close the formal part of the introduction and I'll open up the call for
questions.
Operator: Ladies and gentlemen, we now begin the question and answer session. Should you wish to ask a
question please press star one on your telephone keypad and wait for your name to be announced. If you
wish to withdraw your question request please press the pound or hash key.
Your first question comes from the line of Dale Koenders from Citigroup. Please go ahead.
Dale Koenders: (Citigroup, Analyst) Hi there. I was hoping you could provide some commentary as to your
expectations for timing and capex for Wheatstone. Your guidance for $600 million per annum spend on
these acquired assets, is that based on the operator's guidance of the $29 billion capex on the project?
3
Peter Coleman: Yes, Dale. Everything we've got at the moment we've - let me put it another way. We've
done the analysis two ways. We've looked at the operator's guidance and then we've also looked at our own
stress testing of the acquisition based on our own estimates. What I would say is what you've got in the pack
is consistent with the operator's guidance for the most part. It includes a little bit of extra contingency that
we've put in there, but it's not material at this stage, I would say.
I would actually go back and point out that while we're in a period of low commodity pricing at the moment,
we've not talked a lot about the impact on forex. Our understanding is, going forward, more than 50% of the
forward spend on Wheatstone will be Australian dollar denominated, so there, in fact, is a potential positive
impact there that we didn't take into account in the acquisition with respect to forex effects.
Dale Koenders: (Citigroup, Analyst) Okay. And then just in terms of the comment made in the slide pack
about potential synergies with the acquisition, obviously, it's in your back yard and it sits very well with your
skill set, but are there other synergies to unlock, perhaps, with Pluto infrastructure that’s sitting there or the
Clio and Acme gas resources or anything else?
Peter Coleman: Look, it's way too early. We haven’t even - we haven’t sat down at all with the operator to
talk about those synergies. I think the first synergy to look at - as you've quite rightly pointed out - is that
Julimar-Brunello actually abuts the Pluto fields. So we'll be looking for synergies across our operations.
That's a natural thing for us to do in that regard.
As we join the joint venture we'll also be looking for opportunities where we can assist the joint venture with
our experience, where that's appropriate. So I just think there's a natural fit for us with respect to the fact that
we're in the area, we're at a low point with respect to our own development programs, and so that means we
have people and resources that we can put to assist the project if needed.
Dale Koenders: (Citigroup, Analyst) Okay. Thank you. A great deal, and well done, Peter.
Peter Coleman: Thanks, mate.
Operator: Your next question comes from the line of Mark Samter from Credit Suisse. Please go ahead.
Mark Samter: (Credit Suisse, Analyst) Yes, morning, guys. Just a couple of questions, if I can? I guess, first,
strategically, I mean these are obviously high quality assets, but certainly not been bought at a distressed
price. We look around the world at the moment there are, certainly some corporates are starting to look
reasonably distressed. Firstly, do you think this deal precludes, let's say, a similar sized deal from happening
as we roll forward over the next six, 12, 18 months?
Peter Coleman: Yes, look, what I'd say, Mark, is, firstly, it's the old willing buyer, willing seller. I think we
bought the assets at a fair price and, certainly, there's a lot of upside to these particular assets, so - and they
fit very well into the type of asset mix that Woodside is good at developing. We've articulated that in our
strategy day. So if you look at them, they're in the first third of their life, and that's really something that
Woodside can add value to through people and capabilities, so that's how we look at it.
It's very, very unusual to be able to purchase into a project like Wheatstone at this stage of development,
where a lot of the capex is already de-risked, the resource is de-risked and the marketing is already
4
completed. So from that point of view you wouldn't expect to see a distressed price out in the marketplace
because it is a world class asset and a very low sovereign risk environment. And so, for us, it's a natural fit. It
just - we can see lots of things where it's just a natural fit for us and of course Kitimat has blue sky potential.
It's got a long way to go but it's - the size of the resource and the quality of the resource and the acquisition
price for us were really compelling in that regard. We were able to enter into that at a significant discount to
the sunk cost that the operator - that the seller has already put into it.
With respect to the future, what I would say, it really depends on the nature of the acquisition and whether it's
debt-based, whether it's large enough and we would think we'd need to go to the equity markets or whether
it's share-based. So I think I'd answer your question and say, no it doesn't preclude anything at all, yes we
think we're actually entering a window that Woodside's been waiting for for the last three years and we've
been preparing ourselves. Our cash commitments are low and we have a huge amount of optionality in our
balance sheet at the moment.
I think the deal also demonstrates that our deal team is able to bring home deals with some of the best
negotiators in the world. This year, we passed on a couple. You publicly see the ones that get out there.
