Woodside Energy Group Ltd (WDS) 2008 Q2 法說會逐字稿

Good day. Thanks for joining us today, and sorry about the late start here. We had a little technical glitch on getting our slides put up. Again, I am Don Voelte. In addition to me here today, of course, from Investor Relations, I have Mike Lynn and Chris Bishop. I've also got Mark Chatterji here to help you with the financial details, as well as Lawrie Tremaine. Agu Kantsler is also here to help us on the exploration side of the business, as well as a few others.

I want to go straight to the second page and just note the disclaimer and important notice, just to make sure that's on the record.

Look, I'd like to start today with a couple of comments. I think number one is the major headline today is that your investment in Woodside is executing better than ever. As we go through the slides today, I would like to make a few overall comments before we jump from page to page here.

First, I think we've all watched in amazement the oil market over the last six to nine months. Now, I'm not going to sit here and predict with any certainty the future, but I do know the following. First, the trading range of oil is structurally displaced from previous cycles and norms. Second, supply, demand, and volatility still rule the market. And third, you can be sure that Woodside is using a much, much more conservative price assumption for planning and project economics than what we have been witnessing in the marketplace. We are staying very conservative right through the environment we see today.

And it is true following on oil, based on our Japanese crude cocktail basket, LNG pricing is following the upward trend of oil. It's looking good, and domestic gas is really looking good.

Now as I said, internally, working for the Company, Woodside management and employees are really delivering to the bottom line. But we also see externally two serious threats to our business. First, contractors are struggling to provide (technical difficulty) resources contracted, product quality, equipment availability and laborers of proper skills, variance and training. It's serious, and it's not getting better, although numerous strategies and tactics have been employed.

Cost escalation and scheduled deliveries seem to always be under pressure. Now, it's a major concern for everybody in our industry, but it's just a way of doing business these days. Woodside is actually building and executing in this space, is doing it hard, but I think we're doing it very well.

The second threat -- and I never thought I would have to raise it in an Australian context -- is fiscal risk which approaches sovereign risk from the government. Earlier this year, we experienced the shock of a condensate excise tax being suddenly imposed by the Commonwealth. Imposed without consultation and with a justification that is ill-conceived, the government has overnight imposed what they calculate to be a AUD 2.6 billion impact over the next few years to the North West Shelf joint venture.

Now, this is a group, we have to remember, that invested AUD 25 billion in good faith in Australia over this last 30 years. The taxation arrangements for the North West shelf project has been in place for 31 years, and the government derived a real benefit in the form of early excise in oil revenues, upfront revenues that wouldn't have been received under the more widely-applied PRT regime.

More significantly, however, the taxation arranged has played a central role in creating the fiscal environment that allowed the project to proceed and provided the basis of continued investment over the past two decades and more. The tax setting supported the establishment of Western Australia's largest domestic facility. This is a facility that supplies between 60% and 70% of the state's gas supply.

Now, many customers have enjoyed long-term, stable supply at prices that have been extremely competitive. That is a nice way of saying really low prices. However, with higher cost of supply already impacting the business, there was already significant upward pressure on Western Australia's domestic industrial gas pricing, a fact that has been widely canvassed through various forms.

It is in this environment that this new tax has been imposed upon the ventures. As with all businesses, Woodside must pass on increased costs, including taxes, to customers over time. All companies pass tax on. The idea that we will somehow absorb in cost into our business is unrealistic. This unexpected new tax is no different than any other cost. It will be passed on to customers over the next few months and years as we reopen and renew domestic contracts, and we will recover as much as we can, if not all, of the new tax burden.

One last thing. If there was additional revenue that the government wanted, we could have sat down and entered into a negotiation that delivered a win-win outcome. For example, improved fiscal terms for new projects could create significant tax revenues without imposing additional taxation costs, which will really help us -- could have made a better situation towards something that we wouldn't have such a large cost to pass on to our customers.

So we're just stating the obvious here, is that businesses pass on these type of costs and they pass them on to our customers.

One last item before we get started on the slide pack is the emissions trading scheme, or the Australian government's carbon pollution reduction scheme. Now, despite the intention of the CPRS, the heart of my concern is that the plan as proposed in the Green Paper could -- and I actually think will or would -- actually increase worldwide carbon pollution if implemented in its current form as it basically makes LNG opportunities much harder to be up and running and encourages coal.

Now, Woodside wants to be part of a global response for limited greenhouse gas emissions and reductions. We don't want to be just part of the response. We want to be a key player. Furthermore, we support a properly constructed emissions trading scheme. But the scheme being proposed in the Green Paper runs the real risk of damaging one of the best means Australia has of contributing to the fight to limit and reduce global greenhouse emissions.

LNG is a cleaner fuel which is playing a key role in helping many countries lower their greenhouse emissions. Use statistics. For every ton of greenhouse gas emitted in Australia producing LNG, we can avoid four tons of emissions in many of our customer countries by displacing coal and other fuels. In China, the benefit can even be higher. It can run up to 5, 7, to 9 times the benefits.

Therefore, when we export more LNG to customer countries such as China, we deliver greater environmental benefits than penalizing our industry in Australia. Rather than putting additional cost in LNG production, I believe Australia should be looking to improve the competitiveness of its LNG project. There's nothing else that can do as much benefit to the reduction of greenhouse gases from Australia as producing more LNG.

Having said all that, I acknowledge this is only a Green Paper at this stage, and the government has committed to consulting with industry before moving on to the White Paper and then legislation. So there remains a lot of time here to get the policy settings right on this issue.

I want to emphasize the point. In the fight to reduce worldwide greenhouse gas emissions, LNG is part of the solution; it is not part of the problem.

Over to page 3, slide number 3, and go through the headlines of the financial performance. We have had a really good first half. In fact, I think it is a great first half, with record performance in several areas. Our revenue is a record AUD 2.6 billion, up 45%, while net operating cash flow is AUD 1.4 billion. Our reported profit of 67%, while our underlying profit is up 86%, both of them coming in around AUD 1 billion for the first time.

