Woodside Energy Group Ltd (WDS) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Woodside Petroleum Ltd 2019 Full Year Results Teleconference.

(Operator Instructions) I'd now like to hand over to Managing Director and CEO, Mr. Peter Coleman.

Thank you.

Please go ahead.

Good morning, everyone, and thanks for joining us.

As you will have seen this morning, we released our 2019 full year report and results briefing pack to the ASX.

With me on today's call is our Chief Financial Officer, Sherry Duhe.

As we've done in previous years, we'll make some introductory remarks before opening the call up to a question-and-answer session on the full year results.

Of course, please note the standard disclaimers and important notices on Slide 2 and a quick reminder that this presentation does include some forward-looking statements and that our reported numbers are all in U.S. dollars unless otherwise noted.

In the past year, we faced a range of challenges, including tough trading conditions, complex commercial negotiations and cyclone activity.

Despite this, we've still achieved significant progress in our growth plans and delivered solid financial results.

Let's start by running through our key financial and business outcomes, starting on Slide 3.

You can see our reported net profit after tax is $343 million, and our underlying profit is $1.063 billion.

Revenue and operating cash flow were strong, underscoring the capacity of our base business to support growth.

We've delivered a fully franked dividend for the year of USD 0.91 per share.

The reported profit reflects the decision to impair the value of our Kitimat LNG asset in Canada.

And disappointingly, depressed market conditions have persisted in Western Canada, where gas trades at a substantial discount to Henry Hub prices in the U.S. We've reviewed the developing concept and are looking at the most capital-efficient way to source gas for the LNG facility and timing of the development.

We still believe it to be an excellent opportunity, and we'll continue to include it in our plans.

The Woodside team has done a great job in improving the project fundamentals since acquisition, reducing the cost structure by about 30% and increasing the expected recovery from each well by about 4x.

Despite this, the Board and management have taken the view, based on current trends and the outlook for gas and carbon prices in Canada, that it's prudent to adjust the carrying value at this time.

The next 3 slides highlight the strength in our base business across a range of metrics.

On Slide 4, you can see that we achieved annual production of 89.6 million barrels of oil equivalent.

That's a good outcome and in a year, which we completed major scheduled maintenance activities at both the Pluto and North West Shelf facilities.

I'm pleased to report that we had our best-ever safety outcome in 2019, which I'll discuss shortly.

And across our assets, we continued to demonstrate why we are known as a low-cost, high-margin producer.

Moving on to Slide 5. The Greater Enfield Project contributed more than 4 million barrels of production in 2019 after it was completed on schedule and on budget.

We have invested in the reliability of our facilities, which are at the core of our growth plans.

Pluto LNG achieved record production rates after the first major scheduled maintenance turnaround since starting the plant in 2012.

For 2020, we're targeting production of 97 million to 103 million barrels of oil equivalent.

And I note we've had a challenging start to the cyclone season, including the direct impact of Tropical Cyclone Damien this past week, which we understand is a large cyclone that's directly hit our facilities since we've started.

I'm pleased to report, though, that the facilities withstood the cyclonic activity very well, and we've only suffered minor damage and expect full production to resume in the next few days.

On Slide 6. Our focus on health and safety of our staff and contractors has resulted in the best-ever safety performance with outstanding results on both personal and process safety.

The total recordable injury rate or TRIR was 0.9, and lost time injuries 0.19 per million work hours.

Now let's move to Slide 7, where you can see the progress across our key developments.

We are delivering near-term growth, taking final investment decisions in 2019 on the Pyxis Hub project, Julimar-Brunello Phase 2 and the pipeline component of the Pluto-to-Karratha Gas Plant interconnector.

We recently sanctioned Greater Western Flank 3. These are sizable projects that will keep our base business strong.

Major projects are also moving.

Early in the new year, we announced FID for the Sangomar Field Development offshore Senegal.

It's really a great achievement.

And we're now in execute phase and working to deliver first oil targeted for 2023.

We achieved breakthroughs on Scarborough, deploying technology that revealed a 52% increase in the estimated resource volume and agreeing the Pluto Train 2 tolling price.

The momentum on Scarborough and Pluto Train 2 is building as we look to take FID this year.

We've secured backing from customers, executing a sale and purchase agreement with Uniper for long-term LNG supply.

On Browse, we completed the basis of design and submitted environmental approvals.

Woodside is FEED-ready, and we're targeting FID in late 2021.

In Myanmar, the A-6 development is progressing towards commercialization.

And in 2019, we completed concept select and commenced pre-FEED work after finalizing fiscal terms with the Myanmar government.

Now turning to Slide 8. I talked about this at our Investor Briefing Day in November and it's worth repeating here.

Our portfolio of proposed developments would triple our reserves base and deliver new production at a compound annual growth rate of greater than 6% through 2028.

And we're looking to unlock approximately 40 trillion cubic feet of gas resources through the Burrup Hub complex.

Now before I pass to Sherry, I just want to talk briefly about our role in a lower-carbon future, as outlined on Slide 9. Now we know this matters to our investors and our communities, and I'm sure we're going to have many more discussions over the next months and years ahead.

Natural gas is essential to the energy transition in the decades ahead and can get the world energy mix shifting in the right direction by displacing more carbon-intensive fuels.

Our proposed Burrup Hub projects are well timed to support global efforts to achieve the goal of net 0 emissions by 2050, which is implicit in the Paris Agreement.

It's important to note that nearly all of the gas from Scarborough and Browse can be supplied to market within this time frame, providing lower-emissions energy that the world sorely needs.

We intend to develop it in a way that is carbon efficient, managing emissions through offsets, energy efficiency and lower-carbon technologies.

