Peter Coleman, CEO of Woodside Petroleum, talks about how higher prices and reduced production costs have seen Woodside report a 49 per cent increase in first-half profit
Introduction: When is the best timing to profit from Woodside investments
Ross Greenwood: Welcome back to Money News right around Australia. One of Australia’s largest oil and gas producers, Woodside, has today announced a half year net profit of $507 million USD. Now, that’s 49% higher than what it was this time last year. Now, the issue right here, is quite clearly there’s been a turn around, because oil prices haven’t necessarily jumped significantly over that period of time, but what’s happened is there’s clearly been more production. Which is really like an ongoing theme of many of the resources companies, the big ones that we talk to.
Say for example in this particular case the free cash flow, which often you judge all the resources companies by, is up by 170% to US$445 million USD. Even then, you think about the oil price hovering just below $50 USD a barrel, while the breakeven price for Woodside, is around $34 a barrel. Let’s go now to the chief executive of Woodside, Peter Coleman, who is on the line. Many thanks for your time Peter.
Interview with Peter Coleman, CEO Woodside
Peter Coleman: Thanks Ross, thanks for having me on.
Ross Greenwood: Okay, Woodside is a company that’s renowned for the joint ventures it embarks upon. The Northwest shelf is one, the plans for the Browse Basin and that project is also massive. You’ve got so many others, the Pluto operation in the Northwest shelf, these are big, big operations. The question from the shareholders point of view is when do you milk those projects and produce the cash, as versus reinvesting that shareholders money back into the next big project that might be on the horizon?
Peter Coleman: Well, I think that’s where we are now at the moment Ross, we look at those existing assets that we have and we’re saying, “Well, how do we get the most out of them and how can we do it sensibly, while ensuring that they maintain their reliability over their remaining life?” That’s always a bit of tension in the organization. How much do you want to spend on them, how much do you want to continue to invest and when’s the the right time to put them into that mode where you’re really taking money out of them, then to get back to shareholders.
I think we’re reaching that point, particularly in Northwest shelf. You will have heard we’ve got plans there to turn that asset into more of an infrastructure asset over time, and we’ve gone out recently with proposals to other resource owners to process their gas on their behalf. I think that’s good news for shareholders, that will increase the life of that asset by 25 years or more. Around Pluto, we’re still continuing to grow. I think there’s some very good news coming up there over time. The key here is, it’s a balancing act and to make the company sustainable, we’ve got to continue to grow those dividends, we can’t just simply sit here.
As a resource company, if we deplete every day that we’re producing, we’ve got to continue to refresh our resource base. I was pleased that you mentioned our breakeven costs in our business. The pleasing thing about this result is we’re able to give distributions out to our shareholders, maintain that high payout ratio, at the same time we’re investing in growth. We’ve invested in growth through our Whetstone project, through our Grader infield and other projects around Northwest shelf. Of course we’re actively exploring both in Senegal and Myanmar.
Ross Greenwood: I was going to say to you, I just want to tell people and give them an update on the Northwest shelf, because clearly, originally, there was going to be an $80 billion brand new plant to take the gas in from the Browse basin. Then all of a sudden that was shelved and it was going to be a floating operation, one of the most audacious engineering projects, probably ever endeavoured in oil and gas research anywhere around the world. That again has been shelved. Now you’re thinking maybe using this Northwest shelf facility, which is Australia’s largest and oldest LNG export plant, that’s at Karratha, maybe bring the gas into that plant, and as you say, extending its life.
This is a type of, well, almost creative thinking, but technical thinking that’s required to get the most out of these assets.
Peter Coleman: Look, it is and it’s one of those old adages really, never waste a crisis. We’ve seen a period here where prices have been low, the industry in total has had a bit of a wake-up call here that these things don’t last forever. It’s required all of us to step back, our partners included and let go of maybe some preconceived concepts that they had previously, and open themselves up to different solutions. What we’ve gone forward to our partners and said, Look, the sensible thing here is actually to use the assets we already have. Those assets exist at the Northwest shelf, we need to simplify these projects, big is not always better and we need to make sure that these are projects that our shareholders can come to journey with us.
They can’t be things that shareholders are worried each and every day about whether we’re going to overspend, or whether they’re going to run late. We’ve got shareholders that rely on us to deliver dividends to the shareholders. We’ve got to maintain those promises and then have that balancing act of bringing these big projects in.
I think we’re making very sensible decisions today. I feel really good about where the project is. Certainly, in my time at Woodside, I think it’s got the very best chance it’s had of moving forward.
Ross Greenwood: Tell me also about Qatar, because Qatar has got a lot of volume coming on stream. It is already the world’s largest producer of liquefied natural gas. Australia, with all of its gas resources, is not terribly far behind these days. But quite clearly, there is that supply and demand equation that is always ever-present as to whether indeed Australian gas resources are going to be viable in the face of that Qatari production.
Peter Coleman: Well, I’d say two things. The Qataris are certainly the strongest competitor globally in LNG. They have very low-cost production. They’re able to do that, because they source it from the largest single gas field in the world, which is called the North Field, which they share with Iran. They’ve got existing infrastructure in place. What I’d say to you though is the Qataris are disciplined. They’ve always been disciplined with respect to their investments and also the pricing they put out into the market.
The positive thing we can take away from recent announcements in Qatar, that they intend to lift a moratorium on LNG production, is the fact that they see the same gap at opening up in the market that we do, around 2023 to 2025. I see it as a positive. The Qataris are signalling to the market, to the buyers that we’re going to be here for you, and as you’re looking for new supplies coming out, please come and knock on our door, because we want to be as part of that equation.
Ross Greenwood: Do you sometimes scratch your head when you look at the East Coast of Australia with its gas shortage and the lack of gas-fired power stations? And say, we are one of the biggest gas producers in the world, it seems rather odd the way in which gas has been managed in this country.
Peter Coleman: Look, Ross, I’ve been around long enough that there are many things in my industry that cause me to scratch my head from time to time. But the East Coast is what it is. We can all go back over history and try and understand why it’s where it is. I think the important thing today is it’s pretty clear, there are small industries and manufacturers on the East Coast that are under pressure. There are customers there that are hurting as well. We all need to get together both industry, government, and buyers and understand how do we solve this, because just simply looking at each other and holding our cards close, it’s just is not going to solve it. It’s not going to go away.
Early signals there, I think some early changes are starting to happen. But look, there’s a lot more to do. I would just particularly encourage the policymakers to see this through to the end. They’ve made a start on a few things. You can argue whether they’re right or wrong policies. In my view, it doesn’t matter. It’s a start and you’ve got to get these things starting to move, but we’ve got to stick it out. This is not a 12 months journey for them. This is going to be a multi-year journey.
Ross Greenwood: I’ll tell you what, Peter Coleman, it’s always good to have a chat with you. The Chief Executive from Woodside Petroleum, and really good to have him on the program. You can see there, just an important piece of infrastructure for the nation as a whole. Peter, many thanks for your time.
Peter Coleman: Thanks, Ross. Bye-bye.
Other Company Related news