It is true commodity prices have helped us, but I am really happy to report that the percentage profit increase is higher than the percentage revenue increase, and that is by a large margin. This profit is not a windfall. It's payback for hard work and billions of dollars we have invested in Australia over a number of years.

Making profit is a good thing. It allows us to grow. It enables us to invest in future projects. For example, the Pluto plant that we are building is expected to boost Western Australia's economy by about $28 billion and also provide about $8.5 billion in revenue to Australian governments and also, in addition, do what is most important for our economy, generate thousands of good-paying jobs. Now our shareholders will benefit, no doubt about that, but with our reinvestment, so will the community.

Slide 4, last November, we told you we would produce between 80 million and 86 million barrels of oil equivalent. Now we have achieved record first-half production of 36.5 million barrels and we have more to come in the second half. Otway has been producing steadily since February. We have additional North West Shelf equity production from May onward. And Power Play in the Gulf of Mexico came on in June.

Our three re-drills at Enfield have been very successful and expect a strong second half from them. Now in the second half, we've already added new production from Neptune, and over the coming weeks we'll have additional production from Vincent, Angel, and North West Shelf Train 5.

We seriously studied whether we should increase the lower range of our 80 million to 86 million target, but I decided that with three new facilities just starting production, there is still considerable uncertainty in those new facilities, which is why we are retaining at this time our current range. However, barring a major incident or event, we are confident that we will make our production target by year-end, which will represent an 18% to 22% annual production growth. When I look at our competition, that's not bad.

In November, we will be able to give you more guidance at the Investor Relations day that we have every year at Woodside.

On slide 5, last November, we told it would be a challenging year. We promised you that in 2008 we would deliver. And we've increased production this year through a full year -- nearly full year -- of Otway, a full year of Stybarrow. Neptune started up; Vincent is starting up; Angel is starting up, and North West Shelf Train 5 is starting up.

We've delivered and we are continuing to deliver. Otway and Stybarrow are running really well. In fact, I would say Stybarrow has performed much better than we ever expected. Neptune and Power Play have started up and they are also producing fantastically. Vincent, it is early days. We've got the facility circulating gas at this point and getting ready. We're in sequence now to open up our oil at any time. We will tell the market when we produce our first oil.

On Angel, as Train 5 ramps up, we will bring Angel on. It's ready to go, and it will come on production at the same time Train 5 ramps up. Speaking of Train 5 (inaudible), I've got to tell you, I was there last Friday up in Karratha. Feed gas was going through the facility. We're basically going to go cold in the next couple of days. Following that, we'll start running LNG rundown to the tanks, and that will be when we advise the market of first production. Things look good in Karratha.

So basically, things are running really well. Both in Woodside and our contractors I think are really putting it to the bottom line. I will talk more about the individual assets later, but for now, let me just say that our producing assets are going really well, and our projects are progressing on time, on cost. I think we've had a really good first half and I am really expecting even a better second half.

One area we need to work on -- our safety environment and integrity. Our TRCF at 5.2, which is our total injury frequency, it's just plain flat unacceptable. We've investigated all of our serious injuries and high potential incidents. Direct intervention by senior business leaders within Woodside has had an effect of improving the performance, but still not to the level that we require.

On environment, where we are always looking at the perfect day and the perfect week and the perfect month, we are not there yet, but we are certainly putting a lot of attention and effort towards it.

Integrity -- this is something new for you. With increasing focus on ensuring that our facilities are properly designed, built to specification, maintained and operated safely, reliably, and with maximum efficiency, we've decided to publicly report our integrity KPI. Now, we have very sophisticated systems which track our maintenance programs on all of our assets to ensure that we do the right work at the right time. As you can see, currently, this KPI sits at 96% for the year-to-date, and the industry best practice target runs at about 93%. So we're doing okay there.

Now at this point, I'm going to turn it over to Mark Chatterji, our CFO, to go through the financial results for the first half.

Thanks, Don. I'm going to start us on slide number 8, which is our first-half profit performance. First-half profit before significant items rose 86% to AUD 1.09 billion. The two significant items were a gain on the sale of our Pluto equity interest, which is AUD 19 million, and a loss on the sale of two Gulf of Mexico shelf fields for AUD 12 million. That gives you a recorded impact of AUD 1.16 billion, which is up 67% from the comparable first half of 2007.

Turning to slide 9, slide number 9 is a variance analysis showing you the variance between the first half of 2007 and the first half of 2008. As you can see, revenue grew by AUD 797 million. This gain was driven by an increase in both price and volume, partially offset by a decrease in the AUD/USD exchange rate.

The cost of sales also increased by AUD 144 million. This is primarily driven by an increase in production costs, as well as an increase in depreciation and amortization. However, even accounting for the movement in cost, gross profit increased by AUD 653 million, or 55%, from the comparable period.

Turning to other income and expenses, the net position for the first half of 2008 saw an improvement of AUD 152 million against the comparable period, with reductions in both expiration in evaluation expense and also other G&A costs.

The other large movement in this category is the variance due to the gain in loss recognized on asset sales. Now you will recall in 2007 for the first half, we had Legendre and PNG versus the 2008 significant items, which was the Pluto and Gulf of Mexico Shelf field I talked about earlier. Finally, there were some small variances in net finance costs, and of course a large variance in tax expense because record profits means record tax payments.

Moving on to slide number 10, slide number 10 will take you through our production costs, both on a gross and per-BOE basis for oil and gas. We'll start with gas. Gas production costs rose due to both the startup of Otway and maintenance spending in Northwest Shale. Now as Don mentioned upfront, maintenance is the priority for the Company, and this is especially true for Northwest Shale, where we expect to continue to be producing hydrocarbons several decades from now.