In 2019, we put in place some of the tools to support this, including outlining a target for offsetting reservoir emissions and signing an agreement with Greening Australia to create offsets.

Subsequent to the period, we finalized the acquisition of 2 properties in the southwest of Western Australia, and we'll start planting trees this year.

As our plans progress, we're going to have more to say on this front.

I'm sure we'll have a lot more at our Investor Briefing Day later this year.

I'll now hand over to Sherry to discuss our financial results in detail.

Thank you, Peter.

And good morning, everyone.

The financial headlines, as shown on Slide 11, reflect the strength of our base business and the work we've done throughout 2019 to prepare for the delivery of our growth plans.

Peter has already discussed our underlying net profit after tax of $1.063 billion.

We finished the year with over $4 billion cash on hand, low gearing and very strong liquidity.

As we look at the capital expenditure required over the coming years, we have focused on maintaining a strong financial position to ensure we have a buffer against market fluctuations.

We're targeting to retain sufficient liquidity to cover 12 to 18 months of commitment through our growth phase.

Slide 12 shows a breakdown of the main factors impacting our profit for the year.

Commodity price was, of course, a key driver, reflecting a 7% decline in portfolio realized price compared to 2018.

We incurred additional impacts from the full year application of a new leasing accounting standard and changes to our LNG processing agreements.

And our depreciation costs increased with the completion of our Greater Enfield oil project and a full year of operation from Wheatstone LNG Train 2. These expenses were offset by a 45% reduction in exploration spend and our continued disciplined management of production costs.

Finally, our reported profit was impacted by the Kitimat impairment, but of course, this does not affect our cash position nor the full year dividend.

Our production cost performance is shown on Slide 13.

Production costs were $505 million, which is equivalent to $5.7 per BOE across the entire portfolio.

This is higher than previous years but does include a one-off cost and the production impact of the planned major Pluto LNG turnaround.

Adjusting these metrics for the increased cost and reduced production of the Pluto turnaround, the effective production cost is $438 million, equivalent to $4.50 per BOE.

We also had greater-than-usual turnaround activity at North West Shelf, which has not been factored into these adjusted numbers.

The decrease in unit production cost is also due in part to increased production from Wheatstone and the Ngujima-Yin FPSO following completion of the Greater Enfield Project.

On to Slide 14.

A characteristic of our base business is the high margins it generates.

Our gross margin has reduced just slightly in 2019 due to increased depreciation but is still very healthy at 44%.

We have large cash margins across our whole portfolio for both our operated and nonoperated assets.

Slide 15 shows another view of the cash generated by our operations.

Through reducing our expenditure, we have reduced our breakeven price by 27% to $22 per BOE.

And this trend reflects our hard work over the last 5 years to strip out unnecessary costs and to make sure we are well prepared for growth.

The cash generated by our business is a major source of funding for our future capital requirements.

Moving to Slide 16.

We were very active in the debt market in 2019, preparing our balance sheet for growth.

We started the year in March with the issue of a $1.5 billion bond in the U.S. 144A market and continued to consolidate our debt maturity profile throughout the remainder of the year.

In doing this, we have managed to reduce our portfolio cost of debt from 3.9% to 3.6% and increased the average term to maturity from 4.7 to 5.2 years.

We now have a solid platform from which we can fund our capital expenditure requirements in the coming years as we deliver our growth projects.

The full year dividend distribution, now on Slide 17, is a pleasing outcome and again is a function of our low-cost high-margin business.

In declaring a full year dividend of USD 0.91 per share, we have maintained a payout of 80% of underlying profit.

Woodside has historically delivered a high yield to shareholders, and 2019 is another solid result.

We also reactivated the dividend reinvestment plan during the year, which was well supported by our shareholders with a high participation rate of 39%.

Shareholders use the DRP to reinvest our dividend at a discount.

And for us, it provides a steady contributor to fund our capital requirements.

We will continue to review the payout ratio during the coming years to ensure we are delivering value to shareholders consistent with prudent capital management.

Before I hand back to Peter, I'll touch on what to expect in 2020 on Slide 18.

Our production guidance remains at 97 to 103 million barrels of oil equivalent.

It has been a challenging start of the year with the 2 cyclones interrupting production already, most recently this past weekend with Tropical Cyclone Damien.

We had no injuries.

And we're proud of Woodside's excellent emergency response, which integrated well with the community.

Pluto LNG continued producing at near full rate throughout the cyclone period, and as Peter has mentioned, North West Shelf LNG should resume full production in the coming days.

This year, we'll see the start of our offtake from Corpus Christi in the U.S. Our marketers have been planning for some years how best to incorporate these cargoes into our portfolio and have been successful in developing a suite of options to help maximize the value of the contract.

A portion of the offtake in the first few years has already committed customers, and we will also consider hedging to predict margin when market conditions allow.

With respect to investment expenditure, we are guiding to between $4.1 billion and $4.4 billion in 2020, noting that the overall quantum is quite sensitive to project phasing.

We expect a large increase in capital spend this year as we commence execution on a number of work fronts.

Sangomar is progressing the construction phase following the final investment decision last month.

Scarborough and Pluto Train 2 are headed for FID later in the year.

And to support our existing facilities as we are moving forward, we are taking on several subsea tieback projects, including Pyxis Hub for Pluto, Greater Western Flank Phase 2 for North West Shelf and Julimar-Brunello Phase 2 for Wheatstone.

I'll now pass back to Peter for his summary.

Okay, thanks, Sherry.

Look.

In summary, I want to discuss our current position in the energy market and provide a 2020 look-ahead across our business, so I'm sure you'll be very interested.