We've had a lot more that we're sitting here today saying we're pleased with the choices that we've made
and the decisions we made at the time. So, this one is one that fits everything for us. We're very pleased with
it and we're very pleased to be potentially working with Chevron in the future.
Mark Samter: (Credit Suisse, Analyst) And on to that point you talked about you bringing Woodside's skill
sets to - I guess without wishing to be disrespectful to Chevron when we look at Angola and Gorgon to date
as their first two operated LNG projects, neither have been a raging success on budget or schedule. Is there
scope for you guys to get involved on any level in the operatorship?
Peter Coleman: No I think that's presumptuous. I think if I was to suggest anything at this point, it would be
the fact that Wheatstone's a couple of years off commissioning and commissioning is something that I think,
just looking at it from 10,000 feet that we could add value to. Equally though, we need to talk to Chevron
about that because they're probably got a commission - I'm sure they've got a commissioning team in place
already and have got quite robust plans in that regard.
So we've got a lot of respect for Chevron as an operator. We're already working with them on sharing some
facilities through our North West Shelf and Burrup facilities. So I think this is just going to work out really well
for us. I think we're just a natural fit working together to be honest and the opportunities, they'll just work
themselves out over time. I think we need to close the deal first and then we'll work through the
opportunities. I think it's presumptuous for me to make comment about it.
Mark Samter: (Credit Suisse, Analyst) Sure, and then sorry, two really quick questions if I can follow up. I
think there's about 1.5-ish million tonnes at Wheatstone that's uncontracted still. Is that potential addition to
your portfolio ambitions?
Peter Coleman: Yes look it's a couple of cargoes per year I understand and so from that point of view, it just
helps us. Particularly as we're looking to place new projects into the market place, a lot of buyers are looking
for some early optionality around cargoes and so it really does help us. With respect to - the actual numbers,
5
our understanding is about 20% is uncontracted so you can do the math on that. It's probably a couple of
cargoes per year.
So look, short answer is, our marketers love this stuff because it gives them optionality out of what is as I
said, a really world class project. So that stamp - that gets a positive stamp on it straight away. So short
answer is yes, this is a net positive for us.
Mark Samter: (Credit Suisse, Analyst) All right and then sorry just really a quick final question if I can. I don't
know if you know. Do you know when the major EBAs are up for renewal at Wheatstone? Is it pre planned
completion of Train 1 or Train 2?
Peter Coleman: No, I really can't answer that question. I know when the other ones open up but that's one I
don't. I'm sorry.
Mark Samter: (Credit Suisse, Analyst) Okay, brilliant. Thank you Peter.
Peter Coleman: Thanks mate.
Operator: Your next question comes from the line of Stuart Baker from Morgan Stanley. Please go ahead.
Stuart Baker: (Morgan Stanley, Analyst) Good morning gentlemen. Just got a couple of questions refining on
Wheatstone again. The 8.6 million tonnes, is that a nameplate capacity at this point or is that an expected
saleable volume, is the first question. The second question is, of the sanctioned capex, at FID I think it was
about $29 billion, if I could get a figure for how far through they are, spent at this point. I see it's 49%
complete but is that man hours, is that capex, don't know.
Finally, how is that capital cost figure moved? We've seen obviously quite a few of them move up and down well basically up over a period of time. This one was sanctioned a couple of years ago. I just wonder if that
figure is still valid and/or current?
Peter Coleman: All right, well a couple of things, Stu. The 8.6 actually is an 8.9 capacity number, so 8.9 for
capacity. The - with respect to capex and so forth, hours earned versus capex but my understanding is that
it's about the same. So hours earned and the capex spend's about the same. We've been able to look at
contingency rundown, we've formed our own view on that and we've built that into the price expectations for
us. So I'll let operator comment on where they think capex is going.
With respect to the actual spend, the majority of the remaining capex spend will be in 2015. So if you think
about the rundown of the project, really this coming year, 2015, is the major capex spend on the project and
2016 gets into your prestart activities.
Stuart Baker: (Morgan Stanley, Analyst) Right okay, well to take that one step forward…
Peter Coleman: Yes
Stuart Baker: (Morgan Stanley, Analyst) …I guess if I could. Just looking at your slide on page 10 where
you've got average per year spent, 2015 to 2017 and I think it's got a figure there of $600 million, that's
obviously over three years and so it implies about $1.8 billion in total. Would it be fair to assume that the bulk
of that's 2015 and perhaps a little bit less in 2016 and that's to complete Wheatstone?
6
Peter Coleman: Yes the bulk of it is to complete Wheatstone, Stu. And my understanding is there's about
$1.5 billion to spend on our numbers.
