Woodside Energy Group Ltd (WDS) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Woodside Petroleum 2013 half year results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday 21 August 2013. I would now like to hand the conference over to your first speaker today Mr Peter Coleman, CEO and Managing Director for Woodside Petroleum. Thank you, please go ahead.

Good morning and welcome to our 2013 half year results briefing. Of course we appreciate your continued interest in Woodside. Sharing the conference call with me today is Lawrie Tremaine, our CFO, Phil Loader, our new Executive Vice President in Global Exploration is also with us to outline Woodside's program on growing our exploration portfolio.

Moving to the next slide of course this is our normal disclaimer, this includes a reminder that all dollar figures in the briefing are US dollars unless otherwise stated. On our financial headlines for the half once again we achieved a very solid performance across our key financial metrics, adding a full half of production from Pluto LNG has resulted in strong operating revenue of almost $2.9 billion despite weaker commodity prices and our Vincent FPSO being off station throughout the half. This number was also impacted by changing product metrics which Lawrie will discuss shortly. Higher production and sales buy-ins combined with lower tax saw our net profit after tax increase by 8%.

We've reduced our net debt levels down to $2.2 billion from a figure that just 12 months was $4.8 billion. Our lower debt, growing cash flows and low gearing levels leave us well positioned to fund future growth. It also allows us to retain capital shareholders through higher earnings for share and increased dividends. We're very pleased to deliver an interim dividend almost 30% higher than last year and this is on top of the special dividend of $0.63 cents per share we announced in April.

Briefly revealing our business performance for the half and I'd like to start with highest priority for our business which is the safety of our people. You may be aware that Woodside has set a goal of achieving top quartile health and safety performance by 2017 and I'm pleased to report that our early progress has been good. At the end of June this year our Total Reportable Injury Rate was 3.46 per million work hours down from 3.99 in the corresponding period last year.

Lawrie will break down the production numbers shortly but the key takeaways to Step change and production that Pluto LNG has brought to our business, notwithstanding some planned and unplanned interruptions during the half we still achieved a record first half production figure of 41.9 million barrels of oil equivalent. Our improved financial position compared to 12 months ago with net debt more than halved, gearing level halved, cash and undrawn facilities almost doubled puts us in a very good position to fund long term growth and I do want to emphasise today that Woodside remains very much a growth company, it's within our Company's DNA and this will not change.

But given our very strong balance sheet we're also in a position to reward our shareholders by increased dividends. Our disciplined approach to growing our portfolio has netted us some important value creating opportunities. During the half we realised - we finalised our two farm-in agreements offshore Myanmar, and had two offers accepted to farm-in to the prospective Porcupine Basin Offshore Ireland.

Finalising our entry into the Leviathan Joint Venture is taking time but we're please during the half to receive some clarity from Israel's Cabinet around gas export policy. And finally we're continuing our process of cultural and organisational change with a focus on bringing in leadership talent in areas such as exploration, technology and project execution. You'll hear shortly from one of our new additions EVP for Global Exploration Phil Loader. I know hand over to Lawrie who will take us through the financial results.

Thanks Peter, and good morning everyone. The first half of 2013 built on our record performance in 2012, so it really is a pleasure to share these results with you this morning. I'll begin with production on slide 6.

Production for the half was 41.9 million barrels of oil equivalent up 23% on the first half 2012, this was a record first half for us. A full half year production at Pluto is the main driver of this positive result. Pluto again performed above expectations over the period all though we did have an unplanned outage in late June. The impact of this outage is separately identified on this chart. The Vincent FPSO has been off station with no production so far this year, the facility is currently at a shipyard in Singapore for a planned overhaul. This will result in improved reliability when it is back on and producing in the 4th quarter. Field declined at our mature oil assets negatively impacting production in the first half. This was most significant at Enfield and Stybarrow.

Now to revenues on slide 7. As Peter mentioned we achieved operating revenue of almost $2.9 billion. Again this is a record first half result. Higher volumes at Pluto generated additional revenues of $600 million. The Vincent planned overhaul and field decline across our oil assets negatively impacted revenues by $273 million and $199 million respectively. Moving onto production costs on slide 8.

Production costs were higher in the first half of 2013 but this is more than fully explained by the six months of production at Pluto compared to two months in the first half of 2012. We have experienced lower production costs associated with the Vincent FPSO being off-station. We continue to incur fixed costs but are avoiding the variable costs. Finally we are starting to see the benefit of the weaker Australian dollar and our mostly Australian dollar production costs. The Australian dollar started the year at AUD1.04 to the US dollar, dropped below parity in mid-May and was AUD0.91 cents at the end of June. The favourable impact was $8 million in the first half.

To reported profit on slide 9. We achieved a reported profit result of $873 million in the first half compared to $812 in the prior year. Pluto played a significant role in this positive result contributing revenues of $971 million and an EBIT of $415 million, up $381 million on the first half 2012. Once again the Vincent FPSO was off station for a planned overhaul throughout the first half resulting in a reduction in EBIT of $209 million. Lower sales volume across our other producing assets resulted in lower revenue of $126 million. We have recognised three impairments totalling $128 million, $87 million higher than the prior year. The impairments included a $90 million writedown associated with the Enfield asset. This mostly relates to a decision to abandon a proposal to develop the Cimatti field as a tie-back to Enfield. We also further impaired the Pluto expansion onshore feed cost by $30 million and the Neptune asset by $8 million.