On Slide 20.

As expected, trading conditions were difficult during 2019.

We anticipate more of the same in 2020 as new production enters the market and demand works to soak it up.

Nevertheless, the fundamentals remain strong, and we're confident the market will tighten as we see more coal-to-gas switching in key markets and the stock prices stimulate demand growth.

We are in a very competitive landscape and it's important that we maintain momentum on our projects.

The reality is that the cost of services is likely to increase as demand picks up, and that's why we've moved early to lock in costs at the low point of the cycle.

Finally, on Slide 21.

We have another busy year ahead as we maintain a strong base business and progress our growth plans.

We're building the resilience of our company through an increased focus on sustainability, including expanding our offset business and continuing to explore new energy options.

You've heard me talk for a few years now about our vision for the Burrup Hub, and you can see on Slide 22 that it is in some ways a simple equation.

We are bringing together Woodside-operated resources and assets in a capital-efficient way to produce natural gas to meet global demand.

And it really does make a lot of sense, and we've been working hard to achieve our vision and unlock value for shareholders.

We are not sugarcoating the task that lies ahead.

We've come through a challenging year and we know that there's more to come, but we are ready for it.

It's worth remembering that 2019 marked 30 years of LNG exports from the North West Shelf.

The path we're on now sets us up for another 30 years.

Finally, I want to comment briefly on the coronavirus or COVID-19 as it's now being named.

We've experienced no impact on LNG shipments.

We expect softer prices for spot cargoes as Chinese LNG demand softens, but the market will rebound when the situation improves.

Our financial exposure is limited, as the majority of our portfolio is sold on long-term contracts, with spot sales accounting for approximately 15% to 20% of total sales.

In the midterm, as we move into project execution for our growth plans, there is potential impact on fabrication yards, but that is still some months away, and we continue to monitor the situation and plan accordingly.

Now that concludes our opening remarks.

Thanks very much for listening, and we'll now open up for questions.

(Operator Instructions) Our first question comes from Saul Kavonic from Crédit Suisse.

A few questions, if I may.

First one, just on Browse timing, it seems to be talking about a late 2021 FID, which seems a delay on prior guidance.

Could you give some color on the reason for that apparent delay?

And can you also provide some color on what the plans are in terms of level of advancement of getting gas into the North West Shelf prior to Browse now that Browse seems to be pushing back further?

Thanks, Saul.

Look, on the Browse -- and if we can, we'll limit your questions to 2 or 3, and we'll just make sure we get through everybody.

Just on Browse timing, we've talked about late 2021.

Since we last spoke to you, the Browse team has updated or has benchmarked the amount of time required to go through the FEED activities based on the complexity of the offshore facilities.

And to put it into context, the top size for the offshore facilities are around about 45,000 tonnes, which puts them into the top decile of complexity on a global scale.

Not as complex as FLNG, but certainly as complex as some of the larger FPSO facilities that you will see around the world.

So that IPA benchmarking recommended that the FEED period, which is, as we know, that's where we make or lose value in these projects is through that early engineering, but that FEED period will be extended by a few months.

We're also recognizing that the commercial negotiations are still not complete.

We're down to the last 3 or 4 value items, but it's difficult for me to predict when that will actually be closed at the moment.

So also we're just -- we're taking an approach here that's just saying the commercial negotiations will get completed when they're ready.

It's not something that we can force.

It's not something that we have control over given the multiple parties that are involved in those negotiations.

But I can say to you, we've made some good progress over the last -- since Investor Briefing Day, but we're down to the last 3 or 4 significant items to close out.

My second question is regarding the sell-down of Scarborough, which is previously being spoken about, and the timing of that.

I just want to get an indication for the sale of the -- the integrated sell-down, you talked about for both Scarborough and Train 2. Is that something you foresee could occur prior to the BHP final tolling agreement being signed?

Or is that something that's only likely to occur after that point in time?

No.

And actually, Saul, I'll come back and finish your first question if I can.

You asked about the North West Shelf facilities.

Yes, apologies.

I've already -- no, my apologies.

I forgot.

The North West Shelf facilities, as we mentioned, we have approved building the interconnector between Pluto and North West Shelf.

The North West Shelf venture yet to approve the receiving facilities on their side, but we expect that shortly.

And the pipeline right-of-way and survey activities have already commenced on that connector.

With respect to gas going through it, North West Shelf is in discussions already with multiple parties who are wishing to put gas into the facility either through the interconnector, which would be obviously Woodside-operated resources, or separately into the plant.

And so we're hopeful that we're not going to see a lot of LNG in North West Shelf.

The only issue that we would see is just the composition of the gas -- the multiple compositions and whether the capacity of the plant will be affected in any way by that composition change.

So we don't see a big gap, Saul, with any delay in Browse at this point.

However, it does get to a point where the LNG North West Shelf gets larger than these multiple sources of gas can service.

So we can't wait forever, but at least in the short term, that LNG is taken up.

Now back to Scarborough and Train 2, on the sell-down part of it, we've opened a data room this week, so it's very timely for Scarborough.

With respect to the -- and we expect that process to complete around the middle of the year.

We don't expect any binding agreements to be completed by then, but we expect certainly a line of sight to a potential sell-down.

Now we are going out into the market, to be honest, in what I would call difficult conditions given the sentiment at the moment around coronavirus, the oversupply in the market and so forth.

So it's just one of those points in time where we've always been very clear with shareholders.

We won't sell just simply to sell because this really is a tremendous asset.

And if we're not getting full value, then we'll hold on to the asset and work our way through that and potentially sell it another time.