Lawrie Tremaine: That would be our share.
Stuart Baker: (Morgan Stanley, Analyst) Right.
Lawrie Tremaine: That's our share. Just to be clear.
Stuart Baker: (Morgan Stanley, Analyst) Yes, right. Okay well thanks very much, gentlemen. Good luck.
Operator: Your next question comes from the line of John Hirjee from Deutsche Bank. Please go ahead.
John Hirjee: (Deutsche Bank, Analyst) Thank you. Good morning, gentlemen. A question on Kitimat, if I may.
Peter, one of the issues that sort of precluded you from going more active in shale has been the expertise
within the company in monetising shale or familiarity with the monetisation of that. Could you explain a little
bit about how you intend to overcome that competency deficit in terms of that shale? Because as I
understand from slide 15, it looks as though you're going to be the operator of the Horn and Liard equity, so
just explain a little bit about that please.
Peter Coleman: Yes it's a good question John. Clearly our shale gas development is not a core skill for
Woodside and so when we say we're operator, Apache is currently the operator of the upstream so we're just
reflecting the current position. We expect that we'll have some conversations with Chevron pretty soon about
both operatorship and then some of the other development opportunities we have around the Kitimat
development including what we do with our own Grassy Point development as well. So we just need to sit
down at a table and work through that.
What we're pleased with though is Chevron are a very competent, unconventional operator in the US or in
North America, and already have a very large footprint both in Canada and as you know, particularly in the
Permian Basin. So we're actually looking forward to working with Chevron on what's the best operator
scenario for us, but I wouldn't expect that Woodside will take a lead.
John Hirjee: (Deutsche Bank, Analyst) Okay thank you. Another question if I may regarding Wheatstone. In
terms of the contractual position with the reserves that are there, in addition to the additional reserves, what
are your early thoughts on potential combinations with Pluto and Pluto expansions? Is that a possibility in
terms of how you think about potential expansions at Wheatstone?
Peter Coleman: Look we haven't built any of that into the scenarios we've put around acquisition pricing and
so forth. I think to be honest, that's something that during 2015, 2016, we're all going to have to sit down and
say what are the right future activities for us. I think to be fair, both the operator and other resource owners
around the North West have had their head down for the last couple of years in an execution phase. We
need to let people get through the execution phase and then we'll start to look at what other possible
synergies there are.
Clearly there are - at a smaller level, there are some things that we can be doing together. I think what we
need to do is just start to build a relationship first, get used to working with each other and then maybe some
of these other opportunities will raise their head. What it does do though, and I think it does actually now get
7
us a seat at the table to be talking about things in a very positive and material way rather than sitting on the
outside, wondering what conversations are being had about how reserves are going to be developed and so
forth. So I think as you know it brings us in there and we can contribute constructively to that.
John Hirjee: (Deutsche Bank, Analyst) Right. Thanks very much, Peter.
Peter Coleman: Thanks John.
Operator: Your next question comes from the line of Paul Garvey from The Australian. Please go ahead.
Paul Garvey: (The Australian, Journalist) Hi there Peter. A few questions if I can. Just on the latest Browse
delay, what's your expectation that that may have on any discussions around the next line of retention leases
there?
Peter Coleman: Paul, I don't expect it will have any impact on that. We've got a couple of things we're
working out with the State at the moment. One is on domestic gas and how we'll meet our domestic gas
obligations. Then the second part of that is around supply chain and more importantly, where we'll base our
helicopter or aircraft support and where we'll put our supply vessel support. So they're two very important
issues that we're in quite fairly advanced discussions with the State at this point.
With respect to the decision not to move formally into FEED at this point, it was a fairly pragmatic decision to
be honest with you and the joint venture partners are at different points on their journey on this. The
pragmatic decision was let's make sure that we get all of these things sorted out while we take the
opportunity to go back to both the shipyard and the designers and the suppliers and make sure that they are
starting to put some of these reductions in costs into the numbers that they're showing us.
So while we're all very reactive to commodity prices dropping in the last month, of course suppliers are at
different points in their own cycles with building that into their cost structure. We don't want to move forward
with Browse at this point and lock in or miss the opportunity of locking in some lower prices into our costs
and that's what we're doing at the moment. So we're going to take a few months to do that.
Paul Garvey: (The Australian, Journalist) Okay and at Wheatstone, Chevron's got an abnormally large stake
there. Do you see - would Woodside be interested in increasing its position if additional interest in the project
were to become available and the company has the capacity to do so?
Peter Coleman: Look, I think everything has a price. So certainly Chevron's not indicated a desire at this
point to sell down so I think again, it's presumptuous on our part to be talking about it. Do we have capacity?
