Woodside Energy Group Ltd (WDS) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Woodside Petroleum's 2017 Full Year Results Teleconference.

(Operator Instructions)

I'd now like to hand the conference to your first speaker today, CEO, Peter Coleman.

Thank you.

Please go ahead.

Good morning, everyone.

Thanks for joining us.

With me on today's call is our recently appointed CFO, Sherry Duhe.

Today's call is in 2 parts, and both will have times for questions.

I think you probably want more questions in the second half than the first half.

You'll see from the documents we released earlier that along with our full year 2017 results, today, we're announcing the acquisition of an additional 50% interest in Scarborough for about USD 0.4 billion and a planned AUD 2.5 billion equity raising.

To make sure that we cover everything fully, we will spend about 30 minutes on our full year results before turning our attention to the Scarborough acquisition and associated equity raising, and we'll stick to the usual format of introductory remarks, then we'll open for questions on the full year results only.

Turning to our full year results pack.

I want to point to the standard disclaimers on the front slide, that I know you've all read studiously.

Please take a moment to read it though.

Starting on slide 3. Net profit after tax is pleasingly up 18% on 2016 to more than USD 1 billion, delivering a fully franked dividend for the year of USD 0.98 per share.

2017 was a good year for Woodside.

We increased both profit and free cash flow while continuing to invest in our growth projects.

Free cash flow increased to $832 million, and free cash flow breakeven was just on USD 36 per barrel, significantly below current oil prices.

Moving to Slide 4. This is the window into our organization and the way we operate sustainably.

And you can see, our total recordable injury rate has decreased by 25%.

This demonstrates our ongoing commitment to the safety improvements across all of our business.

In our base business, you'll see on Slide 5 that improvements at Pluto increased the facility's annualized production rate while FPSOs achieved record reliability, and Persephone was delivered 30% under budget and 6 months early.

We continued to build market for our product.

We signed a long-term agreement with Pertamina for up to 1.1 million tonnes per annum from 2019, and approved development of an LNG truck-loading facility at Pluto.

Startup at Wheatstone was an important milestone for us during 2017 and once fully operational, it will contribute to a significant increase in our production profile.

In Senegal, we started to achieve concept select at SNE phase 1, and we're on track for an FID in 2019.

Of course, our overarching objective is always to unlock shareholder value and we're making good progress on this through both today's Scarborough announcement and ongoing commercial discussions between the Browse joint venture and the North West Shelf joint venture.

Progress on our committed production growth is tracking well as you can see on Slide 6. Key here is Wheatstone's Train 2 scheduled for startup midyear, with domestic gas flowing sometime in Q3 this year.

Including Wheatstone, we're taking in production growth from our current projects of around 15 million barrels of oil equivalent by 2020.

Next, to Scarborough on Slide 7. (inaudible) agreed to acquire Exxon's 50% interest in WA-1-R contained the 7.3 Tcf Scarborough gas field for an initial consideration of USD 444 million and a contingent payment of $300 million at a positive FID.

I should note that this is subject to preemption and customary approvals.

On completion, the 75% interest in Scarborough delivers Woodside greater control, alignment and certainty for the project as the global supply gap emerges from the early 2020s.

Key to this is our onshore commercial structure at Pluto, which supports low-cost expansion at a facility that was designed to allow efficient brownfield development.

We've talked in the past about our vision for the Burrup Hub and how Woodside is ideally positioned to progress it on the equity in both offshore gas and the infrastructure needed to develop it.

Today's announcement underscores this and brings our plan for the Burrup Hub a step closer.

The chart on Slide 8 clearly shows the opportunity ahead of us.

Robust demand growth is a measure of low investment in new supply has created an opportunity to develop the most competitive LNG projects and deliver significant returns to shareholders.

China is a particular interest because it is forecast to grow at a compound annual growth rate of 7% until 2025, and has taken radical steps to reduce air pollution by moving to cleaner fuels such as gas.

Woodside also has the marketing capability and relationships to work with customers on innovative and flexible contracts and can contract short to midterm and longer-term contracts that can take customers from spot volatility that meet buyers' needs in a changing market.

On Slide 9, you can see we've made progress on projects and activities across our 3 time horizons.

In Horizon I, we achieve all the key milestones we set ourselves.

We're securing lower capital intensity developments through Scarborough and SNE.

Wheatstone production is already generating revenue, and greater infill startups in 2019 will add further new revenue.

We're preparing for Horizon II growth with Scarborough acquisition and progressing Browse, a new growth platform to take us through exploration acreage in West Africa, including high-impact drilling that's planned in Gabon and Morocco.

And we're expanding the LNG market through new customers and usage for our products.

Now with that as an intro, I'll hand over to Sherry Duhe, and Sherry's going to talk us through our financial results.

Thank you, Peter.

I will start on Slide 11 with a summary overview of our financial performance.

Our 2017 reported profit was $1.024 billion, that's an 18% increase relative to 2016.

Improved market conditions had a positive impact on our realized prices, which increased by approximately 10% to $44 per boe to support additional sales revenue of $258 million.

Lower volumes had a negative impact of $392 million on sales revenues, mainly due to a reduction in North West Shelf's pipeline gas volume from an anticipated change in ventures equity share combined with lower customer demand.

LNG sales volumes were also slightly lower relative to 2016, impacted by planned maintenance and unplanned production interruptions.

Additionally, an increase in Pluto year-end LNG inventory of 1.1 million boe, which is simply a timing difference also contributed to the reduction.

Lower depreciation was largely the result of positive reserves movements for Pluto and Greater Enfield and slightly lower LNG production.

The release of the provision related to the Balnaves FPSO lease positively impacted profit whilst tax expense was higher due to higher profit but also included 2 specific nonrecurring adjustments that are worth calling out: $131 million one-off non-cash prior year adjustment, and a $15 million one-off FX timing difference that arises because we report taxes in USD but pay taxes in Aussie dollars.

Moving on to Slide 12.

Our total production cost decreased by a further 9% in 2017, and our unit production costs remain low.