Exploration activity increased by $67 million in the first half, predominantly due to the significant seismic survey conducted in the Beagle Basin offshore north western Australia. The Clean Energy Legislation became effective from 1 July 2012, we incurred a $35 million carbon tax expense in the first half of the year. Emission credits issued for the 2012-13 year were recognised in the financial statements in the second half of 2012 so the $35 million reported for this half year is a gross cost with no emission offset.

Finally taxes and other expenses were $204 million dollars lower in the first half. Lower resource rent taxes of $113 million were mainly due to lower assessable income associated with lower oil revenues and higher deductible spend. Lower income taxes of $86 million were larger due to a favourable foreign exchange impact and a once off tax payment to the Timor-Leste Government in 2012.

The chart on slide 10 shows our current estimate of 2013 investment expenditures. We have spent $500 million this year to end of June.

Our 2013 investment expenditure estimate has been revised to $2.3 billion, down from our previous guidance of $2.6 billion. Compared to our previous guidance we now expect exploration expenditure to be almost $100 million lower due to deferred exploration drilling in the Gulf of Mexico and the Outer Canning Basin offshore Western Australia. Capital expenditures are expected to be $200 million lower due to savings and deferrals associated with developments, including Browse, Sunrise and several Australian oil projects. The forecast Leviathan expenditure is subject to completion of the proposed transaction. In the absence of Leviathan our total estimated investment span would reduce to $1.2 billion.

Free cash flow on slide 11. This chart shows operating cash flows in the sandy colour, investing cash flows in red and free cash flow is the blue line. The 2013 investing cash flow includes the once off tax payment associated with the Browse Equity Sale in 2012. Free cash flow is trending higher with strong operating cash flows and a lower investment span discussed previously.

Turning to liquidity on slide 12. Net debt shown as the blue line on the chart to the top left was $2.2 billion at the end of June, $2.6 billion lower than a year earlier. This positive result comes despite having paid a special dividend of $494 million in May of this year. Gearing was 13% at the end of the first half. Our average cost of debt is 3.6% on a portfolio basis with an average term to maturity of 3.5 years. Looking ahead we have $2.1 billion in bank and bond debt maturing by the end of 2015. The continued strength of the US Bond Market makes us confident of refinancing debt and an acceptable cost if required. With $3.4 billion of liquidity in the form of cash and undrawn debt facilities, our balance sheet is well positioned to fund growth while also maintaining an 80% dividend payout ratio for the next several years.

Interim dividends on slide 13. The directors have declared a fully franked interim dividend of $0.83 per share consistent with our targeted 80% payout ratio. With the special dividend paid in May, this takes our 2013 First Half dividends to $0.146 per share, $0.81 per share higher than the first half of 2012. A weakening Australian dollar means shareholders can expect an even higher dividend in Australian dollar terms.

Finally, the capital management on slide 14. Disciplined capital management is a focus area of our business strategy and it's critical to Woodside achieving superior shareholder returns. This picture seeks to identify the many components of capital management at Woodside. You'll be aware of some of the activity in this area but, perhaps, not all. With the addition of Pluto to our foundation business, we are already generating significant operating cash flows. Peter will speak more in a moment about what we are doing to improve our base business and maximise cash flow.

We are building a track record of disciplined investment decisions. In the past year or so, we have appropriately priced our partial Browse equity sale, our entry into the Leviathan project and our entry into Myanmar and Ireland exploration acreage.

We also decided to not proceed with the Browse James Price Point development option as that concept was not commercial. We have demonstrated a preparedness to manage our asset portfolio to create and accelerate value. The partial Browse equity sale last year and our divestment of our interest in the Mutineer-Exeter asset are two recent examples. We are target cost reduction on several fronts. We have formed a technology team to develop and deliver low cost technology solutions. Our developments team is focused on delivering lower unit development cost outcomes. We have recently launched a productivity challenge to drive lower cost outcomes in both operations and development projects.

We have committed to maximising the return of cash to shareholders where this can be achieved without compromising growth. We paid a special dividend in the first half and have increased our dividend payout ratio to 80% of underlying profit after tax for the next several years. Our stewardship of the balance sheet has resulted in low gearing, liquidity to support growth and a solid investment grade credit rating. Standard & Poors recently revised our credit outlook to positive as a result of the strengthening credit matrix.

Thank you for joining us this morning. I'll pass now back to Peter for an update on how we are delivering on the rest of our strategy.

Thanks, Lawrie. We wanted to spend some time outlining our approach to capital management because it really is a priority for us as we take forward our strategic direction into 2013 and beyond.

I'd like now to take you to our recent progress against some other key elements of our strategy. Doing so will demonstrate that while we're now in a re-growth phase as we seek to rebuild our portfolio of opportunities and make some key changes to our business, we're moving through this phase very quickly. We've already seen clear returns for our effort and setting ourselves up nicely for long-term growth.

We've previously outlined the three basic elements of Woodside strategic direction being maximising our core, leveraging our capabilities and growing our portfolio. So I'd like to drill down a level and provide a picture of what we see is our key strategic focus areas for this year and next. We've identified half a dozen areas in which we want to see real progress over this two year period, all underpinned by a high process culture that we're embedding across the organisation. We understand that the best performing companies globally all have very strong cultures and we're seeking to do the same here. We've made very good progress against the four focus areas we've identified for 2013 represented on this slide by the four pillars to the left of the diagram.