Turning to oil production costs, increases have come primarily from a replacement of the gas-lift riser at Corallina, successful completion of sidetracks on our Enfield wells, and also the startup of the Stybarrow facility. Now, on a unit basis, the cost increase is smaller due to increasing productions versus comparable period in the first half of 2007.

Moving on to slide number 11, this slide shows our CapEx profile estimated for the full year of 2008, and that during the first half of 2008, we spent AUD 2.4 billion and we expect spending to increase somewhat in the second half. The lion's share of that spending is related, of course, to our Pluto 1 project. Woodside's 90% share of the spending on the project is AUD 10.8 billion. Of that AUD 10.8 billion, we expect to have spent around AUD 4.3 billion by the end of 2008.

As to the remainder of the projected spend, Northwest Shelf accounts for around three quarters of AUD $1 billion, which is not only due to Train 5 and Angel, but also the NR2 project which was sanctioned in March and our purchase of Shell's interest in the Northwest Shelf oil assets.

So last, the [greater Enfield] area oil spending is around AUD 400 million. And finally, exploration spending should be around AUD 350 million this year.

Turning over to the next slide, Woodside has declared an interim dividend of AUD 0.80 per share, which is an increase of 63% over the comparable period. For this interim dividend, Woodside will make use of a fully underwritten dividend reinvestment program which actually takes me over to my next slide, slide number 13, which shows our net debt and gearing position.

Net debt increased to AUD 1.8 billion for the half year, while gearing rose to 25%. During the first half, Woodside closed a US$1.5 billion financing led by the Japan Bank of International Cooperation. During the second half, we expect to close additional debt financing. Further balance sheet support will come from our decision to reactivate the fully underwritten dividend reinvestment program for this dividend, which we expect will position us well from a gearing perspective as we enter 2009.

It is important to remember that in addition to Pluto 1, we are looking to move the ball forward on our next LNG development, so keeping some powder dry is prudent.

That's it for me. I'm going to hand back to Don and he is going to discuss Woodside's outlook.

Thanks, Mark. I will give you a few snapshots now of what's going to be coming up over the next few years. I will skip over slide 15. I think it speaks for itself. Going to the next slide, 16. In today's AUD 800-plus oil environment, every barrel is really important and valuable to us. So on the Cossack Lambert-Hermes field, continues to produce really well, and we are really happy to be able to double our equity interest there, especially at the acquisition price of about US $18 per barrel. We are going to pay this acquisition out in a few more months.

We are continuing to look for unswept pockets, for example, with the Hermes appraisal well that we are going to be drilling here in the next few weeks. And there could be another one to three wells over the next couple years that enhance recovery from these fields.

Now, with this excellent production, we will be looking to extend the life of these fields by replacing the current vessel, the Cossack Pioneer. And that decision will be made, we believe, by the end of this year.

Now similarly, with our Northern Endeavor, on the Corallina Laminaria field, we are still producing at this time through the Corallina gas-lift riser. So that asset currently producing -- I checked yesterday -- I think it was 12,000 barrels of oil per day. And we just drilled an appraisal well that found an unswept oil reservoir there, and in the coming months, we will exploit this to supplement our production.

On slide 17, we will show you that we have been really pleased with the way the three re-drills have gone on Enfield. Our rig strategy meant we were able to get a rig quickly on location and get production restored as quickly as possible. ENA-01 and ENA-02, which were sidetracked this year, came back on towards the end of the first half and have been producing really well ever since. They are producing water as expected, but they are sand-free, and the field is currently producing around 55,000 barrels per day -- that's 100%.

By the way, when we approved Enfield in 2004, it was a AUD 35 world which we planned on, and that's a long ways away from today's prices. There's always minor issues we deal with on producing assets, but the teamwork that works this deal is working really hard, and I'm pleased with the way things have come along.

Next year, we plan to drill another producer/injector pair at Enfield to increase fuel recovery and we have identified some near field exploration targets.

We've just got the new (inaudible) East data. Our guys will be looking over it to see what they have, with a view to identify further Enfield drilling opportunities.\

Over in 18, next door to Enfield, is Stybarrow, BHP-operated. This field has exceeded our expectations. Having started production in December of last year, it quickly ramped up to over 75,000 barrels of oil per day, and it stayed around that level throughout the first half of 2008. By the way, as I mentioned before, when we approved Stybarrow, it was about a $55 world we had planned on. Now, Stybarrow is starting to cut water now, so of course it will have its natural decline. However, we do expect this field to continue to be a big producer for us in the near term.

In terms of future activities, 4D Seismic is planned for 2009, and we expect that once there is sufficient production history, there's likely to be some drilling opportunities that come up. And, just for information purposes, we are looking at the economics of developing our previously discovered Laverda field via Stybarrow. But more to come on that one later.

One slide number 19, Vincent. You have to be a little bit careful on Vincent, because things are moving as we speak. Vincent went into startup mode this morning, with gas having been introduced to the FPSO in preparation for first oil. So let me just say that gas is certainly in the facility at this time, and they are in sequence to start up, and we will let you know when we actually produce oil. We will put a market announcement out.

Now, a couple things have changed. We have been able to accelerate the startup of the second manifold, what we call Manifold B, to coincide with our first production. So instead of the full well that we told you we were going to be producing in startup, we're going to have six wells to start up when we bring each well on individually.

It's early days, but we hope that production ramps up to around 50,000 barrels per day, and then we think the field will start to decline a little bit, but then we'll have two more wells that finish out Manifold B that will come on later on in Q4. And I will just say this, that we are planning to drill Phase 2 for Vincent, and we expect to drill those additional infield wells in 2009.

Over in the United States Gulf of Mexico, a different picture for us. We are making money over there. Quite pleased -- I know Mark is quite pleased about that. But on slide 20, we now have two Deepwater assets producing in the US, Power Play and Neptune. Power Play is small but low-cost, and it's a real nice enhancer, currently producing around 8000 barrels a day on a 100% basis.