Excluding the impact of Wheatstone and reduced North West Shelf pipeline volumes, our overall unit production cost was flat with 2016 at $5 per boe.

On Slide 13, our 2017 gross margin has increased by 19% to $23 per boe, and our cash breakeven cost of sales remains low at $10 per boe.

Our high-margin, low-cost operations continued to support both increased profit and strong cash flow.

On Slide 14, our strong operating cash flow allowed us to generate $832 million positive free cash flow after investing $1.6 billion in our business.

Peter outlined earlier our progress in delivering committed growth.

We also continued to invest in global explorations with wells drilled in Myanmar, Senegal, Gabon and Australia during the period.

Moving to Slide 15.

Higher 2017 profit has resulted in increased shareholder distributions.

Total declared dividends for 2017 were $0.98 per share, up 18% relative to 2016, and we have maintained our dividend payout ratio at 80% of NPAT.

On Slide 16, we look at the strength of our balance sheet.

At the end of 2017, our gearing remains unchanged at 24%, within our target range of 10% to 30%, and our strong investment-grade rating has been maintained through 2017.

We have actively managed our debt portfolio, with the support of both banks and debt capital markets.

In September 2017, we issued an USD 800 million 144A bond, with a 10.5-year maturity and a coupon of 3.7%.

As of the end of 2017, our average terms maturity of our debt has been extended from 4.5 to 4.7 years, and our portfolio cost of debt remains competitive at 3.7%.

We ended 2017 with increased liquidity of $2.9 billion, up from $2.7 billion at the end of 2016.

To summarize, on Slide 17, we have achieved strong financial performance in the year, delivering a profit increase of 18%.

We have generated free cash flow of $832 million, increased dividend by 18% and maintained a strong balance sheet.

Moving on to our 2018 outlook on Slide 18.

Our planned 2018 production is forecast to increase, largely due to the higher contribution from Wheatstone.

Low liquids production is largely due to the Ngujima-Yin FPSO being off-station from May 2018, ahead of processing Greater Enfield production.

2018 will also be the first full year of North West Shelf pipeline gas reverting to the 16.67% Woodside share.

On Slide 19, we have included an update to our 2018 investment expenditure guidance.

Updated for the acquisition of Exxon Mobil's interest in the Scarborough gas-field, our 2018 investment spend is expected to be approximately $2 billion.

Our 2018 budget, excluding the acquisition expenditure, is cash flow neutral at Brent $35 per barrel.

I will now hand you back to Peter to talk more about the 2018 priorities.

Thanks, Sherry.

Let me close by talking about our 2018 priorities.

Of course, we'll continue to work obviously, with the operator on the safe startup of Train 2 in the domestic gas facility at Wheatstone.

I'm pleased to report that Train 1 is running very well at the moment, it's running at nameplate capacity, while supporting, of course, the operator in the longer term to optimize some of the lifting costs and maximize production rates.

So this year really is about safe and reliable startups of Wheatstone and then getting a good run plan in place to reduce operating costs over time.

And of course, we're targeting operating costs to be at similar rates to existing facilities that Woodside operates in the Northwest.

Our Greater Enfield and Greater Western Flank 2 remain on budget and schedule, and as Sherry mentioned, the Ngujima-Yin will go off-station later this year and up to Singapore for the work that she needs to have done in the yard, but the drilling activity is commencing on the Greater Enfield project and we're on schedule there.

We continue to advance our Burrup Hub concept by reaching concept select for Scarborough to Pluto and of course, also progressing Browse and North West Shelf.

We're targeting fleet entry to the Pluto to North West Shelf interconnector and the truck-loading facility will begin operating.

Overseas, Woodside will progress SNE Phase 1 to FEED.

We have drilling planned at a number of derisked structures in Myanmar and we'll continue to progress plans in West Africa.

And of course, that drilling is front-end loaded in the first half of the year.

All of these activities are supported by base business excellence, which gives us safe, reliable and continued low-cost production.

We have a clear plan across 3 time horizons.

We operate an outstanding base business and we are progressing growth options that unlock value for our shareholders.

Before I hand back to the operator to open the call for questions, I do need to mention that for legal reasons, we must ensure that there is a clear demarcation between this results call and the next call.

In this part of the call, we can only take questions on our 2017 results.

We'll discuss Scarborough and the entitlement offer in detail shortly.

I'll close this call after questions and hand back to the operator to open the next call.

But due to legal restrictions, people located in the United States will not be able to participate in the next briefing call, so please drop off from this call after questions if you are in the United States or acting to the account or benefit of any person in the United States.

And I apologize for that but it's just legal restrictions that we have.

So thank you for listening through the opening and we'll start and open up to questions.

(Operator Instructions) Our first question comes from Adam Martin from Morgan Stanley.

Just a question on Wheatstone.

You've given us sort of 2020 production guidance, just trying to understand in '19, what we should be thinking there.

And is this still a ramp-up of that project during '19 or should we expect the full year in '19?

No.

Adam, progress is very good at Wheatstone, as I mentioned during the opening.

Train 1 reached nameplate capacity run rates last week, so we're pleased with the way the Train 1 is ramping up.

We've taken a lot of the learnings from Train 1 across to Train 2. Train 2 is almost complete with respect to the construction.

And early commissioning works has started, so we're still on schedule for a midyear startup on Train 2, and we're taking those learnings across.

So we expect to exit the year with the plan of keeping it full rate and so, you can expect a pretty clear run in 2019.

Okay.

And just on -- just a more broader question on LNG buyer sort of appetite.

I mean historically, you've talked about buyers being a couple of years away from underpinning large projects.

We've also seen spot prices move a lot higher the last 6 months.

What's your sense around LNG buyer appetite?

How's it changing?

Look, our view and we alluded to it in some of the public commentaries that the nature of contracting is going to change, it will depend on the buyer.

But the appetite is definitely coming back into the business, and we're being approached by buyers and also people seeking equity to move into projects.

So I think those who can see past kind of the fog that we have had in front of us for the last couple of years is now starting to come out.