Yes we do. Do we like the project? Of course we do and if equity came up at the right price, then we'd look at
it very hard.
Paul Garvey: (The Australian, Journalist) Okay and just finally. I know these projects are built to live through
a number of cycles. But where we are now with prices and so on, there is Wheatstone - would Wheatstone
be profitable it if was operating today in this climate?
Peter Coleman: Operating today? I'm getting lots of positive nods around the table and, you're right Paul, as
you look through the cycle Wheatstone will start up at a point where we should see a strengthening of the
commodity pricing. So when there is a short dip in the cycle, these dips typically take a year and a half or so
8
to work the way through and then, depending on how sharp it is and how long it is, we typically come out of
the cycle pretty rapidly.
So again, this is all based on a long term forecasting. But we have - also, we have stress tested the projects
on much lower pricing than we normally would, to just make sure they're robust and we don't end up with a
nasty surprise. I can say to you now that the guys who run the numbers are nodding vigorously, that this is a
robust project.
Paul Garvey: (The Australian, Journalist) Thanks very much.
Operator: Your next question comes from the line of Nik Burns from UBS. Please go ahead.
Nik Burns: (UBS, Analyst) Thanks very much. Look, just a question on Wheatstone again, just in terms of the
level of due diligence you were able to complete on the project. Were you able to get access to Apache's
information before you submitted the bid or is there still some risk that when you get hold of the information
there might be some surprises there?
Peter Coleman: No Nik. We've been in a full data room. We've actually been working through this transaction
for some time in various forms. So we've seen all the latest project reports coming from the operator, their
monthly report updates, which include cost and schedule as well. So we've seen all of that. We've seen the
constructability reviews, all of their own internal reviews and so forth. We've formed our own view on where
the assets are in its cycle. So from that point of view, no we've been - we've had access to all of the
information.
Nik Burns: (UBS, Analyst) Great and just in relation to the project capex, I think everyone quotes the
Chevron number $29 billion. My understanding that doesn't include the Julimar capex. Are you able to give
any indication of what the upstream component is there?
Peter Coleman: Not off the top of my head, sorry. Maybe that's something that - yeah - no, not off the top of
my head, Nik. I'm getting numbers thrown at me here, so no, not off the top of my head. You've asked me a
question I can't answer this morning.
Nik Burns: (UBS, Analyst) Okay, no problems. Look and just from a strategic perspective. I guess one of
your mantras has been value accretive growth and with Wheatstone the project scope is locked in, most of
the LNG sold, you’re non operator. I'm just wondering, is this just a play on oil price recovery, as you alluded
earlier? Or where do you think the upside is in Wheatstone itself?
Peter Coleman: Look, I think the upside is, one, in some of the synergies, the potential synergies we've
talked about, two, it's been able to work within the joint venture and work on things like reliability, things like
sharing certain infrastructure. There is further - we've got some stranded resources in the area, as you know.
There are opportunities for us there as well to bring stranded resources in towards the back end of the
project's life.
So there are a number of things there for us that we can kind of work through into the future. It also plays
nicely into our marketing and shipping strategies as well. While a lot of the volume has already been sold,
some of these are buyers that we already know very well, particularly TEPCO. So it cements the relationship
9
with us in Japan on those buys and gives us a couple of spot cargoes each year as well. So there are just a
number of things that we'll be able to work through.
If I can get back to - actually, I'll let Lawrie answer your question about capex, if he can. But so no, it's not
simply a commodity play. We’re LNG players. So this fits really well into what we do. It's another arrow in our
quiver and it gives us really low risk access into world class assets.
Lawrie Tremaine: Hi Nik. So our current estimate for full phase one upstream costs is about $1.7 billion. So
that's the share that we will be acquiring.
Nik Burns: (UBS, Analyst) Sorry, that's Apache's 65% share of the upstream?
Lawrie Tremaine: That's right [correction: $1.7 billion is 100% project].
Nik Burns: (UBS, Analyst) Excellent. Thanks Lawrie. Thanks Peter.
Peter Coleman: Thanks Nik.
Operator: Your next question comes from the line of Ben Wilson from JP Morgan. Please go ahead.
Ben Wilson: (JP Morgan, Analyst) G'day Peter and Lawrie. I just had a question about marketing now of both
Browse gas and potentially Kitimat gas further down the track. Would you be looking to potentially at the
same sort of window for reinvigorating efforts around marketing of that gas, and what's your understanding of
the marketing efforts to date around the Kitimat gas that Chevron and/or Apache may have completed prior
to this date?