Neptune is really producing well right out, better than our best estimate. Production started with one well and quickly ramped up to five out of six wells producing now. But we are at capacity and production is producing right at 50,000 barrels of oil per day and 30 million cubic feet of gas per day, again on a 100% basis.

Neptune is potentially a compartmentalized deal, and to adequately develop it, we are considering additional opportunities to drill several more wells. And again, I might just mention when we FID'd Neptune, we had planned on a $50 environment.

So you can see from these last five slides, our oil slides, our oil productions are going really well. Most of these projects had investment decisions between 2004 and 2006 and oil prices around US $30-$60. And I'd say this -- that a lot of people talk about the $100 plus oil, but you've got to be producing to enjoy it.

As you've probably noticed, we have developed an awful lot of additional opportunities for each of these oil facilities in the next months and over the next couple of years. I think this can only be good news for our 2009 and '10 production prior to Pluto's startup.

Let me turn it over to gas. On page 21 here, the Karratha gas plant has been running really well. On Trains 1 through 4, our folks up there have been doing a great job, and even a better job getting our domestic gas up to over 700 TJs a day to help out while another operator experienced some problems with gas here at Varanus Island. Last month, I just mentioned that we set an all-time production record at the plant, so the folks are working it hard.

Train 5, of course that's what you're interested in. It is running ahead of schedule. We have had commissioning gas in the plant since the beginning of May. We are complete with construction and commissioning and we are expecting first LNG rundown very soon. So expect to deliver first LNG cargos, actual deliveries, to our customers in October of this year. Costs still to be finalized, but we anticipate coming in on the AUD 2.6 billion target that we have been talking about the last couple of years.

Moving offshore, the Northwest Shelf, on page 22, Angel has progressed to mechanical completion now. That means the platform is ready to take gas. It is now waiting for scheduled maintenance to be completed on Train 4, as this will be when we need the gas, along with bringing on Train 5. So we expect production on Angel to begin at the end of September.

The NR2 Project is also underway -- fabrication of the platform and topsides in South Korea and the jacket in Bhutan in Indonesia. This project is going to allow us to access low-pressure reserves and allow continuation of one of the largest gas production facilities in the world.

And here we come to a little bit of slideshow here with Pluto. Pluto is huge for us, and I will just say it is really progressing quite well. We are already about 25% complete. Now, you can see here on slide 23, the LNG tanks in the foreground with the pads for the condensate tanks to the left of them. The start of a shore crossing and jetty construction works are at the bottom left-hand side of the picture. Just above the LNG tanks on the far side of the road will be location for power, water, and other infrastructure facilities, including the slug catcher piping.

Train 1 will be just to the right of this area on the first plateau. And out there further to the right, you see a second plateau; that will be the location for our Train 2. Right above the LNG tanks, if you look up, there is kind of a hill on the back of the property, and that is where we plan the Train 3 site. Now a huge amount of site preparation has been done and they are getting ready up there for delivery of the first modules, which will begin appearing on site fourth quarter of this year.

Slide 24 -- and the next progression I'll take you through quite quickly. The LNG tanks are under construction. The two LNG tanks each hold about 120,000 cubic meters of LNG, each of them about twice the capacity of each of the Northwest Shelf tanks. One of the things we learned from building and operating five of the six Australian LNG trains and the Karratha gas plant is the importance of getting these tanks filled right and on time. They are always critical path. Understanding that, we started these tanks before we even took FID, and we've been able now to remove them from critical path.

Over on slide 25, we see the roof panels for the tank. The first roof tank is now closed in. During the next few weeks, we will be airlifting these roofs into place. We've learned the benefit of getting the roof on early so we can work inside in any weather. It's kind of like -- it's just like building a house, framing it in and weathering it in. Although clearly, it's a little bit bigger and a whole lot more expensive.

On slide 26, the modules for our LNG plan are being built by Sino Thai in Laem Chabang in Thailand. Here, you can see the construction of one of the major process modules. With Train 5, we had about 75 modules. We are about 75% modularized on Train 5. Now, we have extended this modular concept to 100%, and at Pluto, we will have around 270 modules. And as I said, the first deliveries of these, the piperacks, will arrive in Dampier Port in just a couple of months.

On 27, people often ask how we get ahold of enough steel and enough people for our fabrication needs. Well, we're showing you how we do that. Sino Thai has dedicated steel fabrication yards in Rayong and Ban Chang specifically for our Pluto project. And over on page 28, you see our newly built pipe shop in Sriracha, Thailand, which is fabricating all of Pluto's process piping.

Over on page 29, the offshore component of the Pluto project is split between the topsides fabrication in the [Rumania] yards in Malaysia and fabrication by CSE in China. J Ray McDermott will install the platform, Allseas will install the trunk line and flow lines, and (inaudible) will install and test the equipment.

So on slide 30, how we are managing cost and schedule. With FID in July, we had committed to around AUD 1.4 billion and had firm bids in for another AUD 4 billion in contract management. To date, we've committed to about AUD 6.5 billion of contract, and by the end of this year we expect to have committed about 75% of our total capital of our estimate.

Now, this strategy has secured vital resources, equipment, people, and this includes lay barges, drill rigs, turbines, cryogenic heat exchangers, everything that you would imagine that we would need. But make no mistake. The program of work we have to do between now and the end of 2010 is very challenging, but we told you we would build this project for a total cost of AUD 12 billion, including the long lead time items, and we would have first gas late in 2010. Now, there is no change to this guidance at this time. Our guidance does remain unchanged. We are on cost and we are on schedule.

Over on slide 31, we gave you a little snapshot here of the news you can expect over the next year. At the top of this slide are some of the offshore milestones and the bottom slide are some of the onshore milestones. We've got a lot going on. So we've had excellent, experienced people on the project and we are moving along in a very good manner. I must say, when you are up in Karratha, it just blows your mind seeing all of this unfolding before your eyes.