In 2014, we'll be looking for results in two more areas, namely capturing value to technology and high impact exploration. Lawrie has covered off the capital management so I'm going to straight into discussing our work to value add to our operating assets. Woodside has delivered consistent shareholder value from our mature producing assets at the North West Shelf in our Australian oil business. With Pluto in production and the Okha FPSO increasing its output, our base business is as attractive as ever. We're now running a ruler over these assets to identify where we can derive additional value and investing in refurbishment and redevelopment -- too much re in that -- to ensure that they continue to deliver maximum value for years to come.

For example, we carried out our first shutdown at the Pluto LNG plant in April and we're looking for de-bottlenecking opportunities. During the First Half, we carried out one of Woodside's largest ever shutdowns at the Karratha Gas plant, focused on trained - - LNG trained to ensure that our facilities there continue to generate value for many years to come. The Vincent FPSO will spend longer at the shipyard in Singapore than we originally anticipated but we see this as an investment that will reap rewards into the future. We're looking forward to it being back on station later this year and producing [a bit] more efficiency. Of course, we have a major redevelopment projects at the North West Shelf. The North Rankin redevelopment and the Greater Western Flank Phase 1.

These are both progressing to schedule and the North Rankin B Platform edging closer to start up and Greater Western Flank 1 more than 50% complete. Now, onto our efforts to value add through growth, beginning with our Browse LNG development. A lot of important activity took place over the half, including further realignment of the Browse Joint Venture through the welcomed investment of PetroChina. This, of course, followed Shell's decision to increase its equity in the development late last year. Following our announcement in April of James Price Points concept did not meet Woodside's requirement for a final investment decision.

We immediately re-engaged with our joint venture partners to review alternative develop concepts. This review included taking gas from the Browse fields to existing infrastructure on the (inaudible). A revised development concept in the Kimberley including LNG. Guys, I apologise, we've got some background coming in on the call. So we'll try and cut that off when we find who it is.

You also recall at the end of April, Woodside signed an agreement with Shell, setting out the key principles to apply for Browse resources, developed using Shell's FLNG technology. Earlier this month, we received notice from the Commonwealth Government that it has approved variations to five of the Browse retention leases as requested by the joint venture. Just yesterday, Woodside announced that we will recommend to the Browse Joint Venture that FLNG be adopted to enable earliest commercialisation of the Browse resources.

Moving to slide 19. As we noted in our announcement, a floating LNG solution for Browse would involve using Shell's FLNG technology and Woodside's offshore development expertise to commercialise the three Browse fields. I'm hopeful that we will receive approval from the joint venture partners shortly, allowing us to move quickly into basis of design. Leveraging the high quality work carried out during the basis of design and feed on the previous Browse development concept and our agreement with Shell, we expect to move quite quickly through these phases towards a target of a final investment decision by mid-2015.

Given the combined size of the Browse fields, a reference case is a phase development comprising three FLNG facilities. This allows us to be -- this ability to stage the capital expenditure and build the production profile reinforces the benefits of the FLNG technology in managing project risk. It combines lower upfront CapEx with earlier cash generation to make the project more attractive for our shareholders. In short, it's clearly the best option we have to unlock the Browse resource to the benefit of our shareholders and the broader community.

Moving to slide 20. In addition to Browse, Woodside's current development schedule provides plenty to keep us busy, beginning with the final investment decision on our Xena project which the Board has just approved. Gas from Xena will feed into the existing Pluto LNG infrastructure. Some other developments to update you on include our development of the Persephone Field which is located on the Eastern Flank of the North West Shelf acreage. This development will involve a potential subsea tie back to North Rankin Complex. We're currently in BOD and expect to move into FEED in the second half of this year. Woodside also continues to mature the Laverda development and we expect to define a preferred development concept later this year.

We're still working to confirm the ultimate size of the Laverda Field which our preliminary appraisal suggests holds a recoverable resource of more than 100 million barrels of oil equivalent. We're taking forward Laverda as a combined oil and gas opportunity. In order to progress opportunities, Woodside has also secured two drilling rigs for use offshore Western Australia, each on a two year contract starting in early 2014. What you see here is our pathway for remaining a growth focused company with an ability to take forward a number of growth opportunities simultaneously.

Now, onto slide 21. We're also looking to add to our portfolio of captured resources with the finalisation of Woodside's entry into the Leviathan Joint Venture. As you know, it's taking us longer to finalise this agreement than we'd initially forecast, however, it was pleasing to receive notice during the Half that the government of Israel has maintained its domestic gas reservation for Leviathan at 50% despite an aggregate increase in reservation volumes for all fields to 60%. This delivers on the original policy setting for Leviathan on which Woodside based our investment and we hope to receive further clarity around this policy through a High Court decision in the second half of this year.

Given some recent speculation over various development options for Leviathan Gas, it's worth noting that the current development concept enables LNG exports from the field. This was reinforced during the operators' most recent quarterly update to the market. Leviathan is a world-class asset and a significant value creating opportunity for Woodside. So we're prepared to be patient and we'll work through any outstanding issues with the Leviathan Joint Venture to finalise this deal.