With respect to the timing of -- with BHP agreements, we expect to complete the toll agreement in the next couple of months and have a binding toll agreement with BHP in the next couple of months with a view that we'll be able to go to full FID on Scarborough sometime around the middle of this year.

One quick last one if I may.

Just on the Phase 2 FID of Julimar-Brunello.

If you probably will give some color on how the reservoir is performing?

And is the timing of this Phase 2 earlier than you expected compared to expectations when you bought into Wheatstone?

No timing of Phase 2 is as expected, and the overall recovery from Julimar-Brunello is per our acquisition expectations.

There's been some movement, as you might guess because there are multiple reservoirs involved.

And as you look at each different reservoir, there's pluses and minuses at each different reservoir.

But no, the overall is pretty much the same.

We are dealing with some issues around mercury, but that's designed into Julimar Phase 2 and in the funding for doing Julimar Phase 2. But other than encountering some mercury and having to put in the facilities to deal with that, everything else is per expectation.

Our next question comes from Mark Samter from MST.

Just a couple of questions if I can.

We've always talked about the Uniper contract, and we're allocating that to Scarborough in our minds.

But I guess, there's more of the North West Shelf contracts rolling off as you go through the next couple of years.

Could you give us a feel for how much capacity, assuming Scarborough goes ahead?

How much volume you think is uncontracted in 2025?

Because I guess, we can allocate it to 1 project or the other but just kind of Woodside in its totality perspective, I guess, as how you look at it?

Yes.

Look, it's a good question, Mark, but we haven't provided any guidance to the market.

So Damien's looking at me, shaking his head here at the moment.

Just ignore that, then.

So all right, Damien.

But you're right, there are a number of the legacy North West Shelf contracts rolling off.

We expect to renew those contracts with the existing buyers.

But obviously, they'll be under different terms to what we have historically had.

I will give some guidance later in the year at IBD around the percentage of total volume that, that represents out in 2025.

But I don't want to do it on the call because we haven't provided that guidance.

Equally, as you know, the Scarborough -- we've got Pluto price negotiations underway at the moment.

We're still confident -- feel comfortable with the guidance that we provided at Investor Briefing Day around the pricing outcomes that we expect from that.

And then of course, Scarborough.

Marketing for Scarborough has been going well.

We were targeting at least to get 50% or more of the volumes away, contracted by the time we go to FID.

We still have a line of sight to that, but I would say to you some of that work is being done with customers who may be affected -- or who are affected by the coronavirus.

And so finalization of some of that marketing, with respect to making it binding, is being delayed at the moment through the inability of being able to meet with those buyers.

So we're watching this one closely, Mark, and working out how we can finalize those negotiations remotely rather than face-to-face.

But it's fair to say our buyers at the moment, particularly Asian buyers, are very, very limited in their ability to travel, indeed.

I might squeeze in 2 more quick questions if I can.

First, really quick on Corpus Christi.

I am -- just listening to what you said today about it.

Unless I'm wrong, you didn't kind of have the ability to pay and not take.

Is that an option that you consider or that you have the ability to pay and not take if you wanted, then?

Yes, we do under that contract.

So we just have -- we have an ability to pay the processing fee simply and not take the volumes.

And of course, we watch the volumes very closely as to whether they're in the money or not.

So this is simply, if you consider the processing fees on cost and then what's the marginal price that you're receiving for the trading volume.

So I think we need to put it into context.

Between 1/3 and 1/2 of those volumes have already been put away into contracts.

It's already contracted for this year.

And so we're exposed to the remainder of that this year, and we're watching those trading conditions very closely.

Sherry mentioned that we'll also look at hedging through this process.

So we have approval from our Board to go into limited hedging programs should we see opportunities in the market with those volumes and other volumes as we move forward.

So no, not a great time for us to be starting with Corpus volumes coming in.

We've got to start to nominate in March what we're going to do with those volumes.

You should get a signal from others in the market sometime here through February because we understand others under their contracts are required to make commitments in late February.

And for us, it's kind of in that late March time frame.

So I'd watch this space very closely at the moment.

Some are going to take the opportunity to trade through this.

We'll have to consider our position as to whether we pick it up or not.

And I guess talking about spot prices and where they are, and I completely get that spot is spot and Scarborough is a very long-term contract.

But do you have any concerns that the BHP Board -- I presume the Board has to sign off on the binding tolling agreements and FOB, Pluto's spot price at the moment, around $2.50, and the toll, you told us is above $3.

Maybe just psychologically, I mean, do you have any concern with the current environment?

Makes that a hard decision for you then or...

Look, it's difficult for me to talk for the BHP Board, as you know, because I'm not sitting in those conversations.

So I'd go back to the basics.

I mean, BHP is a very sophisticated company and understands the long-term nature of commodities.

So I guess, I'd comment that they can see through short-term perturbations in the market.

But there is a reality.

It does drive sentiment.

It's always nicer to do these things when price is high rather than price being low in the spot market.

But I would say to you, we've been predicting that 2020, 2021, which is difficult in the spot market for the last couple of years, just simply because of the new volume coming in from the U.S. and Russia, in particular.

And you hope these things don't play out, but you're prepared for them.

And as it's turned out, it's also coincided with warm weather conditions in Europe, high tank level -- or high storage levels in Europe.

And now the coronavirus, which has impacted manufacturing demand in China.

So we forecast a condition and then these other existential things have come over the top and are leading to prices, so sub-$3 in the marketplace at the moment.

So we've always got to be positive about those things, and the coronavirus will hopefully be past us soon.

And then some of these other conditions will start to work in our favor as we move through the back end of 2021 into 2022.

Our next question comes from James Byrne from Citi.