On slide 32, we show you a little bit different angle here, but we've got a couple other areas here to put in. I think the major thing on this versus the slide we showed before is we do have our eyes on where the domestic gas plant potential location is there, to the right of the slide.

On slide 33, we talk about Pluto Train 2, what we need to get it drilled and procure an additional train. What we need is we need to secure supplies of gas. Now, our engineers are working on the basis of design, what we call BOD, before we go into FEED, the front-end engineering. But before they can finalize their plans, they need to know the source, and most importantly, the chemistry of the gas.

So we need to know where the gas is coming from before we can take a final investment decision. We've told you we were talking to the owners of gas in the area, and we are in ongoing discussions with these resource owners.

We also are continuing our exploration program. We are currently acquiring a 3000 square kilometer of 3-D seismic in the Columbard survey in Block 404 just north of the [Janzio] Field. And on the Cazadores area, we are shooting the Armagnac 2-D survey, which will gather about 7000 line kilometers of data. We're laying up several new exploration projects and we hope to drill these over the next 18 months.

On Sunrise, page 34, it's progressing, progressing quite well. I continue to have direct discussions with my CEO counterparts in the partner companies, and we are -- I tell you, we are 100% aligned in moving forward. It's pretty amazing that everybody is so agreeable to this solution to get this on production.

Now, the Sunrise team has ticked off in all their 2008 goals. The team has completed initial concept screening and detailed technical studies, and risk analysis is underway for the floating LNG and Darwin options.

We aim to secure final cost estimates and rigid schedules for each option by the end of the first quarter of 2009. Now, the rig that we have to do an appraisal well will show up on location tomorrow to drill the appraisal well in the northern section of the reservoir. With this additional piece of the appraisal puzzle, we will work towards the concept select by the first half of 2009. FID will require approval with field development plans by both countries, which could be the end of 2009.

As you know, the reservoir extends across the boundary between Timor-Leste and Australia, but one of the benefits of a concept like floating LNG is the fact that the facility could be placed in either Australia or Timor waters.

On page 35, Browse. Our Browse team continues to appraise the three fields. We have narrowed consideration to focus on two concepts, and we've placed another one kind of on hold for the time being. The two most viable locations are in the Kimberley. We're working with state government and communities to select the first site, and bringing the gas down to the Burrup, or to the North West Shelf Pluto area. And we are firming up costs at this time and looking at the commercial arrangements that would be required to do that.

Now, a decision between the Kimberley and Browse sites could be made towards the end of this year. What about the impact of the emissions trading scheme that I talked about when we first started the conversation? I will just tell you this. Browse is big and it is costly, and it has higher CO2 reservoir content than our other projects. Of all of our LNG portfolio, Browse would be the project most adversely affected in an unfavorable emissions trading scheme program, the one that lacked fiscal certainty. If we don't get that, then also that really impacts the ability of this project to move forward.

As I said, Browse is big and it's costly, and we own about 50% of it. If the current discussion paper does not get corrected, we will need to consider dramatically reducing the spending that we have going on this for 2009 and beyond.

On slide 36, this is a reprint with revisions and changes. On a slide that you saw in November investor briefing last year, we said then that we'd progress all three opportunities, Pluto Train 2, Sunrise, and Browse until it became clear which one would be the next cab off the rank. We said then and we say now we cannot execute these three mega projects at the same time. Too much cost, requires too many resources.

Each development has their own strengths and each has their challenges. As currently proposed, the Emissions Trading Scheme would have the largest impact on Browse LNG development. If enacted as proposed, it remains fiscally uncertain. There really could be some serious implications for our Browse budget starting next year.

So Pluto Train 2 and Sunrise could move ahead of Browse in that scenario. However, these two are sensitive to an ill-conceived ETS system that fails to recognize the global benefit of LNG and the competition we face from countries with no plans to implement similar regimes or schemes anytime soon.

We operate in a challenging environment with a great deal of technical and commercial uncertainty which puts pressure on our costs and schedules. We are used to dealing with that uncertainty, but it is never easy. And now, if you add in this government uncertainty, that's even more for us to handle. We're working with government and other stakeholders so we can get right and continue to invest in and grow Woodside, which in turn helps Australian economy and provides jobs to the citizens of this country.

Finally, on page 37 here, in the meantime, taking a look at the returns to our shareholders, we are focused on ensuring that we have a great base business, that we optimize our oil development while commodity prices are high so that we can deliver long-term growth through LNG. It is really a pretty tough operating environment at this moment, but as you can see, we are staying focused and outperforming most of our peers, and, even pleasingly, all the majors.

I'd like to just say that it's a recurring theme that the Company is really running well internally. I just want to mention that I believe that the Woodside team is producing really good results at this time. Our employees are executing, getting dollars to the bottom line.

We are operating our existing assets, I think, almost to perfection. We are spending necessary money on technical integrity, maintenance, employee welfare, and training, and we are controlling and eliminating other unnecessary costs. We are streamlining our process and becoming much more efficient. And more importantly, we are managing our mega projects on time and on budget.

Surrounding oneself with great people is the trick. I have great leadership teams and I think they are really [focused]. Further development, building bench strength, the people activities we are onto and the results are gratifying. I'll just finish by saying that Woodside is getting very near the point that I have always dreamed it could be. With that, we'll open it up for questions.

John Hirjee, Deutsche Bank.

Well done on the results. A couple of questions, if I could. Firstly, on Pluto Train 2, you mentioned that you are in discussions with other resource owners. Could you give us an idea -- because you mentioned the impact of an ETS -- what sort of CO2 content these other gas resource owners have and are they impediment to going forward with using third parties?