Slide 22. Achieving enhanced margins is a focus for our growth strategy in 2013, particularly through ongoing price reviews within Woodside's portfolio. There were some 14 LNG sales arrangements covering more than 80% of Woodside's equity LNG volumes, currently subject to both periodic price reviews and price out of range negotiations. This allows us to recalibrate pricing on certain contracts to reflect regional marketing benchmarks. These new pricing arrangements are mostly applicable from 1 April 2014 or earlier. Confidentiality agreements with our customers preclude us from disclosing any details of these discussions but I can tell you that on an overall basis, we're pleased with the progress being made and remain confident that these discussions will be closed out consistent with our contractual rights and on trend with current regional pricing and traditional regional indexation.

We've already reached, in principle agreement, on new pricing for a significant portion of our volumes and we expect to finalise these agreements in coming weeks. Another opportunity to enhance margins is through marketing and sales arrangements for currently uncommitted Pluto equity volumes. Our objective here is not only to secure Asian LNG prices for these volumes but also to seek contractual terms that provide additional flexibility and, therefore, enhanced value.

Moving onto slide 23. Importantly, no US shale has been delivered to the Asia Pacific region and we are seeing no impact on Woodside's current contract pricing at this point. Looking forward, we see both demand and pricing remain robust. Woodside's core Asia Pacific market still accounts for 70% of global LNG demand.

LNG continues to play an important role in covering nuclear energy shortfalls in Asia. It is a growing fuel of choice in emerging markets. This demand is being supported by the establishment of new LNG receiving terminal infrastructure across the region. This slide helps to demonstrate the fact that Asian LNG prices remain robust and strongly linked to oil price movement. Woodside's expectation of this will continue, notwithstanding the potential entry of US gas supply into our region. This is because for the balance of the decade, US LNG export quantities will be small and, therefore, have a limited influence on [weighted] average prices. Further we believe Gulf and Mexico LNG exports delivered to Asia will be competitive but not low cost, once we put traction and transportation costs to the destination market are included.

Slide 24. Moving onto focused areas for 2014 beginning with capturing additional value through technology. As you know, Woodside formed our technology division 12 months ago, and I'm pleased to say we're already delivering material increases in value but we expect bigger gains in the years ahead. Floating LNG is obviously a big part of this and not just on lock to Browse Resources. Through our current development program and other potential opportunities, Woodside has an opportunity to be a leading global operator of FLNG. The line of field savings using this technology, typically between 35% to 50%, are compelling. But we have a lot more in our technology suite than FLNG as we look for ways to leverage our strong capabilities in subsea developments. For example, just one year after starting our Pluto LNG we're now preparing for a subsea compression system to maximise fuel recovery, from which we expect a cost saving of about 50% compared to our base plan.

We're also driving down costs through expiration technology with advanced seismic techniques paying dividends. The Fortuna seismic survey, which we will discuss in a moment, is leveraged from four way form inversion modelling, the ability to acquire seismic over a 25% larger area for the same investment. Similar technology used on a recent large survey in the Outer Canning delivered a 15% cost saving, so we're already achieving some game changing technology breakthroughs with more on the near horizon. Woodside's future in this area is looking very bright.

I will now hand over to our Executive Vice President Global Exploration, Phil Loader, who will briefly outline our programs for high impact exploration. Phil joins us with 33 years of industry experience, most recently from the battle of petroleum where he was Senior Vice President Exploration. Prior to that Phil was Vice President International Expiration for Anadarko Exploration Company.

Thank you Peter, good morning everyone. It's a pleasure to speak to you all for the first time in my new role at Woodside. With exploration being central to Woodside's growth strategy we are working very hard to build the foundations for long term growth in this area. We acknowledge that our recent exploration performance has not delivered the superior value that our shareholders expect, so we are refocusing on a few key objectives, namely predictive and consistent delivery, building momentum and scale to our inventory, leveraging our capabilities in terms of technology and sub-surface excellence and developing a strong exploration culture. I'd like to spend a few moments explaining how we are putting the foundations in place to achieve these goals.

Slide 26. This slide highlights the inter-relative nature of the key ingredients necessary for Woodside to build a balanced global exploration portfolio. By balanced, we are talking about access to an appropriate mix of opportunities in frontier, emerging and mature petroleum systems. Involvement in frontier and emerging petroleum systems provides opportunities to move the dial and materially increase our portfolio of prospective resources. Clearly mature acreage, especially where we can leverage existing infrastructure and exploration knowledge, can also be commercially attractive and help us achieve shorter term execution goals.

Success comes from building a diverse portfolio in terms of geography, geology, product mix and development time frame that enables predictive, consistent exploration delivery. We want our exploration to be both high impact whilst also generating value over the medium to long term. The other things listed here, global exploration, and capabilities in culture, I will cover in the next few slides.

Moving onto slide 27. As you can see from this slide Woodside's current portfolio has been expanded over the past couple of years, beyond that of our Australian activities. We will continue to look for opportunities to build upon this position by increasing our exposure to new plays that bring both diversity and scale. In line with our strategic direction, the key is to focus on new acreage and opportunities where we believe the petroleum systems and plain diversity bring materiality and where Woodside is well positioned to both compete and be successful. Consistent with this philosophy, our conditional farm-ins during the first half to acreage in Ireland's Porcupine Basin, was an attractive option for us. These farm-ins give us a low cost entry into a prospective and underexplored basin that shares the same geology with other parts of the Atlantic margins in which major discoveries have been made. It is also ideally suited for us to leverage our technical strengths in areas such as geosciences, deep water expiration and production and LNG development.