Peter Coleman: Right. Well look, on Kitimat, Ben, we're not aware that any marketing has been completed
and then our own marketing efforts on Browse would indicate that particularly the Japanese market at the
moment is quite uncertain. There’s a couple of issues that are happening within that particular marketplace.
One is purely the potential uncertain supply where buyers are basically saying we're not sure whether we
want to sign up to anything at the moment because we're not sure how much supply is coming into the
marketplace. We predicted this a couple of years ago, which is why we locked in some mid-term contracts
out of Pluto, so it's - what we're seeing from the buyers is not unusual, particularly for this group of buyers.
The other one there has been some consolidations in Japan around buying consortiums and of course
TEPCO and Chubu agreeing to get together as a buyer consortium is also causing them to pause with
respect to their buying activities at this point, particularly for long term projects. So I'd just say at the moment
selling to Japan is quite difficult because of the uncertainty that the buyers have, both around the volumes
that they want and also the pricing structure.
In that regard, we're actually expanding our marketing activities to moving beyond what we consider to be a
very mature market in Japan and targeting some of the growth markets around the world. So I'd expect you'll
see more news on that over the next few months as we expand that.
Ben Wilson: (JP Morgan, Analyst) Okay and just if I can ask on your chart I think on slide 9, where you've got
the development pipeline and you have for Kitimat the BOD and the FEED phase running through 2017. Is
10
that intended to indicate 2017 plus or would your intention be to sanction that project at the back end of
2017?
Peter Coleman: I think - our understanding is the requirements of the project are to have - to go to sanction,
there are a number of internal agreements that need to be finalised, including a joint operating agreement.
But also the marketing of the gas needs to be, reach a percentage and it hasn't reached that trigger yet. I
think what you'll find over 2015 is there will be a refocussing on the activities which have been mainly
downstream based to date, firming up the pipeline route, firming up the LNG plant site. There'll be a shift in
focus more towards the upstream resource and really particularly the Liard and understanding the
productivity of the upstream resource and the cost structure for that, because the upstream has a number of
options with respect to putting FEED gas into the plant.
At the moment the joint venture is focussed on equity resources, but there are a number of other
opportunities that need to be explored as well. So with respect to the timing of the project no, there is no
commitment to an FID date at this point. There are just some prerequisites for us to go to FID and I think
we're looking forward to working with Chevron to understand their thinking around each of the options that
they have in front of them.
Ben Wilson: (JP Morgan, Analyst) Okay, very good. Thanks Peter.
Peter Coleman: Thanks Ben.
Operator: Your next question comes from the line of Peter Klinger from the West Australian. Please go
ahead.
Peter Klinger: (West Australian, Journalist) Good morning Peter and Lawrie, just a question. Does today's
announcement signal the end of your interests in the other Apache assets in this part of the world?
Peter Coleman: That's a good leading question Peter. I'm not sure we ever said we were interested in the
other Apache assets in this part of the world.
Peter Klinger: (West Australian, Journalist) Well here’s an opportunity.
Peter Coleman: No. We don’t comment on things like that. Having said that, clearly we look at - just like
we've looked at Wheatstone, we look at opportunities where there is potential for us to use either our existing
facilities or our key point capabilities to add value. So if any of those Apache assets came onto the market at
a price that made sense to us and didn't trigger some of the competition requirements that we have here,
particularly ACCC, then they'd be things that we'd look at. I just say look, that's just an open book for us.
Peter Klinger: (West Australian, Journalist) Thank you.
Operator: Your next question comes from the line of Peta Arnett from Merrill Lynch. Please go ahead.
Peta Arnett: (Merrill Lynch, Analyst) Thank you. I just have a question on the book value of the assets,
Apache's book value. Are you able to comment on that, in particular the costs of Wheatstone?
11
Peter Coleman: No Peta, we're not able to comment on it. I'd point you to Apache's own annual report. I
believe there is some numbers in there. But I'm not sure if they have a breakdown on Wheatstone in there.
They have a breakdown of what they call LNG assets, which also include the Canadian assets.
Peta Arnett: (Merrill Lynch, Analyst) Okay, thanks, just another question. In terms of the structure, the
funding structure, are you - will you be using the - or drawing down the debt that was in your presentation
from the first half, so that $1.6 billion and then using cash? So you're not - just confirm you're not raising any
additional debt as part of the transaction, this year or in 2015?
Lawrie Tremaine: Hi Peta, this is Lawrie. Look, I'm not going to say that at all actually. Look, what we can do
is we can fund this transaction just through our existing debt and the cash that we've got on hand. So that's
the starting point. But of course, we'll take every opportunity to optimise our debt position and optimise the
opportunities in the markets. So, I'm not - I'm just not in a position to say whether we would raise more debt
or not. But we'll be looking at the ability to optimise over 2015.