With respect to the nature of the contracts, our view is that contracts are likely to be shorter in duration and are of smaller quantities.

And so those have got established marketing businesses.

Those will need to expand those businesses to be able to attract more customers to be able to underpin these projects.

But we see the buyer's appetite is definitely there and certainly, the taking in spot prices over this current Northern winter has reminded people again that we're doing a new supply coming into the marketplace.

And as you know in 2018, there was only 1 small project went through FID and it's unlikely that there will be any projects this year go -- maybe 1 will go to FID.

So that difference between supply and demand is opening up very, very quickly.

And of course, all you need is a policy change like we saw late last year in China, which we actually foresaw some time ago, I mentioned, that these things would come, it's just a matter of when.

That has occurred and then, of course, the other one out there that may be a catalyst for this item is understanding what's going to happen with shipping regulations and the [aim] are starting to put them up on what they'll do in the insurers are as well.

So I think there's even more growth catalysts in the market for us.

The next question comes from James Redfern from Merrill Lynch.

So first question, just keeping the question to results.

I just wanted to touch on unit production costs.

So they only rose 4% in 2017, just by $0.11 foreign production, which is a good result.

I'm just wondering how we should think about unit production cost in 2018, given the ramp-up of Wheatstone.

And then the second question is just wanted to ask about the higher interest and taxation costs.

Yes.

James, on a total cost basis, of course, things will change this year as more and more of Wheatstone starts to come into the mix.

Last year was a transition year as you know, so we actually -- we got more OpEx in than what we'd originally planned because Wheatstone started up and we had to expend some of what we've been capitalizing previously, and we didn't receive a lot of volume help in that regard.

So yes, Wheatstone is -- in the base business, if you take out Wheatstone, we expect our costs to stay where they've been.

We've indicated this previously that we're now looking at some of our longer-term supply contracts or service contracts and making sure that we're able to lock in where we currently are in the market.

But Wheatstone will come and those costs will go up slightly because Wheatstone has a high unit cost.

But we are working with the operator on challenging those assumptions because we believe there's a lot of room to move down in their assumptions at the moment.

So to be fair, it's very early days for them.

We need to make sure that they've got all the support they need but you will see some upward pressure this year in unit costs simply because of Wheatstone's high unit costs.

But over the next couple of years, we'll work that down.

And then your other question, I'll hand over to Sherry.

Yes.

Thank you, James.

I think just a quick comment on the interest cost or the net financing costs.

That's just a normal fluctuation in the variable interest rates increments that we have, and you've heard the comments that we made in the summary presentation around our overall competitive cost of debt and financing.

I would like to call out your question around the tax expenses, and we do have a slide in our annual results release that also walked through that in detail.

So when you look at the breakdown of what drove the higher tax expense across the year which was a total of $79 million, there are really 4 components of that.

The 2 that I called out in my commentary were around one-off adjustments to prior period deferred income tax and that was really a normal reconciliation of the tax and accounting balances mainly for our Wheatstone assets and that's again, just a normal part of capitalizing the asset on startup.

We did also see the unfavorable foreign exchange movement on income tax because of our debt instruments.

And so you saw that as well, just the FX impact of that.

We did, of course, also see higher taxable income and so that had a $121 million effect and we also saw lower nondeductible and foreign spend and higher augmentation and other items, which impact income tax of $88 million.

Our next question comes from John Hirjee from Deutsche Bank.

Peter, my question is related to the dividends where on your slide deck, you talk about where you've got a yield of 5.4% last year and you maintained your 80% payout ratio.

Do you think given the amount of capital you're going to have to consume over the next let's say, 4 or 5 years with the projects that you're wanting to develop, that you can sustain an 80% payout ratio?

It's a good question, John, and one we often -- we get asked quite often.

And it's probably getting over into the next call, but you'll find that as we look at our funding plan, we try and keep ahead of where that payout ratio is going to be and what it needs to be from that funding.

So we'd like to be at least 2 years ahead with trying to understand any movements at all in that.

Clearly, we've got some decisions over the next few years with respect to that payout ratio.

It's a target as you know and our commitment is 50% of boe as a target.

But we're also very sensitive toward understanding that many shareholders, particularly some of the longer-dated shareholders enjoy that payout ratio.

And so as we are looking at our funding plans, we built it in as a base case.

But to be honest with you, I can only look out a couple of years.

So our commitment is as we think about any potential changes to that as we are spending more capital, it will be something that we will work through and it'll be something that we signal very early to shareholders as to where we're going.

All right.

In the context of Wheatstone, you mentioned before that Train 2 is progressing well.

Do you expect that to ramp up quicker than expected?

Or do you think the ramp-up schedule will be as previously prognosed?

It's a good question.

I'd like to say as we've already basically debriefed the (inaudible) of plans, which is good news for us.

On bucket list items, which you know, the carryover items, we are now -- we have 75% less bucket list items than we did at the same point on Train 1. So these are all carryover work, kind of needly work as you know, that affect your ability to start up cleanly.

So we're very hopeful that we're going to get a good ramp-up on this.

The other thing to note, John, is we did spend some capital to increase the capacity of the compressors in Train 2. We didn't get in early enough on Train 1 to do that.

We expect Train 2 would also have some additional capacity because we've built that into the compression.

So look, all I can say is I'm very hopeful and early indications are quite positive for us.

But our planning, we'd like to be on the conservative side of our forecast.

I think that held us in good stead last year.

We fell to the bottom end of our range but we didn't drop through it.

This year, of course, our commitment is to get back and to nail it.

I think we've got one more call, or not?

No, one more.

So we can end the call there.

Thanks for your questions and your interest in the profits.

And I know you probably want to get onto the next call as quickly as we can.

So with that, we'll put it back to the operator, and then we'll start the next call.

We'll now move to the second part of today's session, focused on Woodside's entitlement offer.

Okay.

Well, again, thanks again for rejoining me or staying on the line.