Adopting a global approach, by no way means we are reducing our focus on Australia, it simply means that we will look at opportunities in Australia and internationally through the same prism and hence manage our portfolio in a global context. Any new plays or opportunities that we commit to must meet the same high technical and commercial criteria. We will continue to look for opportunities that leverage the strong deep water skills and technology focus that we have developed throughout a long history of Australian exploration.

In terms of upcoming activities, Woodside will take part in the drilling of three wells offshore Western Australia in the second half of 2013 one of them is operator. All three wells are targeting infill opportunities in the Exmouth Sub-basin. We are continuing our seismic processing and interpretation of the Outer Canning blocks, in preparation to begin in 2014. We have secured the deep water millennium reap for this 8 well drilling program. We plan to acquire more than 1000 square kilometres of 3D seismic in offshore Myanmar later this year, working with our partner Daewoo. This builds on the almost 1800 square kilometres of 3D acquired earlier in the year in the Rahkine basin with our partner, MPRL. We are also looking to acquire additional seismic in a number of other international locations during the next 12 months including offshore island. I'll discuss on the next slide how we are managing our portfolio.

Slide 28. As Woodside pursues this upcoming opportunities and adds more resources to our inventory we are aiming to build an exploration portfolio that is characterised by both materiality and quality. Our existing exploration portfolio illustrated in this slide brings an expected mix of yet to find volumes with a range of value and associated probabilities of success. Our portfolio management and development efforts and initiatives constantly focus upon the following, adding new opportunities into the inventory by global new ventures that compete in terms of scale and strategic fit and leveraging the Company's capabilities in subsurface work flows, petroleum systems and the application of technology such that project values and chance of success are increased.

For the non-core elements of our portfolio we will pursue appropriate exit initiatives allowing us to focus our efforts and dollars on those assets that better fit our strategic objectives. Being able to leverage our technical and technological competencies to their maximum extent, whilst making the right decisions whether to pursue or exit an exploration opportunity, will in part be governed by the exploration culture within our organisation. I'll touch on this theme in my final slide, on slide 29. In order to build the foundations for our growth strategy over the longer term we are working hard to strengthen further Woodside's technical capabilities and excellence and hence build an innovative and creative exploration culture and workforce. Our Fortuna 3D seismic survey scheduled for November this year typifies this approach. Fortuna will employ a new marine seismic acquisition technology known as IsoMetrix which will allow us to acquire high resolution, multisensor broadband data over the survey area.

Fortuna will be the first IsoMetrix marine seismic survey acquired in Australia and the largest survey ever undertaken by the North West Shelf project. It provides the foundation for future exploration and appraisal programs in the region. Peter has already mentioned the cost savings through advanced seismic modelling but this is only the tip of the value iceberg. Our final product will have subsurface images that are clearer, more accurate and delivered in a fraction of the time, all of which represent significant steps forward. This commitment to innovation and technology is central to the exploration and technology culture that we are seeking to build at Woodside. We continue to focus upon our exploration strategic priorities, taking into consideration the learnings from ongoing regional studies and the competitive nature of our industry.

We are fostering an environment that establishes the best in terms of collaborative engagement between our explorers and our subject matter experts. As such we are well placed to compete in an environment that supports creative, innovative thinking and exploits the best of the sciences at our disposal. In summary, I'm pleased with the foundations we are putting in place to strengthen Woodside's exploration performance, we are building a balanced global portfolio and developing the competencies and culture needed for success. I'll now hand back to Peter.

Thanks, Phil. As you've just heard, we're maintaining our busy program of exploration in Australia and internationally but also thinking longer term towards rebalancing our portfolio, strengthening our capabilities and developing an exploration culture that really will deliver maximum return from our spend.

To conclude, our activities during the first half 2013 support the attractive value proposition that Woodside offers. We are in a strong financial shape enabling us to return cash to shareholders while also securing new growth opportunities. Long term international demand for our products remain robust and current market circumstances enable us to gain appropriate value from equity volumes. This has already been borne out in the current round of price renegotiations. We have clearly defined opportunities to add value to both our existing operations and new growth opportunities including an FLNG development at Browse that we believe will deliver a very strong commercial outcome.

By leveraging our capabilities in areas such as technology and exploration we are well placed to continue delivering superior shareholder returns into the future. We've added some important achievements over the last six months, all the while laying the foundations for a successful period ahead.

Thanks again for your time this morning and just a reminder this presentation with speaker notes is available on the ASX platform and our website. I'm now happy to take any questions that you have.

(Operator Instructions). Your first question today comes from the line of Mark Greenwood from Citi. Mark, please go ahead.

Good day, Peter. I have a few questions about the Browse project. I was just wondering whether you consider that you have joint venture alignment on FLNG as a concept or is that a potential risk for your proposed schedule? Secondly, slide 20 that points out the phasing of the development, are we right to read from that that you're looking at about a year between the phasing of construction of each of these FLNG units, I thought it might be a little bit longer than that and lastly, I was wondering whether you could tell us what the proposed capacity is for each one of those FLNG units on the Browse project?

Okay. Well, thanks, Mark. You managed to get three questions into one there, so congratulations. Firstly, we're very aligned as a JV. I would suggest quite strongly that the JV is more aligned now than they have been in many years with respect to moving forward as early as possible commercial development. Once James Price Point was realised to be not attractive from the commercial point of view we did look at other developments. We'd been looking at those other development options for some time prior to the final decision and so it required us then to get with a joint venture and of course with PetroChina coming on board as a new investor we required their briefing and alignment as well. Where we are today in moving forward with the recommendation to the joint venture on FLNG, we feel quite confident that we'll receive joint venture approval of that in the not too distant future.