Peta Arnett: (Merrill Lynch, Analyst) Okay, thank you.
Operator: Your next question comes from the line of Adrian Wood from Macquarie. Please go ahead.
Adrian Wood: (Macquarie, Analyst) Hi guys. Look, almost all of my questions have been asked already, but
just three quick ones. First of all, the structure of this deal, was there - was it all a package? Did you have to
buy Kitimat to get exposure to Wheatstone or are those separate deals and just being announced on the
same day? Also, can you just talk me through how you think about Pluto verses Wheatstone expansion?
Obviously both projects have expansion potential. They could be competing with each other. I just wonder
how you may try to attract gas towards Pluto and away from Wheatstone.
Then finally, on Browse, obviously we've seen another delay there now. I just wonder if there's any particular
joint venture member there that was prompting that delay, anybody that was perhaps dragging the chain a
little more than anyone else. Obviously you were eager to get into FEED as soon as possible, it seemed that
decision wasn't perhaps shared with your joint venture. Is there any particular issue there? If it was Shell, for
example, would that be anything to do with - is that a problem, given that they're providing the technology?
Peter Coleman: Alright well let me deal with those. First one Adrian, we structured the deal deliberately, that
both Wheatstone and Kitimat are tied together. So you'll actually find within the SPA structure, if Wheatstone
falls over then we've got an option not to go forward with the deal. The reason for that is we were looking for
a package and we felt there was better value to be extracted if we could offer Apache a package and that's
how we did the deal. There was obviously options to cut it and slice it and dice it and we thought, no that's
cherry picking. We'd rather just go in with a package deal and the package deal, at the end of the day, was
accepted, which included Balnaves by the way. So we put all of that in there.
With respect to Pluto versus Wheatstone, to be honest with you, we don't think about those trade-offs yet. I'm
glad you guys are really out there thinking about the future opportunities for us. We just want to land the deal
today and we'll get the deal done. Then, as you know, we've been talking with other resource owners over
the last two to three years, both around opportunities for Pluto and for North West Shelf. So we've not had a
chance at all to speak with Chevron or the Wheatstone joint venture about opportunities for expansion there.
12
So I really can't comment in that regard. But clearly there is a lot of discovered gas that's currently
undeveloped and has an opportunity to come into any of the plants along the coast. Whether that's the other
plants or whether it's Wheatstone. So we'll have to compete for that, I think that's the message there.
On Browse, what I would say is all the joint venturers are in the boat. I'm not going to comment on how
family works. But all the joint venturers are in the in the boat today, the schedule that was signed off on,
actually yesterday, is one that all the joint venturers have agreed to and are committed to. I think 2014 has
provided opportunity for each of the joint venture parties to go back and test the development concepts and
make sure that we're all happy with it. This is three versus two, the timing and so forth, all of that's been
done, all the houses take different amounts of time to do it. But where we are today, we're all in the boat
together and we're all rowing in the same direction. So I think that's a real positive for us.
What we've got to complete, to be honest, is mainly some commercial documents or commercial agreements
that we need to work within the joint venture itself. How we run our floating LNG project, how we actually
align some of the equity and so forth. So we're in the very final stages of finalising those documents and we
weren't able to get them completed before Christmas, but they'll be substantially complete. We'll come into
first quarter next year and we'll be working diligently to finalise our domestic gas obligations with the State
and then also working our supply chain options.
So we expect by late first quarter, early second quarter next year, to be going through a process of review
with a decision for FEED to be late in second quarter. As part of that, in parallel, the joint venture has set
ourselves some stretch targets on being able to reduce our cost structure. Because we want to make sure
we enter into FEED ensuring that the project team has the right cost targets in front of it. If we put them to
the project team today, they'd be cost targets that were built on the back of a higher oil price than what we
expect to see during the construction phase of Browse. So that's a positive for us, we've just taking time to
pause that and go back.
If I can Adrian, just to add a little bit to that, as to why the incentive for that. We're already seeing in our
business cost reductions, particularly in the commodities part of it - so things like valves and so forth - we're
already seeing cost reductions coming through in our own business of between 10% to 50%, yes 50%. So
the case for pausing here and going back is a compelling one in our view. It really shows how the market is
viewing their options in the future. It's also starting to see a flow on, I think, in commodity pricing, which is the
base materials for some of these things.
Adrian Wood: (Macquarie, Analyst) Just a very quick follow up, Peter, if I may. You mentioned the domestic
gas obligation, which presumably is growing with the growing State involvement in the project. What is the
latest thinking there? There was obviously some suggestion that you were looking at an LNG import terminal
down in the south of Western Australia. What's the joint venture's current thinking around that?