Before I begin, I would ask you again to read that important notice and disclaimer laid out on Slide 3. I also need to add again and just remind us that due to legal restrictions, people located in the U.S. are not able to participate in the briefing call.

So if you are from the U.S. or representing somebody from the United States, can you please drop off the call now?

Okay.

Moving to on the legal.

What I really want to do now is sort of take the opportunity to discuss Woodside's moving to majority-owned position in Scarborough by purchasing an additional 50% in Scarborough for just over $0.4 billion and our planned AUD 2.5 billion equity raising.

The equity raising would support the acquisition of the additional Scarborough resources and provide all the short and medium term expected equity funding requirements for Scarborough SNE Phase 1 and Browse through your final investment decision.

And it's very important we maintained a prudent financial position for Woodside.

If we start on Slide 4, I'll give you an overview of what we've announced today.

In a nutshell, we are unlocking shareholder value.

It's as simple and as complex as that.

Owning 75% of Scarborough's gas and sharing ownership with the entire resource with 1 joint venture partner delivers greater alignment, certainty and control for the project.

On completion, Woodside will own a significant portion of the gas and of the infrastructure where it will be processed.

Our world-class infrastructure on the Burrup means that we can develop the opportunity quickly and efficiently, and the Pluto liquefaction the facility was designed to allow efficient brownfield development, facilitating the expanded production as we're expecting here with Scarborough.

Acquiring additional Scarborough volumes materially strengthens the project's economics, materially reduces development risks and accelerates delivery of Scarborough gas through Pluto.

In parallel with progressing Scarborough, equity funding allows us to progress value-accretive options at SNE Phase 1, and of course, Browse through to final the investment decisions.

This is set in the context of increasing demand for LNG and lower development costs at this point in the cycle.

Slide 5 shows you the extended -- the external market opportunity that supports the plan.

A global LNG supply gap is emerging from the early 2020s amid robust demand growth for major and low investment in new supply.

This creates an opportunity to develop the most competitive projects in time to meet that demand.

Coupled with increasing demand, Woodside is in a unique position of being able to offer innovating marketing arrangements to customers, and we have the flexibility to take FID at around a minimum of 50% term contracted rather than the historical levels of around 80%.

If I move on to Slide 6 I'd like to discuss why we're doing this now and of course, there are 3 reasons.

First, it delivers value-creating opportunities for Scarborough, SNE Phase 1 and Browse by accelerating their development and giving certainty.

Secondly, the acquisition and equity-raising gives greater certainty of Scarborough's development by creating greater alignment and control over a low-cost, high-value opportunity.

And third, we're maintaining prudent financial management and preparing our balance sheet for growth expenditure.

This acquisition and equity-raising also progresses our strategy over 3 horizons to deliver superior shareholder returns.

Let's move on to Slide 7, then I'll discuss in more detail our proposed increased interest in Scarborough.

We have agreed to acquire Exxon Mobil's 50% interest in WA-1-R, containing the 7.3 Tcf Scarborough gas field for an initial consideration of USD 444 million and a contingent payment of $300 million at a positive FID.

I should note that this is subject to customary preemption and approvals processes.

This will give Woodside greater alignment, control and certainty between our offshore and onshore ownership, which you'll see on Slide 8. Our offshore equity increases to 75%, complementing our 90% equity in the onshore facility, which supports low-cost expansion at the facility -- at a facility designed to allow efficient brownfield development.

On Slide 9, you can see how we plan to maximize existing infrastructure by developing new supply that we expect will be materially value-accretive.

Here, we've outlined our conceptual plan for making the Burrup Hub a reality.

And Slide 10 shows you how we can develop Scarborough through Pluto.

6 million tonnes per annum from Scarborough from 2025 will be processed by a base case of 3.3 million tonnes per annum brownfield second train at Pluto.

We'll also have a very significantly extend of our production profile at Pluto.

The Pluto North West Shelf interconnector provides additional optionality.

For the 4.5 million tonne per annum capacity, we could look at accelerating rating some Pluto production from around 2021 via North West Shelf facilities.

Further, the Northwest Shelf interconnector provides an opportunity to optimize the capacity of Pluto Train 2. When I say that the interconnect provides optionality, I want to be clear that we can and will progress Scarborough through Pluto without the North West Shelf.

You'll see on Slide 11, the different options that we have to sequence production.

From 2025, our intention is to process 8 million tonnes per annum through the Pluto facilities.

So what will all of this cost us?

It's on Slide 12.

You'll see our cost estimates for this development and the appropriate notes on the side.

We estimate Woodside's share of CapEx to be about between $7 billion to $8 billion, our cost of supply is globally competitive at $7 per million BTU, and upstream develop costs are under $5 per boe.

As I said earlier, this equity-raising supports SNE Phase 1 and Browse to FID, so let me give you some more details on these developments.

The SNE Phase 1 development concept is shown on Slide 13.

Oil will be produced via a standalone FPSO and associated subsea infrastructure, with production capacity of around 100,000 barrels per day total project.

Woodside share is expected to be about 70 million barrels of total production for Phase 1. Current CapEx estimates are around $19 per barrel and we're targeting further cost reductions in the order of 15% to 25% before FID.

We're also progressing Browse to the North West Shelf, as you can see on Slide 14.

Here, we're planning for 2 gas FPSOs, connected to the north ranking complex via a 900-kilometer pipeline.

Gas will then be processed through existing infrastructure at the Karratha Gas Plant.

Production capacity will be 10 million tonnes per annum of LNG, 1.4 million tonnes per annum of domestic gas and 50,000 barrels per day of condensate.

CapEx to RFSU or first startup is forecast to be around $15 billion total project, making Woodside's share about $4.6 billion.

And of course, the phasing on the project is for the first FPSO startup, approximately 1 year before the second FPSO.

The Browse joint venture is aligned on the Browse and North West Shelf concept.

The upstream resource is well matched to the downstream infrastructure, with emerging capacity at the Karratha gas plant.

And to put that into context, Browse gas is best treated through the North West Shelf, and Scarborough gas is best treated through Pluto from a processing of point of view on the gas.