On your other questions on phasing, the phasing assumptions in there are a 15 month phasing assumption in the modelling. Of course this will be further refined during the basis of design period for us but notionally we have a 15 month phasing at the moment for our modelling and then on capacity we haven't finalised the capacity numbers yet for Browse but you can assume given this a - we trying to take advantage of the design one build many concepts that Shell has for a Prelude, then the basis for many of the capacity numbers are based on Prelude, however Browse may not have some of the processing elements that Prelude has.

Okay and just on that joint venture alignment do you need unanimous approval with each of the JV partners?

We expect all of the JV partners will be supportive. We want to move forward with everybody in line on that, so whether we need unanimous approval or not under the joint venture is not material to us, Mark. Our focus is making sure we all are moving forward together.

Okay, thanks very much.

Your next question comes from the line of John Hirjee from Deutsche Bank. John, please go ahead.

Yes, good morning, everyone. My question relates to the LNG price renegotiation where you indicated that they've gone reasonably well and given us an idea in terms of how you've managed to get an uplift. Can I ask, in terms of was the Quondong contract as part of this, included as part of the renegotiations?

No, the Quondong contract is not part of that, John and as you know Quondong is a North West Shelf based contract for us. So the short answer is no, Quondong is not part of that.

All right. You mentioned in terms of finalising in the next coming weeks, is that mainly documentation and largely the pricing has been agreed?

As I said we've reached in principle agreement on a number of the contracts and we're just moving forward now with the buyers on finalising those agreements and we'll advise the market at the appropriate time.

Thank you, Peter.

Thanks, John.

Your next question today comes from the line of Adrian Wood from Macquarie. Adrian, please go ahead.

Hi, Peter. There's been quite a bit of media speculation, particularly in Israel that the joint venture partners may perhaps look to increase your cost of entry into the Leviathan joint venture as a result of changing development concept and perhaps higher returns on offer from the pipeline development. First of all is there any comment you can make there about the pricing? Is that locked in? What is the hold up in terms of you signing the $96 million cheque to get in and at what point does the deal look sufficiently different from the one you originally signed up to, to walk away and if you do walk away would you prefer special dividends or acquisitions? Where would that money most likely flow into?

All right. Well, thanks Adrian but firstly on the pricing we've had no discussion at all with the joint venture on changing any pricing structure. As far as we're concerned we've put an offer on the table that's an offer that appropriately manages risk on the project and also rewards the joint venture for Woodside's entry into it.

With respect to the development itself it really hasn't fundamentally changed. There's been speculation with respect to pipeline sales and so forth. We're working with the joint venture partners through some of those options. We assign a low probability to those outcomes, as I said in the call. LNG is still the basis at this point in time and that's still the operator's view at this point as well. So all of those value adding elements to the deal are still there.

There has been discussion in the joint venture with respect to one of the conditional payments because it does relate to export arrangements and so we -- as well as the potential joint venture partners, are seeking clarity around that and that's really what's been holding up finalising the deal and it's really been around do we have the export arrangements in place - of course this thing changes quite a lot if Leviathan simply becomes a domestic gas project, our business case has been that it will have a large element of export as well as the domestic gas obligations to it.

So the real hold up has just been getting finalisation of those export arrangements. The High Court in Israel will sit again on 17 September to consider matters relating to the decision process on export and whether that decision needs to go to the Knesset and that's the Full Bench of the High Court. We don't have a sense for how long the court will take but we believe it will be weeks rather than months and then equally as part of the Cabinet decision with respect to exports they also asked the Finance Ministry to go back and review some of the arrangements or wording around transfer pricing mechanisms. We support that activity, we expect that will be completed in October. We support that because it gives us clarity with respect to transfer pricing taxation.

Okay, thanks very much.

The next question today comes from the line of Angela MacDonald-Smith from the Australian Financial Review. Angela, please go ahead.

Hi, Peter. You'd have seen Colin Barnett's comments yesterday about how disappointed he was at your decision for a floating LNG plant. He was saying that Woodside has let down the government and the people of Australia, et cetera. I'm just looking for your reaction to that and just how you expect to manage that relationship with the state government going forward, particularly regarding their retention leases I guess that still lie in state waters.

Thanks, Angela. With respect to the premier's comments, naturally we share the premier's disappointment with respect to James Price Point, it offered us the earliest development option at the time that it was first put together and agreed that we'd move forward on it. Unfortunately, it's just not commercially attractive and it's not commercially attractive even with us going back and trying to pull some of the cost structure out of it. So our commitment and our requirement under the retention leases is the earliest commercial development and that's what we believe floating will offer for us. So reflecting on the premier's comments we share his disappointment. With respect to relationships with the state, we have very broad relationship with the state in a number of areas of business. Those relationships will remain strong. We're committed to Western Australia and we'll remain committed.

And about the retention leases specifically, is that going to be a potential issue for when you look at development options for the FLNG project?

No, we don't believe so at all. There are seven retention leases that cover Browse. Two of those retention leases are State retention leases that cover parts of the Terosa field and the volumes of reserves under those leases that are quite small with respect to the total development volume. So no, we don't expect that at all to be an issue and we expect as we go forward to renew those leases by the end of next year that we'll get state support as we move forward.