The best fields that we have for CO2 content, of course, are the Northwest Shelf fields. Pluto is almost as clean, just a little bit more CO2. The fields that we're looking at are just around Pluto and they have composition that looks very much on the CO2 side as Pluto.

As to that, the ETS, it impacts all of the projects according to the Green Paper, of course, which is just a discussion paper at this time. So it's not like any of these projects won't be impacted, but Pluto and associated gas in the area are probably the best in the respect of being impacted by the ETS system.

Okay, thank you, Don. A question on -- I heard you mention that Agu was there. I just wanted to ask some questions on the exploration program in the Santos Basin in Brazil. How nearby is that to some of the big discoveries we've heard about earlier this year? Could you give us some guidance on sort of targets? You mentioned gas, but could you give us some guidance on some of those targets, please?

We are quite some distance from the 2P type discoveries. We are about 100 to 200 kilometers further inshore, and we do not have exposure to that sub-salt play, a la Tupi. It is a completely different play. The sorts of things we are going for are in the cumulative 1 Tcf range, and that would mostly be a domestic gas objective.

Okay, thank you, Agu.

Mark Greenwood, JPMorgan.

Good day. I've got a question about the Browse project. Just a couple of weeks ago, the Gorgon project team gave an update saying that this project was -- or the time is now moving towards FID, the head JV alignment. And no mention of an environmental or emissions trading scheme.

When I look at the two projects, they look kind of similar in that they both have a reasonable amount of CO2; they are both very large projects, very large capital budgets. Is there anything else unique about the Browse project that would make the Browse project more affected by this type of scheme compared to something like Gorgon?

No, the projects are very similar in CO2 content. In fact, Browse, as I understand it, has less CO2 content in it than Gorgon. I can't speak for Gorgon, but I will just alert you to the fact, watch for September 16, because Chevron and Woodside will be talking about the ETS in respect to the LNG industry, along with some other industry players.

Okay, we'll wait for that. Just to follow on, if the Sunrise or Pluto 2 projects were to proceed faster than the Browse project, I was wondering whether you could deliver gas from those projects into your Petro China or CPC agreements that you signed late 2007/early 2008, or whether those agreements were specific to the Browse project.

Hey -- Mark Chatterji. No, both of those agreements, it's possible that as other projects move ahead in the pecking order, as Don was referring to, that those contracts may move with them.

Okay, great. Just one more question, if I could, on the LNG market. Previously, Woodside has spoken about, I guess, a window of tight supply/demand, and then it became a corridor with no end in sight to the tight market conditions. I'm wondering whether that's changed. We have more and more LNG projects proposed, competing for market in Asia, and at the same time the US is becoming more self sufficient, less reliant on LNG imports. So wondering if you could just give us your outlook for the LNG market.

Yes. Certainly from a macro perspective, we haven't seen any fundamental shift to the supply/demand balance. As you rightly point out, there are a lot of projects that are proposed, but when you look at the actual progress of any of these projects, very few are moving forward with any speed.

The other thing, too, to keep in mind is, as I think we've talked about before, we have kind of, obviously, the same access to the macro projections that you guys have. We also though have kind of marketing intelligence that comes from direct conversations with customers, and so we have an understanding of kind of what people indicate kind of years -- the future effectively, through those marketing conversations. And we really haven't seen a change in tenor from what we've previously described.

Okay, thank you.

Gordon Ramsay, UBS.

Thank you. Great operating performance over the half, and the second half looks excellent as well. Just a quick question to Mark on capital expenditure, and specifically the Northwest Shelf. It looks like there's been a significant increase compared to prior guidance there. And I know you broke it down between Train 5, Angel, and two in the Shell assets. I just would like to know what has kind of driven that change. It looks like it's up AUD 304 million.

Gordon, is this capital or is this operating?

Capital expenditure, Northwest Shelf, 2008 guidance.

Okay, are you looking -- sorry, you are looking at the slide 11, right, the 2008? Shell -- our purchase of Shell's interest is in there. Did you take that into account?

Okay, excellent. The second question is for Don. It relates to Laverda. Just following up on your comments of potentially tying it into Stybarrow.

We just have contacted operator about that potential. We think that the quality of the oil would best fit into that scheme versus our infield or the Vincent. I can't predict at this time what the timing would be, because we are in initial stages of that, plus just getting our engineers cranked up to look at it. In this price environment, certainly looks very doable and we have had good reception from operator.

Excellent. Thank you very much.

Stuart Baker, Morgan Stanley.

Good afternoon, gentlemen. Just a comment, reading the director's report with respect to Browse and some of the further activity there, which I see is going to resolve by reducing volumetric uncertainty. I've reviewed that reserve issue. I'm just wondering if you can give us some more commentary on that.

[I of course would predict] to do about (inaudible) million tonnes guaranteed (inaudible), indeed something well north of 20 Tcf. And I'm just wondering what the program is there and what the issues are, if any.

Yes, we are continuing to appraise. We have just drilled a really good well at Calliance-3. We have got some other wells that we -- we have drilled one other well. We've got three or four more wells we really want to drill.

You know, we have a very wide range of what Browse could be, between a P10 and a P90 when we started the appraisal program a couple years ago. Let me just say and suffice at this time that if we had an extremely large change that was material, of course we would come out and advise. But we normally just advise on our February end-of-year reserves.

You will see an update. We're drilling some pretty critical wells this year. And the best I can give you is that we continue to see Browse as a viable economic project and basically one that is material to our Company, and we will advise reserves or movement of contingent resources later on when we put our annual reserve survey up.

All right. Thanks very much.

Angela Macdonald-Smith, Bloomberg.

I just saw that you were looking at floating LNG, I guess, as a backup for Browse. I was just interested to know how that would work up there, I guess, given the size of the fields. And also just your general sort of comments, I guess, about floating LNG, the contribution it might make towards LNG development.