Peter and Sherry, I have a question on the balance sheet.

As you're both probably aware, we've been a little bit cautious here on what the balance sheet may look like if you are unable to sell assets, particularly Scarborough and Pluto, by the time you take FID on those projects.

And I think that view was somewhat vindicated by your credit rating agency releasing a report in December that said that their forecast for your credit metrics actually turn negative in that scenario.

So I wanted to understand a little bit about that scenario where you don't see the prices you would otherwise want in the sales process, you take an FID at your current working interest.

What's your plan B there around the balance sheet?

And I appreciate that, that's probably an open-ended question because it might depend upon the prevailing share price as to whether you want to raise equity or not.

But aside from that raising equity, Sherry, I picked up on your comments about reviewing the dividend payout ratio, and I think that equity markets view that payout ratio of 80% as sacrosanct.

Is that not the case?

So James, let me have a go at that first, and then Sherry will jump in.

Firstly, on the balance sheet, if you go back 2 years, when we first acquired Scarborough, we raised equity.

And at the time, we came under some criticism for doing that.

But we said we wanted to ensure that we, one, maintained our credit rating, and at that time, we had advice from the credit agencies that they would have put us on a negative watch or actually immediately downgraded us on that acquisition, so that's why we raised it.

At the same time, we said we did that because we want to make sure we can progress our growth projects because the commodity business is cyclical.

And as things invariably pan out for you, the time when you're getting ready to make a big decision, there'll be a perturbation in the market and the price signals won't be working in your favor.

It's rare that the price signals work in your favor.

So I think as you look at the way we've decreased our breakeven costs, we've redeployed our spend across the organization, and we've gone out and loaded up our longer-term debt at lower interest rates.

You can see where our liquidity is at the moment of $6.5 billion, $4 billion in the bank.

We've done well over the last 2 years of making sure we preserve our balance sheet, so we've got the opportunity to move into this growth phase without needing price to work in our favor in the short term.

Clearly, though, selling equity is important, but there's 2 parts to that.

There's a phasing of capital that we can look at.

So if we don't get the pricing that we expect on Scarborough upstream, there's also a phasing of capital with respect to other projects that Woodside has in our portfolio.

Clearly, getting Train 2 away is going to be important, but it's unlikely Train 2 equity will be sold before FID based on the types of buyers that we're targeting.

So again, the strength of our balance sheet allows us that optionality in our decision-making so we don't actually have to be -- have equity sold at FID.

Otherwise, people are all looking at that and expecting a fire sale.

And that would be terrible for our shareholders.

So that's what we've been looking at.

I'd also point out that the ratings agencies, I think, at the moment are using $55 for their price deck, so they've being quite conservative.

Having said that, if you looked at the price today, it's just above $55.

So you can argue that may or may not be right.

So all I'd say is we've got a number of levers within the business itself that we will move around, including phasing of capital and so forth, before we then start going and looking at the other levers.

Now on those other levers, of course, Sherry mentioned dividend payout ratio.

Payout ratio is one option for us to look at.

Although it's one that's very, very important to us, particularly the value its derive for us because of the franking credits that we still have.

Equally, as you know, we've turned on the Dividend Reinvestment Plan this year.

And it's not underwritten at this point, so there's another lever that we can pull on that if we choose to, which is to take that to be an underwritten reinvestment plan.

And then, of course, the final thing, after you go through equity sales or phasing of capital and you go -- and so forth is, of course, raising equity.

And -- but that's probably -- it's in that order, James, for us.

I'll let Sherry jump in.

Yes.

And James, I think Peter has summarized it very well.

I think also going back to the earlier question that Saul asked, and just to really be clear about that, we have said at our Investor Briefing Day that when we look for equity partners coming into Scarborough and Pluto that we want the right partner or partners at the right time and at the right price.

And so having flexibility around the timing of that dilution activity, both for integrated ownership between Scarborough and Pluto and also perhaps stand-alone participation in Pluto Train 2, those projects are even much more valuable to us than they were 6 months ago now that we have de-risked further and are getting very close technically to a final investment decision.

And of course, because we now see materially higher resources in Scarborough than we saw at this time last year.

And so we have all of these levers that we look at, but we look at them not in a binary manner.

We really step back and say, at the end of the day, what is the best value for our shareholders, both in the short term and in the long term, and then how can we balance those things against each other.

And that's very important to us and the Board that we don't go and blindly optimize the one number or blindly go into a transaction, which might result in selling below optimal value if that's not the best thing for our shareholders, given how strong these projects are and how much value that we see in them.

Now that being said, the interest, even notwithstanding the coronavirus, is still very, very high from a large number of potential partners both for the integrated sale and for the Train 2 only piece of things.

So that we are actively working that in parallel, and that remains very strongly our base case at this point in time.

Okay.

Can I perhaps ask you to be a little bit more explicit on the phasing of capital point, please?

Yes.

Look, the phasing of capital point, James, as you look at it, we have options, particularly on Browse.

So if you think about it, we've always indicated to market that a potential equity decision would be around Browse FID just simply because we've got an overlay of our projects occurring.

And that overlay of the project was not based on optimizing capital or people resourcing.

That overlay was based on what we felt were market conditions, timing and then also the retention lease requirements that we had.

So we needed to maintain rights to exploit the resource, which meant that we -- those projects were accelerated and you had overlap.

As it's turning out, every month that Browse is delayed is quite significant with respect to the impact that it has on our debt loading and as we get new cash flow coming in.

So that phasing is actually naturally happening now, anyway, with each month that Browse gets delayed through these commercial negotiations, and it's assisting us in that capital hump that we've got to get through.