Okay, thanks.

Your next question today comes from the line of Ben Wilson from JPMorgan. Ben, please go ahead.

G'day Peter, Laurie and Phil. My question relates to Pluto production performance. I realise it's early on, but just if you could maybe comment as to whether you've seen sufficient production data to give you more clarity around when and if a compression project might be required to support Pluto flow rates?

Good question, Ben. Just on Pluto itself, we've seen very good performance out of the facility and also out of the wells. So we still have adequate well capacity in the offshore part of the facility and we also are seeing - we were seeing up until June very stable production out of the liquefaction plant. We did have a process upset in the liquefaction plant in June and that caused us to revise our yearly outlook to the market. That process upset was simply liquid carrying over into the dehydration section of the plant. We've rectified that now and the plant is back up and running stably. So no, our production guidance is still maintained in that regard. So that's a non-recurring issue in the plant. It's unfortunately one that happens from time to time in plants and is very disappointing to us but one that we're committed to making sure doesn't happen again.

With respect to compression, the compression timing for us has not changed. There's been a development that we announced has gone to FID is simply now about resource management for us and making sure that we access all of the resources in a timely manner. We're very pleased with the unit technical costs basis. Our development team has been able to significantly reduce the unit technical cost and then equally on compression we're now moving to a subsea compression for Pluto in the future and we've seen a very significant reduction in costs on that basis as well, and you may be aware subsea compression is being put into some fields in other parts of the world. So good news on that front in trying to maximise value for Pluto.

Sorry, Peter, what is the timing on that compression? You mentioned it hadn't changed.

Yeah, look it moves out. I'm not sure we've given guidance on it, Ben, but it's years away, it's not imminent. It's years away.

So unlikely this decade, would that be fair?

I can't really commit one way or the other to that. Honestly, I don't have it on the front of my - if it's in this decade it will be later in the decade, yeah.

Sure. Thanks Peter.

Thanks Ben.

Your next question comes from the line of Paul Garvey from The Australian. Paul, please go ahead.

Hi Peter. You mentioned before looking for cost improvements. Are there any specific targets around that, and I realise peak CapEx has passed a bit but is there any feedback you can give around how costs in the industry are faring in this environment, any anecdotal evidence of discounts coming through or anything like that?

Yes, Paul, very topical at the moment, productivity and cost efficiency. We have our own internal targets in driving through productivity. We'll probably inform the market early next year as to how we're progressing on that. It's very early days for us but what I can assure you is we already have a number of initiatives that we're pulling together within the Company to focus on this. And the reason for it is, the general trend that you're seeing in industry, Woodside has been subject to those same trends and so as we look at our capital cost structure and our operating cost structure, we believe it's time for us to go back and have a long hard look at that, particularly as we are about to embark on this new round of capital projects for us. So it's about building capacity in the organisation. So that's front of mind and we'll be able to give the market more guidance early next year as to progress and where we see that landing.

With respect to costs coming through and cost reductions, no we're not seeing any cost reduction at the moment in the marketplace and I don't expect to see any cost reductions in Australia for a little while, at least on the major contracts because those costs have been built into the business now. But we are seeing a number of contractors in the business who obviously are keen for our business at this point in time so it does provide opportunity for us to work with those contractors to bring down the cost base.

No worries, thanks.

Thanks.

Your next question comes from the line of Nick Burns from UBS. Nick, please go ahead.

Oh, great. Thanks Peter and team. Just a question on Browse LNG marketing. When you sold a 14.7% stake in Browse in May last year to MIMI, part of that transaction included LNG sales I think of 1.5 million tonnes per annum to MIMI as well as looking at joint marketing of other equity volumes and working together to attract cheap funding from Japanese banks. I was just wondering whether those agreements are still in place as you move to Browse, as we change the development concept here.

Secondly, I guess just in terms of the CapEx for Browse floating LNG, I would expect that there would be a reasonable subsea component here, and I'm just wondering whether whilst each vessel will have its own CapEx, given the upfront subsurface costs whether the hurdle to reach FID isn't just over one vessel volumes but you might need to have marketed say two vessels worth of LNG before reaching FID?

Yeah. Well, thanks Nick, they're good questions. Just firstly on the LNG marketing. The LNG marketing arrangements with MIMI we believe are still in place and we're still working with MIMI on that, so no change to that guidance at all. As you recall, the marketing arrangement was an agreement to cooperate and jointly market, into in particular the Japanese market, so no change. On the second part with respect to the CapEx and the phasing of it, the way that we see the development concept moving forward is that we'll have a phased subsea development that will match in with the vessels, so it will be what we call a plug and play process. You will have seen some of that infrastructure established in some of the deep water developments and the offshore Gulf of Mexico, deep water Gulf of Mexico where there's some optionality with respect to the subsea. So to answer your question in short, no it doesn't require two vessels to be able to move forward. As each one of the vessels, however many it will be, will have its own investment decision and the basis of the work we've done to date would indicate each one of those will be supported by the commercial attractiveness.

Great. Thanks Peter.

Your next question comes from the line of Stuart Baker from Morgan Stanley. Stuart, please go ahead.