Peter Coleman: We're in the middle of discussions with the Department of State Development, so I think it'd
be imprudent for me to talk about what we think those options are. But what I would say is those discussions
are progressing quite well. We understand what the State is looking for, they understand what are cost
effective or investable options for the joint venture. We're in advanced discussion, that's all I'd really want to
say. I don’t want to cloud the discussions in any way by talking about the options we've discussed.
13
Adrian Wood: (Macquarie, Analyst) Great, thanks very much.
Peter Coleman: Thanks.
Operator: Your next question comes from the line of Angela Macdonald-Smith from the Australian Financial
Review. Please go ahead.
Angela Macdonald-Smith: (Australian Financial Review, Journalist) Thanks, just a quick one. It was just
regarding, Peter, your latest expectations, I guess, and the broader economics of Canadian LNG exports. If
we're facing maybe a sustained lower oil price environment and also in light of the PETRONAS decision
recently to defer FID on its Canadian project. Can you just maybe talk about that and how you see that
panning out over the next few years?
Peter Coleman: Yeah, you know I'd say the first thing Angela, as we look at Kitimat, the dollars we're
spending together are dollars that are not what we call committed. So they're dollars that we need to spend
to progress the project, to allow us to get to a final investment decision. But they're not dollars that are
committed in the context of a project that's gone to a final investment decision. The second part to it is, what
I would say is, the resource potential is a compelling one. There's a resource range there but it's potentially
40 Tcf Woodside share which, as you know, is really a compelling case for us to go after it. We've managed
an entry price into this that really, for the most part is at acreage value. So if you do the math on comparable
transactions, I think Canada is pretty much acreage value plus a little bit.
With respect to where we think pricing is going, look what I would say to you is it is a part of the world where
costs are going to be challenged. There's no doubt about it, it's not the Gulf Coast of the US for example.
These are greenfield sites and there's quite mountainous terrain to lay a pipeline across. So no, the project
needs world class reserves or resource with it, and it needs the very best cost structure. Having said that,
today we're talking about prices having declined significantly on the sell side. On the cost side though we
haven't seen that wash through yet. Typically there's a 9 to 18 month lag on the cost side. So, as I was
mentioning earlier on Browse, I expect over the next 12 months or more, we'll start to see cost wash through
the business. So at the end of the day it's all about margin.
It doesn't matter if the oil price is $100 or whether it's $20, it's around the cost of the business. What we need
to do is develop a cost base for Kitimat that is commensurate with the price that we expect to get to maintain
the margin that we need for the return. So I don't get too worried about it. What I'm really pleased is that I'm
not halfway through a project, having committed at $100 oil to a cost structure, and then ending up with a
$70, $75, $80 world in front of me. That's what I'm really pleased with. So as you look at some of the choices
we made over the last couple of years, and we've maintained a disciplined approach on the cost side, we
haven't bet on a wing and a prayer that price will help us out. Because, as you know, often in these major
resource projects when costs overrun, price is the only thing that helps people out. Well the other part of that
cycle is that sometimes price goes the other way. So we're very pleased today with the choices that we've
made over the last couple of years in that regard.
Angela Macdonald-Smith: (Australian Financial Review, Journalist) Okay, thank you.
Peter Coleman: I think we're on our last question.
14
Operator: Your next question comes from the line of Andrew Hamilton from Antares Capital, please go
ahead.
Andrew Hamilton: (Antares Capital, Analyst) Hi guys. My question is around the capital investment guidance
you've given today. The average over the next three years, the $800 million I think for the base business as
starting capital, plus sanctioned projects and then the $600 million average for these acquired assets, so
$1.4 billion total. I think back in May at the investor day, the total was around $1.9 billion to $2 billion.
Obviously Browse has slipped one year or so, but I'm curious if you can break down for us where the cut in
capex has come from, including in sustained business capex.
Lawrie Tremaine: Hi Andrew, it’s Lawrie. Yeah the difference is just the basis for the two sets of data. So this
is particularly focussed on committed capex, whereas the previous number was pulling in every possible
project out into the future. So in this case it's just committed. So this is what we're already positioned to
spend.
Andrew Hamilton: (Antares Capital, Analyst) Sure, rightio. So obviously further sanctioned projects mean
upside in those numbers. So we're just looking at - okay.
Lawrie Tremaine: Quite right.