I guess, the pushback I have with that particular point, though, Peter, is that the credit rating agencies are only going to forecast on metrics on projects that are actually sanctioned.

And on that basis, they exclude construction CapEx for Browse and they still have the metrics turning negative.

They do.

They do.

Yes, they do, James.

And of course, what we didn't talk about is the other option is if -- and you don't like to do this, but the other option is just look at that credit rating and decide just how important that is to equity owners versus debt owners.

And the stark reality is we have raised most of the debt that we need.

And so the -- so if we feel that holding on to a credit metric is to the detriment of our equity owners, then that's a conversation, a tough conversation we're going to have with the Board.

That rating is just one of a number of metrics that we look at.

And as Sherry mentioned in our opening, the key for us is not necessarily credit metrics, but importantly the free cash coming out of our business and our ability to fund our projects.

And that's primacy.

The rest is kind of like, do we -- I get a gold star or a silver star on things.

We've still got a long way before we would be concerned about being non-investment grade, and we certainly wouldn't let the company get into that situation.

But if it requires me to do something silly in the market just to maintain a credit -- investment credit metric, now that's just something we're not going to do.

Yes.

And I would just add to that because that's very important, James, like you say, that one piece of it is how the credit rating agencies look at things.

But the way we're addressing our overall capital management is looking at the total capital requirements that we have, in particular, all the way out until 2024 when Scarborough and Pluto are onstream and producing because after that, things ease off quite significantly even with Browse in full construction mode.

And so we don't want to just look at how do we get through Scarborough and Pluto FID and early construction, but we want to look through our cash liquidity throughout that period at different oil prices and with different assumptions around phasing, including Browse, and make sure we're strong throughout that period.

And so yes, the credit rating agencies will make different decisions around their assessment at FID, but we're looking at it continuously throughout.

And we think that's a more holistic and robust approach to our overall cash management needs through that period.

Got it.

Yes.

I mean, our view of your liquidity is still pretty good through there.

I guess, it's just a view on that credit rating.

So that's very helpful disclosure.

Yes.

It's just -- and it's a judgment for you, James, as to the value of that.

And certainly, we wouldn't want to be going into FID having gone down a notch.

But if, during process we slip and that's because we've made a conscious decision with respect to the -- our shareholders, then that's something we'd be happy to explain at the time.

Our next question comes from Adam Martin from Morgan Stanley.

First question, just on sort of gas contracts for Scarborough.

You've historically talked about the 50% in terms of sales, securing a pre-FID.

Obviously, things are a bit tougher in the market at the moment.

Is that -- you're going to hold to that 50% or would you push out FID?

Or would you take some more risk if you can't get to the 50% soon?

Good question, Adam.

I think we'd take more risk.

Because the key here on any project is the only thing you know on a project is how much is spent, and you only know that after the fact.

We've got contracts in hand that have significant value in them, very significant value, hundreds of millions of dollars of value in them because we've hit the low point in the cost cycle.

We are very concerned that if we continue to delay on Scarborough, then some of those contracts -- well, we know some of those contracts will be opened up, and our view is designing one way that they'll go, which is to increase.

So yes, you always want to align the marketing up and you set a number out there, but we're comfortable that we can trade through it.

We obviously will test it at different pricing conditions to make sure that we're not doing anything that puts us at risk, but I'm not going to be held to saying I need a 50% number.

I mean that's an appropriate thing, to be honest, if you need project financing because you're having to meet your financiers' needs.

But for a company like Woodside who has an LNG portfolio, we just -- we don't want to be selling gas just for the need to be able to meet a metric to tell somebody that we've got 50%.

Because the flip side of that, as you know, Adam, is you don't see the contract I just sold it at.

And we're not going to give it away just to simply meet that metric.

So I'd say there's a bit of flex around it.

I was very confident about it in October.

The issue we've got at the moment, as I mentioned in a previous discussion is the coronavirus is preventing us in finalizing negotiations with some of our potential buyers.

That makes sense.

Second question, just on arbitration with FAR.

I thought we were meant to get something sort of pretty imminently at that first hearing.

Can you just update the process there, where we're at?

Yes, we thought we were.

So -- and in fact, I think we said that it was imminent.

Well, that's certainly what the International Court of Arbitration told us.

They subsequently came back and said they made a mistake.

Imminent wasn't what they were intending to say.

So it's still weeks, potentially months away.

I can't tell you.

They've gone very quiet now that they had to retract their previous advice.

So we simply don't know, to be honest with you.

I would say on the positive side, we've had very successful outcome from a legal dispute with Bumi over the Balnaves project here recently.

So that one is now behind us.

Our next question comes from Joseph Wong from UBS.

A question for me is just on the gearing position, I guess, how you look at it when you look at the, I guess, Investor Day back in more of late last year.

Given the impairment that's come through, how do you see your gearing position over the next few years under oil price assumptions?

That's a good question.

So our gearing range remains unchanged.

And I think we've said previously, but to reiterate on this one that we've said within -- between 15% and 35%, and that's been adjusted simply because of the leasing standard coming into effect.

We've also said that we'll match that up against credit rating metric outputs.

And so it could be under certain scenarios that you wouldn't take all the way up to that 35% to maintain a given credit rating.

The impairment of Kitimat actually has a fairly nonmaterial impact on the gearing.

You can probably calculate that out, but I would say well less than 1%.

But that won't be a significant factor on our gearing as we go forward in time.

So Sherry's right, Joseph.

Gearing is one metric, but as you know, it's a very simplistic one.

And it's certainly not one that the credit agencies use, so they use their own metrics.