Commercial negotiation between the Browse and North West Shelf joint ventures are ongoing.

Of course, the project is targeting starting concept definition in the second half of this year, and being FID-ready in 2021.

If I can turn to Slide 15, I'd like to discuss how financing maintains our prudent financial position, which of course, assists our developments.

After acquiring Scarborough, Woodside is raising an additional $1.5 billion of equity, which decreases net debt to around $3.2 billion and increases liquidity to $4.5 billion.

Gearing moves towards the low end into our gearing range, with our December 2017 gearing at 25% is within our targeted range of 10% to 30%.

And of course, as a result of the equity-raising, pro forma December 2017 gearing reduces to 15%, providing strength and flexibility as we move into the next phase of project development and increased capital expenditure.

On Slide 16, you'll see the key terms of the entitlement offer.

You can see the terms of this fully underwritten entitlement offer, and I encourage investors to consider them in detail.

Approximately $94 million new shares will be issued equal to 10% of our post offer issued capital.

I won't spend too much time on Slide 17 but here, you can see the proposed timeline to the entitlement.

The institutional entitlement offer opens today and closes tomorrow, Thursday, the 15th of February.

The institutional shortfall book bills will open tomorrow and close on Friday.

So in conclusion, we have a huge market opportunity that we're well-placed to capitalize on.

There's a great match between the expected LNG market demand growth and now we have a project that we're confident we'll go to FID in 2020, can be built over the lower point in the -- at a low point in the investment cycle, and which can produce in 2025 to deliver value to Woodside and its shareholders.

Furthermore, the entitlement offer provides the short and medium-term expected equity funding requirements for Scarborough, SNE Phase 1 and Browse to target FID, and maintains a prudent financial position whatever the commodity cycle deals up for our release within normal target ranges.

As you can see on Slide 18, this unlocks significant equity volumes.

And again, I want to thank you for taking the time to listen.

And with that, I'm going to turn over to the operator who will take your questions

(Operator Instructions) Our first question will come from Mark Busuttil from JPMorgan.

I actually registered my question for the first part.

I'm going to see if I can ask 1 from the first part and 1 from the second part.

In terms of the second part of the conference call, in the past, you've talked about acquisition policy being, for the sub-billion dollars sort of bolt-on acquisitions.

And I guess we could maybe argue about what you've done today fits within that but can you maybe provide an update for the going forward, are you still sort of targeting further acquisitions?

Or is this sort of the end of it, particularly considering the raising that you're doing is so much larger than the acquisition cost?

I'll sort of cycle back for the second question afterwards.

Yes.

So look, it's a good question, Mark.

Look, I would say, our moves forward for a while will be opportunistic, obviously.

And so, I'm never going to pass up anything that is extremely value-accretive, and I think the Scarborough equity is a good example of that.

We said we'd be looking to build around existing infrastructure, so we had a fast to market opportunity and unlocking additional equity, and Scarborough does that.

It is in that sub-billion dollars range, as you've quite rightly point out.

As we look forward, there's not too many of these on the market at the moment.

The market has actually tightened up quite a lot over the last 6 to 12 months.

And so my expectation is, these types of assets are not going to come up very often.

So I don't have anything in the crosshairs at the moment and certainly, the money that we've put aside for the equity-raising is not targeted to allow Woodside to go after M&A acquisitions.

Okay.

And then as I said, this should have been directed to the first part of the conference call but there was another call that came out a couple of days ago about KOGAS taking the North West Shelf into arbitration over a mid-term contract.

Can you make any comments about that?

I can now as it's become public and clearly, somebody in Korea has broken confidentiality.

Let me get the facts out here.

Firstly, the North West Shelf took KOGAS to arbitration, not the other way around.

Secondly, this is a contract that has expired and it was an old legacy contract that was at actually very low slopes.

Thirdly, the North West Shelf view is that KOGAS owes North West Shelf money, not the other way around.

So some of the speculation out there unfortunately missed the mark with respect to why the North West Shelf felt compelled to go and do this.

We also need to support other buyers who have dealt with this in an open and transparent way and have closed out these negotiations at slopes that are at historical levels.

So this is an old contract, it was just a handful of cargoes, I think about 8 cargoes per year over a couple of years.

Woodside's equity in that is only [1 6] and, of course, what we're trying to do is just close out this negotiation.

,

Our next question comes from Mark Samter from Credit Suisse.

Actually, I couldn't get on the first call either, so I might just start a really quick question on the -- more related to the first part that probably ties into the second.

There was another year of 0 organic reserve replacement, I think, that sort of averages 5% to some other.

And it appears at the footnote saying your head of exploration is departing Woodside in 2 weeks' time.

Should we see exploration being de-prioritized in the business going forward, or we shouldn't interpret that?

I think we're happy with where exploration is at the moment, Mark.

We've really built the quality of the resource base for us.

So as you look at the run rate on exploration, we're quite comfortable with where we are.

It'll change over kind of a 3-year average, depending on when we have commitments.

This year, we're front-end loaded with some quite large oil prospects that we're targeting off West Africa.

So where oil buyers at the beginning of the year and, of course, Myanmar.

We're de-risking this year.

We were chasing different play types last year, some of them were stratigraphic.

This year, they're all structural plays that we're chasing, so very much to do with that program.

And, of course, we've got (inaudible) that we'll drill in Australia here in the next couple of months.

So no, I wouldn't read anything into that, other than as you know, our exploration portfolio takes many years to build when -- and to be honest with you, during my tenure, it's taken about half of it to work off what was the existing when I came in through the commitments and the long lead time on exploration.

So as we've set to market in really, the next couple of years is going to tell for us as to whether our exploration strategy has worked or not.

But as you can see, it's a part of our growth.

But equally and a number of market commentators and investors have asked us, is this a good time to be buying in the market versus exploring?

I'd suggest for you, today's announcement on Scarborough indicates that, no, we think buying is a good -- just buying is a good time.

With respect to Phil leaving, it was a natural time to Phil to leave.