Peter Coleman: Yeah I think the important part though Andrew is we also ensured we'd put in there the
sustaining capital. Because we have a view that sustaining capital, or cutting back on sustaining capital in
the short term, has quite detrimental long term consequences for you. So the sustaining capital we're talking
about are things like activities on our offshore platforms, that we think we need for fabric maintenance and so
forth. Very importantly a commitment to continuing with our Karratha Life Extension activities around the
Karratha Gas Plant and working that through. So all of that is included in the sustaining capital number for
us.
What Lawrie was referring to is really things like future phases of North West Shelf, satellite field
developments and so forth. Which are still many months away from being sanctioned anyway.
Andrew Hamilton: (Antares Capital, Analyst) Sure, so your view around sustaining capital expenditure hasn't
changed.
Peter Coleman: No it has not. Look we may have trimmed on the edges, as you would expect us to do. But
the core of the sustaining capital is built into those numbers. So what we really wanted investors to see was
what we thought we really need to run the business in a sustainable way and maintain the value of the
existing business. Now understanding that with Wheatstone coming in, what we've got is another growth
project coming through. So it's not unreasonable for us to say, well if I've got one growth project coming
through in a period of time when cash is paramount, I need to start making choices. So we just want
investors to see the sorts of choices that we can make. It doesn't mean we will make those and we'll have to
see to see what our position is, but this is where we are. So we're very fortunate to have lots of optionality
with respect to the way we deploy our cash.
Andrew Hamilton: (Antares Capital, Analyst) Sure. Okay, thanks a lot.
15
Peter Coleman: Thanks.
Operator: Your next question comes from the line of David Hewitt from Credit Suisse. Please go ahead.
David Hewitt: (Credit Suisse, Analyst) Hi, guys. Thanks for the presentation. Congratulations, as you said,
you don't get to buy LNG assets very often so well done. I think two quick questions, I think everybody's
tired. The first is, for the Wheatstone transaction the quotes are due on payment date, or set date. Were you
using pricing at that time and then testing it robustly down, or am I misunderstanding there? I think you did
say that you didn't put any synergy value into that transaction re Pluto.
The second thing I want to ask about and expand on is you said there is a very strong natural fit here with
Chevron, and I think you're absolutely right. They could help you in the upstream in Canada. You could
market for them, you're a stronger marketer; you could run the liquefaction in Australia. Is there a broader
and more substantive fit between the two companies? Maybe the final question is do you think they'll preempt you?
Peter Coleman: Well, on the last one, David, that's really up to Chevron. We'd be hopeful that they don't and
that they welcome us in, but I'll let them make comment in that regard. No, with regard to a broader
relationship with Chevron, I think it's clear that our relationships with the super-majors at the moment are
pretty much limited to Shell and BP. Expanding the relationship with Chevron in my view can only be a
positive for us, and we very much look forward to working with them in Canada. With respect to what else
that we do with them regarding who does what and so forth, again they're conversations for us to have in the
future. It's not a conversation that's front-of-mind today.
Then on pricing, we did stress test the pricing and as you can imagine, as we were coming into finalising the
deal we've been running every manner of forward strips, combinations and so forth and so on, to make sure
that we were robust with respect to the pricing assumptions that we've got. So from our point of view the
acquisition price that we've paid is a fair price, and as you mentioned, it's very unusual to get into a worldclass asset at this point of its development. That's indicative of a motivated seller and us being able to take
the opportunity in the marketplace to work with Apache on finishing the sale.
David Hewitt: (Credit Suisse, Analyst) Great. Thank you, guys.
Peter Coleman: Okay. Well, guys, look, thanks for staying with us. There's been a lot of questions this
morning and so thanks very much for your interest in Woodside. What I'll do is just quickly wrap up and say
look, we believe this deal is well-priced. It's well-priced, we get access to three assets, we get immediate
production, we get near-term production and then we've got some real upside in the future with Kitimat.
On the near-term growth, the growth path is well - I think is well understood. The operator is targeting late
2016 for the first LNG coming out at Wheatstone. We look forward to working with them on what synergies
we can create within the joint venture. As I mentioned, the potential for Kitimat is tremendous. I will say
though, the challenge for Kitimat is going to be managing the capital spend profile for us over the next couple
of years as we go through the development options.
16
So the pleasing thing with where we are today is we have a lot of optionality with our capital profile. We've
been able to complete a deal that provides certainty around our near-term growth options for us and I'm sure
it's demonstrating to our investors our commitment to the capital discipline that we've been talking about for
some time. Then finally, as we mentioned, we expect our credit ratings to remain unchanged, and then also
of course our dividend policy will stay in place for the foreseeable future and our guidance around that
remains unchanged.
So again, thank you very much for your time this morning and we look forward to - and all the best to you
over the Christmas/New Year season and we look forward to working with you in the future. Thanks very
much.
End of Transcript
17