Yes, basically we've put it in kind of the hold category at Browse, and the reason is we are looking hard at what we think are the most viable. And one of the reasons the most viable is that to do FLNG on Browse is not just one FLNG vessel. It is three or four vessels, unless we stage them.

The issue there is that how much risk do we want to put our Company into in that until -- you know, an FLNG facility of what you might call material size for us, which is 3 million tonnes and above -- until they get into operation and kind of produce over a year or two to see how the technology works out. So I guess before we put too many eggs in that basket -- we are very, very willing because of the technology advancement for Sunrise to take a look there with our interests there -- but before we go in head over heels, we would want to see the technology proven out through operations.

Okay. Just one more on Train 5. You're quite bullish about the startup there. Can you give any forecast about how that might ramp up, I suppose, and maybe how many extra cargoes we might see as a result of that in the second half?

Well, let me just say it this way. We've said in our text here that we expect LNG cargoes out in October. We will certainly make them liquids before that. We take a very conservative look at how we ramp these facilities up, and we do have a several month ramp-up in our planning process, how we count cargoes.

But those things pretty much run or they don't run. And we expect to have to shut the train down several times after startup to fix things or to take a look at this, that, and the other thing. So I believe we've got a number something like 70% ramp-up for a couple of months. And then at that point, we pretty much assume we are in full go from that point forward.

So I am not going to sit here and tell you how many cargoes. The cargoes -- it's a very sophisticated system and we have those cargoes clearly targeted towards markets. We have contract on a long-term basis for most of them. I will just say it's a managed situation at this point and everything is going along quite well. In fact, in my mind, better than what I expected.

I was up there on Friday -- I just mentioned -- I walked through the plant. And I told the Board of Directors yesterday that you could eat breakfast off the floor of the place. It's a real shiny, new facility and we have gas that has been going through it. We've tested all the turbines. Everything is runnable. We're going to be going very shortly into rundown.

So the folks at the plant are extremely excited about it. They think it's going to be a really, really good piece of equipment. I might just say that we've put the heavier duty linkages in the refrigerant compressor than what we've had in Train 4, so we are hoping for a several year run. Obviously, on Train 5, it's a brand-new train. We will take it down after 12 months, take a look inside it and see what's going on. But hopefully after that, we won't have to take it down as we have had to with Train 4, and we will have good runs for four to five years as we normally have.

Could I squeeze one more in and ask for an update on the California LNG plant?

Yes, California, the time clock is out at this point. We're doing another study for them. I would just say that we are evaluating it carefully. Costs are going up. I would just say this, that as the requirements of the Californians go up, that makes this too costly to do. They are basically cutting off their own opportunity set there.

So we are communicating with and talking to them. The concept is viable. At this point, we think it's a good project. We might, as we said, take on a partner somewhere along the way. But until we get a permit, we won't even think about the ability to build it. We're just trying to get a permit at this time.

Thanks.

Di Brookman, Citigroup.

Yes, good afternoon. In regards to the AUD 350 million for exploration, I was wondering if you could give us a rundown on where that's going to be spent.

And then the second question would be in the facility at Pluto, if you can talk about the number of wells you might be planning for the remainder of the year.

It will be -- this year is a relatively low split for drilling, simply because we've got that huge -- or we have had a huge volume of 3-D acquisition to do. So if you look to the split for this year, it's roughly 20%, 25% for drilling, about 35% for seismic, 15% for GPA, and lease and other expenses, given that we had a very successful central lease style this year, around 25% to 30% total for the year.

The drilling split is less than we would like. We generally like to spend at least 50% of our money on drilling. But this is just a peculiar year for us in terms of seismic acquisitions, seismic reprocessing.

With respect to the number of Plugo-dedicated wells before the end of the year, we could sneak one, possibly two, in. But we are waiting on seismic processing and seismic reprocessing to come in before we commit to that. So I can't promise anything, but obviously, it's an important topic for Woodside. If we can do it, we will. Otherwise, we would be looking at somewhere between six and eight Pluto dedicated exploration wells in 2009.

Okay. Thank you very much. In regards to the LNG ramp-up, since you are starting a couple of months early, and I think the previous speaker was actually alluding to it, it seems like there might be the potential for spot cargoes.

Yes, the previous speaker is me. This is Don. Di, I would just say that if there are any spot cargoes, there's probably not a better time to have spot cargoes. We think this year's Northern Hemisphere LNG winter season is going to be the biggest supply/demand gap that we have seen up to this point. We think it is going to be a pretty hard year to find LNG cargoes, so everybody going to want to have them. So we are really into the slot of it now, of trying to find cargoes for the demand at this point. So there won't be any problems getting rid of the cargo, that's for darn sure.

Thank you very much.

[Kate Emery], (inaudible).

Hi, guys. I just wanted to ask you a bit about the Northwest condensate tax issues. You suggested that if the tax is in place, it is going to have to be passed on to customers. I just wanted to know, firstly, what you think will remain in terms of (inaudible) gas prices and what kind of increases you might expect to see?

And secondly, I think it was Don back in May made some comments suggesting you'd look at all options if tax was in place. Just wondering if you can say any more about what those options might be, particularly if legal action is something that would be on the table.

We don't want to be not -cooperative. We really want to just sit down with the government before they do something like this and work. We really hate the position we are in right now. It is just not a good place to be. But we have got to manage it, and we have to manage it as business people. We've put at $25 billion investment in there. We have to make some money for our investors on it on an ongoing basis.

So let me just say how it comes down. We've had this condensate arrangement, which we thought was good for the life of the project. Those terms have changed. We all the way along have kind of looked at that condensate issue as some justification for what we have always sold into the WA industrial and residential marketplace as pretty low -- low prices. And we felt good about that.