So you might find we go through one of their key metrics before we reach a gearing limit or we may actually be able to get through a gearing limit before we hit one of their metrics.

So it's multidimensional with respect to how we'll manage that balance sheet.

Yes, fair enough.

Just the second question, in terms of, I guess, Pluto gas acceleration, can you provide any commentary?

I guess you've got Pyxis FID.

Is there any update on the discussions with Pluto and North West Shelf on the tolling?

And I guess, leading on to that is, is there any discussions on onshore WA gas moving into North West Shelf haulage?

Okay, great question.

So Peter talked earlier about the fact that there are multiple parties right now engaging with North West Shelf on what we call early ORO, or other resource owner, coming through.

Pluto is right there in the mix as well as some other parties.

And there have certainly been interested parties, both with offshore resources and with onshore resources.

And so that's something that, for us, alongside with working through the final terms and conditions of the Browse gas processing agreement, getting to a final investment decision on the North West Shelf side on the interconnector and getting these agreements in place is a key priority that we are actively progressing in 2020.

Too soon to talk about which one of those parties are coming through when, but there are fairly advanced conversations with a couple of them, in particular, and others lined up behind that with a high level of interest.

Okay.

And then the last question I've got is more -- is sort of, in terms of the news items on McDermott, just if you could provide any commentary -- that impact on Woodside's kind of contracting if you can.

Sure.

Okay.

So McDermott, that's a great question.

So you'll be well aware that McDermott has entered into a formal chapter 11 prepackaged bankruptcy and restructuring process.

We have been working very well and very transparently with McDermott really throughout the period since it became a risk.

And as they are going through it, you'll be able to see directly from them all of the details of how they're packaging that, and in particular, the Lummus asset sale that goes along with that.

We continue to believe that we can work through that with the plans that we have around our contracting, and we are also building in mitigations should they come up against any unforeseen issues with going through that restructuring.

The great thing that we see is that their order book remains strong.

They seem to have a very good hold on retention from their senior leaders, and in particular, their budget managers.

And we, of course, are watching that situation very closely to make sure that we can work collaboratively with them through that process.

Our next question comes from James Redfern from Bank of America.

Yes, Peter and Sherry.

Two questions, please.

Just -- you mentioned earlier that the Scarborough sell-down, you might receive non-buying offers by the middle of the year.

Just wondering what the timing is for the sell-down in Pluto Train 2. Or is that process being run in conjunction with the Scarborough data room?

Yes, great question.

I just want a very minor clarification.

We've had a preliminary data room out there for a while.

We're updating that, and we'll officially release that probably in the next 1 to 2 weeks.

So it's almost complete, and we're just doing the final assurances.

We will open that up in parallel.

We have a first priority on completing or continuing the conversations that we've had with potential partners that would like to have an integrated interest in Scarborough and Pluto, but we will be starting really in the next few weeks here to start to get additional indicators of interest on partners that are -- potential partners that might be interested just in Pluto Train 2.

It is -- we are -- like Peter said, and I've mentioned it as well, we are flexible on the exact timing.

The ideal, of course, would be to have one or both of those types of transactions concluded at FID, but we are flexible to go beyond the final investment decision, should that bring the best value.

And if, for example, you had an infrastructure-type investor who came in and became our partner of choice for Pluto Train 2, it's more likely that they would feel more confident to come in and conclude a transaction after final investment decision.

So we'll be flexible on that, but you would most likely see, based on where we're seeing it now, that you might see one dilution on an integrated basis and then perhaps another one after that on just Train 2.

So James, just so we're not confused about data rooms.

The one I mentioned is the Scarborough upstream data room, which we can populate because there are no outstanding commercial agreements and so forth on that.

The Train 2 data room will open up once we've been -- fully once we've completed all of the agreements both with BHP and then also with the Pluto Train 1 and common-use facility owners.

And that's going to finish in the next few weeks.

Of course, you can't sell Train 2 to that type of buyer without having those commercial agreements in place because that's really what they're interested in.

Whereas an upstream purchaser, they know that the value of their acquisition is very much driven by the quality of the resource and the development concept.

So it's just a different lens that people will look through on that.

I'd kind of remind you that Pluto -- sorry, the Train 2 at Pluto will be a lump sum contract.

So once we've inked the final deal with Bechtel on that, we'll be able to put that into the data room as well, and they'll be able to see what sort of capital risk they have.

Okay, that's useful.

And just in terms of unit cost, unit costs were $4.50 per BOE, excluding the Pluto turnaround last year.

So given the increase in production for 2020 and limited plant shutdowns, I mean, do you think it's reasonable that we could expect unit costs to be well below $4.50?

And I note that the $4.50 was a record low for Woodside historically.

So we haven't guided specifically on unit cost for 2020.

Indeed, you should look at the Pluto cost, in particular, as being very cyclical in nature and not to be present again in 2020.

Of course, you'll see a full year impact of greater infills being onstream, Wheatstone second year of full production.

There will be turnaround activity in the North West Shelf, but not major, like we saw in Pluto last year.

So we're going to have a crack at it, James.

Our question comes from Ben Wilson of Royal Bank of Canada.

I just have a quick question.

Note, your comments around the contracting or the potential for costs to go up should you delay Scarborough further.

I just wanted to know whether you've seen any impact or predict any impact from the potential or probable deferral of the 3 train project up in PNG, both in respect to construction cost market but also on the gas marketing front.

Is it too early to see that or have you noticed anything out in the market?

Look, it's a good question, Ben.

We haven't seen it yet from a product point of view.

The key, I think, to look at that is that you've got so many other projects that went to FID in 2019.

And it was a record amount that went to FID.