His contract expires this year and so, we've taken the opportunity to promote some of our emerging talent in the organization.

And as you can see also, with Sherry Duhe's appointment, we're populating my lead team with the people that are going to lead Woodside through the next 2 horizons of our growth.

So, please don't read anything to that.

We've got nothing but the highest admiration for the work that Phil Loader has done for us.

No, it might -- this could be one of my long-winded questions, so I'm going to try and tie it all into one around this transaction.

I mean, it looks like your guidance for Browse CapEx seems to have gone down 20% or 30% versus you last gave it to us.

But (inaudible) the fact that probably BHP don't come along for the ride on Scarborough.

But your current guidance, you're going to be spending around USD 15 billion on 2 growth assets simultaneously on your timeline, that's 75% of your market cap.

The businesses got a 5% ROIC-ish at the moment.

You said yourself in the first part of the call that LNG contracts are getting shorter and you're probably not going to be able to get the same (inaudible) underwritten.

So you're asking equity investors to take on more risk around this project.

How should we think about -- I think you did say to us a year ago that we shouldn't be expecting big lumpy CapEx projects for Woodside anymore.

We're kind of looking at 2 now, simultaneously.

How should we think about that risk you're asking equity holders to take on in the next few years if it goes to plan?

Well, I think there's 2 ways to look at that.

Firstly, today's equity-raising is to derisk some of that initial capital as we go out there.

The future capital load, you've got to -- you kind of go to step back and say, well, one is what are we spending on?

And then, what is the risk of what we're spending it on?

So we're spending it on assets that are adjacent to our existing infrastructure.

So as you know, Mark, 1 thing we derisk is basically the LNG plant part of it which has been where a lot of the CapEx overruns have been of recent times.

So if you put it in the simplest of terms, these are basically long pipelines connected to an offshore facility, whether it's a gas FPSO.

And the gas FPSOs for Browse are well within the range of size and complexity of vessel.

So we're not building the first serial number on the size of the gas FPSO.

And then, of course, the offshore trading facilities for Scarborough are quite simple because it will be just simply a more semi sub with quite minimal trading facilities on board.

So we look at these and say, these are well within our window or doability or our ability to execute within schedule and budget.

When it comes to managing capital, of course, we just kind of have to look at this as we come up to each final investment decision, and then decide how we manage the capital through it.

And it's going to depend on pricing between now and then, what we think our contracts look like and then what's the appropriate risk profile for us to take on.

So look, I would say it's great to have opportunity.

It's a good problem to have in front of us, and it's one that we'll put a lot of thought into over the next few years.

And I would say, we reflect and learn from others and from our own decisions but it's historic and as we start to look at these future ones, we're very mindful of that.

So I fully understand where those questions might be coming from.

What I would also say is, that's front of mind for us, and today is just one example of us trying to derisk that.

And can we touch on -- because you referred to these to you move the risk of the downstream.

CapEx is much more about the upstream.

Maybe I'm just bad at my job, but I'm certainly surprised to see Slide 11 talk about Pluto going on to 2 million tonnes a year and deferring higher unit cost back-filled gas.

But maybe, I suspect not many people in the market were modeling there.

I mean, has there been a change in view on the Pluto reserve to see that decline?

No, there's not.

And so, simply what it does is it coincides with some opportunities that we have around the Pluto contracts.

And so we have options and they are Woodside options, as to whether we extend those contracts out past that period.

So it's basically a put option we had.

And so it would be us exercising that put option and then choosing not to develop the Greater Pluto reserves, or what we call 404-P at this point.

What that means for you on a unit boe basis is all that cost for Scarborough, including acquisition offshore and onshore are around $9, just under $10 per boe.

All that costs for 404-P development at this point without other infrastructure there are around $20 per boe.

So it's a far more cost-effective development for us to push out 404-P reserves.

But no, I wouldn't read anything into Pluto at this point other than it's us getting access to a lower-cost resource and bringing that to market earlier.

Can I ask maybe one final question if it's all right, just going back the Investor Day on the horizon?

One, operating cash flow and free cash flow chart, where you basically said that you could keep going at 25% and fund everything you want to do.

On that basis, why raise extra USD 1.5 billion on top?

I mean, you could have fully underwritten today's dividend and it would have covered the BHP.

Then why raise incremental capital before we know you have it to spend on when gearing's supposed to be at a comfortable range?

Well, there's 3 things as you know, to get major projects, particularly in the LNG world.

The first one of those is to ensure that you've got a world-class resource with -- of an adequate size.

That's what we have now in Scarborough.

Second one, of course, is to have market and clearly, the market's opening and we are confident that the market will be there for us at appropriate pricing.

And then the third one is, you've got to get your funding in place.

And many of these projects globally struggle because the buyers sit there and say, your shareholders haven't backed you yet, you don't have your funding in place, how do we know if we go and commit to your project, that you'll actually do it?

And these aren't free passes as you know.

Once you get somebody comes in, signs an MOU with you and so forth or hits an agreement, it takes -- it's a lot of effort and it's a commitment, particularly with Asian buyers because they're then committing to you.

So these are not trivial decisions and so Woodside is taking the decision today to derisk that and to take away this overhang that might be there in the stock over the next couple of years, which says well, these guys are going to have to raise capital at some point.

So the good news about progressing projects on a timeline that you commit to is that then people will start to talk about capital.

And so you have an option as to how you pull the band-aid off.

You can either do it slowly or you can do it fast.

We've done it fast today and what we're doing here is providing shareholders with a full, open and transparent view of what our capital requirements over the next 2 years.

I think that's a compelling argument, to be quite frank with you.

At the same time, we're giving shareholders an opportunity to participate in the fairest way through a patriarch, that will get an option at a 1 for 9 rights offer and at a 10.3% discount.

So there's a number of things in there that we've thought through, but it's all about providing certainty for shareholders around the investments that they've made with Woodside.

Okay.

But just maybe I asked because I think there's just a footnote in the presentation that says an affirmative Browse FID prior to 2023 may require additional earlier equity funding.