The issue now comes up as we renew our contracts and we reopen them that with the change in fiscal terms, we have to recover that cost that is imposed on us -- and basically we believe we can, our gas price that goes into the Dampier Denbury pipeline is a very low cost compared to what people pay for residential use here in Perth. In other words, we may pay a AUD 2 or AUD 3 -- or get AUD 2 or AUD 3 for our gas from basically through our wells, up through our platforms, through the pipelines, up through the Karratha domestic gas plant.

It really doesn't make us much money, to be quite honest with you, over the last few years -- or several years. The fact is that it is a multiple of that cost to the residential users down here in Perth, because of all the other people that have their hands on that gas supply.

So if we raise our gas supply to more what you might call normal world pricing, what other people pay in other cities around the world, I don't know how that will be impacted on the final end price down here in Perth, because the pipeline folks, the utility folks, the power plant folks, the residential gas grid, it's how they take that price and move it on to their customer. So I am not sure what the final price impact will be.

All I am saying is that we are going to have a very -- we just can't go into a loss mode on that business up at the plant where we put it into the pipeline. And we have had our costs there very low for a very long time.

Do you have any sense, I suppose, of how much your is to what that sort of AUD 2 to AUD 3 figure that you guys now get? Do you have any sense of how that would be impacted, that part of the price that domestic users end up with?

No, I am not sure at all, because it's basically negotiations to be dealt with.

And what about on the other matters, whether, I guess, you are looking at potential options Woodside might have.

You know, I don't think there are any other options at this point. I think the Senate is going to take it up. That is pretty well for us. We could potentially do legal routes and all that, and that is not Woodside. We've got other things to do. We're going to basically go out there and look for a fair price for our gas and re-openers and that, and basically we're just going to leave it at that.

And lastly, if I can get one more question in, just wanted to say what your response is to the federal government and (technical difficulty) made some comments back in May relating to your own comments on higher gas prices. And he suggested that he was sort of about passing them on to the ATC. Just wondering if you have any thoughts or any comments on that.

I don't have any comments on that. I was a bit surprised because I don't understand how it all works. But I don't think there's anything there.

All right, that's it.

Paul Garvey, Australian Financial Review.

Good day. Just following on from Kate's questions there, between this condensate tax and emission trading scheme coming in and the environmental issues with just buying a site for Browse and the Kimberley and so on, how has your view on Australia as a place to do business changed over the last 12 months or so, Don?

I'm an eternal optimist, I guess; I have to be if I'm in this business. But I am not going to say the government is anti-business or anti-economic fiscal policy, et cetera. But I am not sure any other government I can think of around the world, except for maybe -- well, I can think of one other government -- but what they call a AUD 2.6 billion tax hit on a project without any notification, etc., I just think that I expect that we are all kind of in a learning mode. And I just hope that in the future they talk to us a little bit more before we do this.

We don't want to be difficult. We think Woodside is a great Company in the respect that we've done a lot for the economy. Let me just tell you, nobody -- you can take the top 20 ASX companies -- there is nobody that invests as much money in Australia as Woodside. We've got AUD 23 billion of the projects that have been ongoing, and you can take the Rios, you can take the BHPs, any of the banks, you can take anybody else, and I'd challenge anybody to find anybody that's putting more money back into Australia than Woodside.

We pay our people very well. We provide thousands of contractor jobs and construction jobs. We provide 60% to 70% of the gas in Western Australia. We are not a bad company; we're a good company. And I think the governments ought to appreciate us and appreciate us a little bit more than what we are seeing right now in this respect.

Okay. And you mentioned that you may begin cutting back on your planned expenditure for Browse for next year if there's not more clarity out of the ETS. What sort of sums were you originally expecting to put into Browse next year and what could they fall to?

I think as Don said -- it's Mark Chatterji -- I think as Don said, it's early days right now. The budgets are being formulated in terms of what they might be realistically as we speak. What Don was indicating is without some fundamental re-work of the emissions trading scheme, it is very difficult for Woodside to justify substantial expenditures into Browse.

Okay. And you mentioned that you're looking at other options for your remaining African assets. What sort of things are you considering there?

I think as we announced to the market in 2007, when we looked forward, we believe that LNG will occupy the Company substantially for the next several years and that we wanted to start to focus on that LNG portfolio. We have actually exited certain assets in Africa already, and we continue to review our options on the remainings which we have left.

All right. Thanks very much.

John Hirjee, Deutsche Bank.

I've got another question, this time for Mark. In terms of the oil hedges outstanding, can you confirm whether they are still applicable to Vincent's revenues or are they now a broad (inaudible)?

John, just to be clear, they are not dedicated to one asset. They are really kind of oil hedging program that applies to the greater Enfield area overall. And so when you kind of look at allocating the differential between the cap and then what we actually get, you can allocate them to Vincent if you want, you can allocate them across the greater Enfield area as a whole.

Right. Okay, thanks. Don, a note in your financial reporting indicates that you've got an agreement with Shell with regards to Libya. Where are you at with Libya and does effectively the exploration program coming up in Libya sort of signal it it's successful, move on; if not, get out? Is that fair to read?

Sorry, John, could you say it one more time?

Yes, it's to do with the Libyan exploration program that's coming up, I think, in this second half. If it is successful, how do you -- is that a trigger for you to stay there or is it you are on the last legs in Libya and looking to exit, given you have an agreement with Shell for a right of final offer?

Okay. I've got you now. Look, the guidance we have given you is still good, and that is that we are looking for the ultimate displacement of those assets. You know, it depends. We do have some more drilling to do over there, a few more commitment wells. We have a couple other things that we're looking at with the government. If it goes well, there could be maybe a future there. Otherwise, we are looking to things up to and including the exit of Woodside from Libya. At this time, it is undetermined and we stand with our previous guidance to market.

Thanks, Don.

Maybe one more question and then we will -- it sounds like maybe there's no more questions, but if there is one more --. Okay, no more questions.

So thanks, everybody, for listening in, and we will try and bring through on the second half even better results than we brought through in the first half. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may all disconnect.