And of course, they're in the market looking for things like compressors and so forth, and that's where some of our pressure points are going to be.

So I don't think the fact that anything may or may not happen in PNG is going to drive that, given the numbers of those particular projects.

Now where we may see it will be on people as we get into the construction phase because -- so that's a net positive to us.

It will take some pressure off the people because those people would have been sourced mainly out of Australia.

And so we think -- we haven't factored it in, but I think there will be some positives for us with respect to lessening of the pressure on the workforce requirements for us.

And did you -- sorry, did you address that on the gas markets?

You haven't seen anything for that sort of contract term, 2025 plus, where you're targeting similar customers in a similar time frame?

No, we haven't seen it yet.

No, we haven't seen it yet.

It's an interesting one because both projects would have a similar view with respect to the way that we'd want to market it, whereas you know, many that we would want contracts in place for a certain volume of it.

We've seen an unusual situation in 2019 occur where some of the major players, including Novatek and so forth, have sanctioned projects with our gas contracts in place and are willing to put it into their global portfolios.

So of course, it's not transparent then what their actual positions are, whether they're long or short in those particular portfolios.

We'll only know that as time plays out.

So I would expect we would have been targeting probably similar markets, similar buyers.

So again, in that regard, whilst we haven't seen it directly at this point, it certainly doesn't hurt our marketing efforts.

But we -- like I said, we take no joy in seeing others' projects get delayed.

We just -- you asked a direct question.

It can only be helpful for us.

I just haven't seen an impact that I can share with you.

We have time for one final quick question from Tom Prendiville from CLSA.

I just got a quick question on Kitimat.

Obviously, Chevron has written off 100% of its book value, but Woodside has only written off 50%.

I was just curious as to what gives you the confidence in throwing more money at this project when Chevron has seemed have to lost faith at least for now.

Yes.

Look -- thanks for the question, Tom.

I think it just gets down to what you're seeing in your portfolio.

I wouldn't say Chevron's lost the faith in it at all.

It actually provides some -- a lot of room to maybe book a profit on sale at some point in the future.

So you can look at this cup half empty or cup half full, so to speak.

With respect to Woodside's view of it, as I said, we've decreased the cost structure on it by a good 30%.

Actually, the unit costs have come down even more because we've increased the throughput from 10 million tonnes to 18 million tonnes.

It will be the greenest project in the world by far because we use power from hydro.

And we've had good indications around what the costings of the pipeline will be in interest in the downstream plant.

The impairment was simply taking a pragmatic view of the Liard resource.

And looking at the timing of it and just saying, look, it's now -- because the current plan is to use gas from Western Canada to feed the plant, the Liard resource is now getting pushed out into a period of time where we need to increase the risking on the discount rate that we used.

We increased it quite significantly because just simply, climate-related risk and development-related risks on that.

And we also then looked at the pricing and said, well, we're not very good at forecasting pricing.

So rather than have pricing with an assumption of potential growth in the future, just run it flat and see what it looks like.

So the Board and management have taken a very conservative view of the asset, but with respect to the fundamentals of the development, they're still very, very good.

In fact, it's improved significantly since acquisition.

So at the moment, this is just simply about oversupply in that particular market, and we think a better phasing of -- better use of capital by not going into and developing the Liard when we can actually purchase significant volumes off the grid at a lower capital cost and then just simply a view of what the potential pricing for the product's going to be and the timing of other things.

So no, I wouldn't read anything else into it.

We're going to spend money on it again this year.

We're actually hopeful we get a partner in there that really has the same view as we do on the asset, and we'll be able to move it forward much faster.

I think it's fair to say that Chevron was working on a different time frame to Woodside.

But I would look at other things in Chevron with respect to -- corporately what their view is with respect to their capital spend program and where they want to spend capital.

And I suspect Kitimat got caught up in those reviews.

So I wouldn't read anything else into it.

Okay.

Look, everybody, thanks very much for being on the call this morning.

In fact, thank you very much for your questions.

I hope we've been able to give you some further insights that you'd be able to share with investors and your clients.

Again, as I mentioned, we've done very well in managing our balance sheet through this period, getting our cost base and continuing to get it down, improving the performance of our base facilities.

There are a couple of one-offs in our business that won't recur in 2020, so we'll have a much clearer year.

We had some accounting changes with respect to leasing.

We had internal tariff changes that have flowed through.

So there are a number of changes in our accounts that we'll work with you, I know, over the next days and weeks to help you better understand where all the movements have been.

It is difficult market conditions for us at the moment.

We're not sugarcoating that at all, but I -- as I've mentioned at the beginning of the call, our contracts have not been affected to this point.

We've not received notice from any customers with respect to their intentions not to take our product.

And so at this point, for Woodside, it's business as usual, but we're continuing to monitor it very, very closely.

Our growth projects are kicking off, as I said.

On the major one, Sangomar has gone to FID and the project team's in place and already moving globally to the offices to move that forward.

And we're focused on getting Scarborough to FID this year in the time frames that we've indicated to you previously.

And then, of course, we'll complete the Browse gas processing negotiations with North West Shelf this year as well.

So we are moving it forward, but we are under no misapprehension as to the challenges in front of us, both in the execution phase -- the commercial phase now, the execution phase and then making sure that we maintain a robust cash flow coming into the company so that we can both reward investors through continued distributions, but then also execute these growth projects, which are unprecedented for us with respect to the scale and the impact on the company.

So with that, I look forward to seeing you over the next days and weeks.

Thanks very much for your time this morning.

Thank you so much.

Ladies and gentlemen, that does conclude the call today.

Thank you so much for your attendance.

You may now disconnect.