You're certainly not wanting at this stage, just so you feel you can fully fund this organically at the moment, assuming by (inaudible)?

On Browse?

I'm not ready to say that, Mark, because it's really going to depend on pricing.

So it's going to depend on the price (inaudible) once the commodity price is out, yes.

Yes.

Yes, so just going back to -- I mean equity can't -- holders can't sit here today and say, they fully understand the capital position requirement because we don't have more -- your bars may feel happier about this raising but equity holders can't sit here today and say there's more raisings coming.

No, but I didn't say that, and they offer doesn't say that.

It's very clear that we know the decision at Browse and FID.

What it does give uncertainly around is the (inaudible) around Scarborough and Senegal.

And what it does give uncertainty around is price perturbations that may be in the marketplace.

So you can imagine, we tested this against a couple of price outcomes for us.

And so it says, look, we can execute this business plan and they've got certainty that we can execute this business plan at 75% equity in Scarborough.

So again, we don't want an overhang where we have to go and sell equity in the market on a project.

That's about the worst thing you can do and we don't want uncertainty out there as to when we might need to raise equity.

So what this does is it gives us plenty of airspace now between the next decision, and shareholders as I said, have an opportunity to support that through the equity-raising.

Our next question comes from Nik Burns from UBS.

Peter, just a question relating to the cost for Scarborough to Pluto.

Just trying to ascertain your certainty or confidence interval on those costs.

Are you moving immediately into FEED or these pre-FEED costs?

And is there any -- in your view, is there any further requirement to appraise the Scarborough resource ahead of FID?

Let me address the last one, first, Nick.

No, we don't see any need to appraise the Scarborough resource.

There's 12 wells in the full development plan.

We believe we need, I think, 5 in the first and then 7 subsequent to that.

And so you'll see again, we'll just face the wells as we need to drill them over time.

With respect to the costing, it's a cost 0 estimate, which means it's got a 25% contingency built into it already.

What I can tell you is we've already been out seeking expressions of interest for the onshore train component of that.

So we have reasonable costing estimates for the onshore train already, but the offshore is still at a cost 0, or with 25% contingency.

And then upwards in CEO contingency on top of that, Nick.

So it's a little big because I don't want to disappoint you.

Right.

And in terms of FEED, formal FEED entry, is that -- when will that happen?

Probably next year.

So we're targeting formal FEED next year.

What we've got to do is work with BHP through a couple of things.

Firstly, over the next 30 days, BHP has certain rights under the Scarborough joint venture with respect to transition of operatorship and then also, they have a preemption right.

And we've indicated in the offering that if BHP chooses to preempt, then Woodside would also preempt.

That means we could end up with a 50% equity in Scarborough, but we'll leave that up to BHP.

They need time to consider this together with operatorship.

But we're confident that Woodside will become operators, just given the fact that we have the onshore infrastructure.

There is a concept select decision for the second half of this year, and that concept select decision will inform us as to what the train size will be, whether it's 2 million tonnes or 3.3 million tonnes.

And so over that process, we'll then firm up when we go into FEED.

But at this point, we're expecting FEED next year.

That's great.

And just in terms of BHP, have you had any preliminary discussions with them about your concept of Scarborough to Pluto?

I mean, that obviously pries them to either take equity in Train 1 or potentially call some of their gas through Train 1. Just wondering whether you had any conversations with them around that.

And also, just the other 2 equity participants in Pluto.

Obviously, this plan has implications for them prioritizing Scarborough gas over -- you could say it's a higher cost to Pluto backfill gas, but just in terms of have you had conversations with them around that?

Under the confidentiality requirements of the SPA, we really weren't able to engage with BHP.

Until last -- or actually, this morning when the -- as we notified them.

With respect to the joint venture though, the joint venture is already looked at by North West Shelf and Pluto as options for taking the gas through, and that's what we're going to have to work with BHP on over the next few weeks, is to give all of the details of what we've put together.

So I can't say today that BHP has seen all the details or shared in all the details of what you're seeing today.

What I can say though, is that I think it's a compelling opportunity for the Scarborough joint venture to get certainty in their development and particularly, in the timing of the development.

So both Scarborough and Browse are competing for spare capacity that will arise at North West Shelf.

Whoever comes second in that will be disappointed and will be potentially delayed anywhere between 8 to 10 years in the development time.

So what this does today is it opens that up and as you heard in the previous call, moves from an either-or conversation to an and conversation.

It also means some of the other nonaligned joint venture partners in North West Shelf will have confidence now that their projects potentially have a place in North West Shelf in the future as well.

So all of those things line up and as I see it in the beginning, the North West Shelf gas or gas processing is better aligned to Browse gas, and Pluto facility has been aligned to Scarborough gas.

So we'll talk to BHP more about it over the next few weeks.

With respect to our partners, Tokyo Gas and Kansai Electric, we will be talking to them about offering them participation in the upstream part of Scarborough.

We would like their participation, we'd like their alignments through the plant, but it's not necessary to move forward.

We have commercial arrangements in the plant, we can move forward by ourselves if we do so choose.

Now, (inaudible) can participate in that train, if they so choose.

So the corporate structure of the plan is that you can have different ownership in each trains.

Our next question comes from Dale Koenders from Citigroup.

I'd just like to dive a bit more into Samter's questions about the footnote on the (inaudible) Browse FID.

How should we be interpreting it?

That if it comes in along with your timing at 21, there's an equity-raising?

You're saying that anything past 23 is okay.

You're sort of steering us towards the prioritizing Browse in the list of the North West Shelf but maybe someone else gets the gas instead.

No, not really, Dale.

It's a -- what's it's saying is that the Browse is probably a 2026 sort of startup now.

And as you heard me mention, it will be 1 gas (inaudible) so year 1 and then quickly followed by the second one in the year 2. So at the moment now, we've got to put down hard on Browse.

Having said that, the interconnector provides us a huge amount of optionality.

So the interconnector at the moment will go into FEED this year and will be ready for use by 2021.