Morning gentlemen and thanks very much. Just another question yet again under Browse. The potential FID decision in mid '15, curious about the timing and the risks around the project given for example if we assume the Prelude model, that's only under construction now and won't be in production until 2017. I'm curious to know why you wouldn't wait to capture full learnings of the both development phase and the subsequent production phase for that and then bring those over to your projects, both from the point of view of risk mitigation, given that you have to fund it, go to banks and get insurance, et cetera. I'm just wondering why you wouldn't wait to see that one come in? Thank you.

Yeah, Stuart, it's a good question because it's one that we've contemplated long and hard, as you could imagine. If you look at the development timing though of Prelude and you take the design one, build many, and we also expect we'll see some development costs improvement over time as the yard becomes more efficient. If you look at the timing, Prelude will be essentially complete and will be in yard commissioning around the time that we'd be looking at FID on the first vessels for Browse. So we believe that will give us cost and schedule certainty, and so that mitigates some of that. So that's the first part of the question.

The second part then is operational certainty. The reality is that that would take not months but two or three years for you really to sort that out and f you start to dial that into your schedule you can start to - before you start doing something you can start to see a significant delay in Browse. So we think the advantage here is this is phased. Each one of these are separate decisions, although we're taking a holistic approach with respect to the field development, each decision will be a separate decision and we think that appropriately manages the CapEx risk for us into the future. So we have considered that quite - and spent a lot of time on that, but we think we've got the right balance.

Thanks very much for that.

Your next question comes from the line of James Bullen from Merrill Lynch. James, please go ahead.

Morning gentlemen and thank you for today. Just a quick question around Pluto debottlenecking. I was wondering if you could provide any insights into the scale of the opportunity there and the timing as well?

Really not at this point, James. We've indicated previously we need to get the plant up and running in a stable manner. We thought we'd done that through second quarter of this year, and as I said it's back up and running today stably so we're pleased with that. With respect to debottlenecking, we're looking at opportunities but I can honestly tell you we're not at a point of making an investment decision on those yet, so I think it's premature for me to give you any guidance in that regard.

Just quickly on Laverda. It's obviously quite a large opportunity for you. What kind of incremental production could we be talking about from Laverda?

I don't have a production number front of mind. What I can tell you though, and we put it in the words to the call, we see Laverda now being a combined oil and gas project, so if you think about some of the discovered undeveloped resources that Woodside has around that Laverda area, we have a development concept in mind that will be able to monetise some of those discovered gas volumes as well. So I must say I'm quite excited about what the development team has managed to pull together on Laverda, and the extra year or so we've taken to get the concept moving forward I think is going to create a lot of value for us. But we'll be able to provide more guidance on that towards the end of this year, early next year as we move into final phases of design.

Thanks Peter.

Your final question today comes from the line of Mark Wiseman from Goldman Sachs. Mark, please go ahead.

Hi guys, thanks for the update. Firstly just on Xena. I understand that's quite a modest development. I was just wondering if you could just outline what the total budget was for that development, and when you expect start-up of those wells.

Secondly just on the North West Shelf, you've outlined a number of additional developments there to keep the project presumably at plateau levels. I was just wondering if you could just revisit when North West Shelf potentially comes off plateau. And just perhaps some comments as well around the huge seismic survey which also sort of captures some of the third party gas in peripheral areas. Is that mainly a sharing of equipment while you're doing that survey, or is there a broader strategic objective there to bring more gas into the North West Shelf?

Okay, well quickly going through each one Mark. On Xena, the capital expenditure is relatively small, so read it - it's in the low hundreds of millions of dollars, quite small, certainly not of the scale that you saw with Greater Western Flank 1 as we brought that forward. So again it comes down to a real focus on reducing all of the subsea hardware and so forth that we needed down to an absolute minimum. But Xena is very attractive from a rate of return and a capital efficiency point of view. We may be able to provide more guidance into the future as we finalise some of our contracts and so forth on that.

On North West Shelf, our expectation is the Shelf will run through plateau through to the end of this decade and into early next decade. That's consistent with our previous guidance on that. So no change on our expectations for the Shelf. Then on the seismic - the Fortuna seismic is just simply where we are in the maturing of the North West Shelf drilling programs. So, no, we're not necessarily looking at others, although as you know sometimes these things cross boundaries as you try and tie things in. But no, it's really designed for North West Shelf's late of life opportunities and making sure we're bringing those forward now rather than waiting a few years and getting close to the Shelf going into decline.

That's great, thanks a lot.

All right, well look everybody, thank you again for spending some time with us today. The quality of the questions continues to demonstrate to us at least that you're taking a positive interest in Woodside and that's obviously very pleasing. I would say, I believe today's results do again highlight our strong financial position, lower debt, strong cash flows, we're really in a great place, not only to fund growth but to sustain the increased dividend payout ratio of 80% for the next few years. Today's briefing highlights that momentum continues to build as we execute our strategies.

We think about timelines or snapshots of time. The momentum we've built in the first half of this year I think has been exceptional. We expect to continue that as we move through the end of the year. It also highlights our focus on shareholder returns and making sure we maximise value. We're not about sitting on cash in bank, we're about making sure our shareholders are able to use that as efficiently as possible. We're also about making sure that we deliver clear, consistent and disciplined investment decisions that our shareholders can make inform decisions about as well. So again, thank you very much for being on the call with us today. We look forward to interacting with you in the future.

Ladies and gentlemen, that does conclude the conference for today. Thank you all for your participation. You may all disconnect.