Woodside shores up defence

Woodside management is talking up the group's prospects in face of a near-term production decline amid speculation that its partners in the North-West Shelf, BHP Billiton and Shell, continue to run the slide rule over it. Shell, with a 34 per cent interest in Woodside, has already made one bid for the oil and gas producer and been turned down on national interest grounds by the Federal Government.

Woodside also yesterday flagged a writedown of up to $800 million on exploration and evaluation costs as it clears its books, while ruling out any major acquisitions.

The writedown ``brings it into line with its peers", Andrew Williams of Auzeq Securities said. ``This year's headline profit will be pretty ugly a small profit, zero, or a small loss. The market had an expectation for a special dividend. It makes that harder."

Concern about a production decline from around 70 million barrels of oil-equivalent a day to around 50 million barrels between 2001 and 2005 has pushed Woodside to seek to maximise output from existing fields while accelerating the advent of production from new fields.

The production decline is due to fading output from maturing fields, which will not be offset until around 2006. The largest single boost to production will come from newer fields such as Enfield in Western Australia.

Woodside initially sought to overcome the production decline by pursuing key acquisitions offshore, which rattled investor sentiment.

The shares yesterday dropped 50c to $11.92.

In January, it unsuccessfully bid for BP's $US2 billion ($3.5 billion) Veba Oil and, more recently, decided against bidding for Westport Resources of the US, which would have been a $1.6 billion acquisition. Both moves reportedly upset its major shareholder, Shell.

Woodside's confidence in its growth has increased since the Veba foray with significant progress made on the Enfield development, and improved prospects in both Mauritania and the Gulf of Mexico.

``That was the rationalisation for Veba," Woodside managing director and chief executive officer John Akehurst said during the extensive briefing in Sydney yesterday.

He said Westport would have been an opportunistic move, with oil prices and US equity markets weak. Both areas had revived, prompting Woodside to pull out of the bidding.

Just as importantly, when Woodside was assessing both Veba and Westport, its share price weakened, limiting its funding options, as these purchases would have needed share issues.

Mr Akehurst said Woodside had been forced to acknowledge the caution of investors about the company making a big acquisition. Any moves now would be ``in smaller bites", where the risk profile was lower and the impact of getting it wrong was less.

The move to write off the book value of capitalised exploration acreage would force a tighter approach to exploration drilling, Woodside director Dr Agu Kantsler said.

Next year will be ``the last roll of the dice for opening up new frontier areas", he said.

``It was a good presentation, but I don't think it will change people's view one way or the other," said one senior analyst who did not wish to be quoted. ``The company will continue to expand, and it is unlikely to make an equity raising for an acquisition. It says it has people internally who are good enough to deliver value down the line. Those investors worried about international expansion will still be worried, and those comfortable with it will be pleased."

THE LATEST DRILL

* $800M cut from exploration, development values.

* Major acquisition ruled out.

* No share issue to fund acquisition.

* Looking for significant US investment.