The interconnector will be able to take off at the upstream part of the Pluto plant.

And so anybody wishing to utilize the spare capacity in the Pluto flow line to shore will be able to tie in there and actually go across the North West Shelf, where we'll be able to direct Pluto gas across the North West Shelf.

So that concern that we had that this growing, (inaudible) window, the North West Shelf and you're going to have unutilized capacity for a long period of time.

We believe we've ameliorated some of that through the installation of a 4.5 million tonne per annum interconnector, which is actually going to be bidirectional.

And then as you know, there's some other third-party gas out there that would like to get in, and it's actually the best place coming into the Pluto facilities.

So that's how all of that dynamic is going to work out, but it doesn't de-prioritize Browse at all.

It's an optimizer and it's a value-enhancement opportunity that we're having built into the economics.

And then in terms of the capacity that exists on the balance sheet, I know you commented earlier saying, you're sort of -- you're full for M&A at the movement, so you wouldn't pass up any opportunities that are attractive.

That comment also sort of indicated balance sheet's kind of at its limit developing these projects.

Well, I think it's fair to say that at some point without an equity-raising, our rating would have come under pressure.

And so what we're doing as we've always said as we go into a major capital spend period, we wanted to run our gearing down.

And at 24%, 25%, absent some unexpected price peaks for long periods of time was going to be difficult for us to run our gearing down without any equity.

We've obviously got different options on the way that we run equity or raise equity.

One of those being those near and dear to some of you which is the DRP.

We chose this would -- we just made adjustments to it.

We felt this was the best way.

There's pluses and minuses on DRPs but this gives certainty.

And so that's what we're trying to do, Dale.

So it's a preponderance here to really move towards having a prudent financial plan in front of us and providing certainty to shareholders, both present and those -- and going forward.

Okay.

And then, I guess, also building on Samter's question, so the Pluto production coming down, the 2 million tonnes post 2025.

In your EIS initially for Pluto, there was a second phase platform with compression, it's going to be a multi-billion dollar development.

Is that also then being delayed along with that WA-404-P gas?

And what are those long-term requirements for like later life compression, which is perhaps, not in those numbers you'd probably see in the slides?

No, we've really cut out a lot of that CapEx.

So there will be some later life compression, but we won't need a separate platform for it, being a much smaller facility.

And also, we'll do subsea separation for some of the orders that we've had.

We've got a lot of optimizing in that need to (inaudible) of Pluto already built into our plans.

So that decision doesn't affect it.

It just means that we can push it out a little bit in time.

But you're not going to see a big CapEx hump that were there in the original developments plans for Pluto.

Our final question comes from John Hirjee from Deutsche Bank.

Peter, a question on the equity you've taken in Scarborough.

I recall when you first joined Woodside, you highlighted that at 90% equity, you wouldn't have necessarily developed Pluto at that level of equity.

I'm wondering whether you think 75% is optimal for you guys, or do you think that there's a more optimal equity position for you in Scarborough?

Look, it's a good question, John, and I do remember saying that.

I think the key for us at the moment is, one, Woodside is a different Woodside to what it was back in 2007.

In those days, we only had 1 -- basically 1 revenue stream to fund development.

And so that comment around 90% equity basically meant North West Shelf alone was funding development.

We now have 3 major revenue streams coming through, being North West Shelf, Pluto and Wheatstone, so our risk profile has changed significantly.

Equally, the amount of capital that we have at risk here is much different compared to what our market cap or our balance sheet capacity is, so that's another factor for us.

But I would expect over time, we will -- some of the equity will sell down.

Probably more likely, as we get alignment with buyers coming in, there will in those sorts of chunks, just small amounts.

But don't expect that soon, because maximum value is when you take uncertainty out of these things, and we certainly don't need to sell down to buyers at this point.

So that's probably a little way away.

There are others who are clearly interested in doing strategic relationships with us around the Carnarvon Basin.

So we'll just see how some of those negotiations might play out, but it's not built into our base numbers at all at this point.

Again, I wanted the equity-raising to be able to cover that so that we won't be under any pressure to sell down any assets and the investors could really understand what they're all buying into through the equity-raise.

And a question in terms of the marketing of the gas.

It looks like you'll be marketing Scarborough gas alongside Browse gas, and I'm just wondering how you're going to manage the inherent conflicts there and how you think buyers will sort of play it off against each other, if you know what I mean.

Well, I'm not conflicted because it will be sold on an equity basis.

Although obviously, the Scarborough joint venture, that's something we'll need to discuss with our partner about but certainly, the Browse partners will sell their own gas.

No, I don't see any conflict at all.

I mean, what you're seeing is LNG moving more and more towards what we would call a typical commodity.

And in the commodities business, as you know, it's just simply lowest cost to market is the winner in those things.

And so that's where the differentiation is.

So no, I don't see any conflict.

As you know, Browse, the other partners in Browse will take it into their portfolios.

I'm uncomfortable, very comfortable, that's what they'll do, so Woodside would be out there, marketing.

I actually really like the idea that I'll be out there with 2 projects of this size and quality, marketing into a market that clearly needs the gas.

So it's a good -- it's a great spot for us to be.

No, there won't be any conflict here.

I think that's the end of the questions.

Again, everybody, thanks tremendously for your interest today, and I will be talking more with you over the coming days and weeks about this.

I hope you'll find presentation pack today informative, and we'll give you the important information that you need to make the very important decisions that you have in front of you over the next few days and weeks But again, thanks again for your support for Woodside.

And again, I'd just reiterate, we are committed to the plan that we've put in front of you last year about the 3 investment horizons that we have.

This again is another tremendous step in the progress towards that and the creation of the Burrup Hub.

We are de-risking our capital, we're going to make sure we're mindful of that.

We also understand our commitments to maintaining our profitability and our returns to shareholders.

So with all that, I'd say, thanks for your interest today.

I look forward to your continuing support, and I look forward to catching up with you and talking to you more about these very exciting opportunities that we have.

Back to the operator.

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you so very much for your attendance.

You may all disconnect.