Stable outlook for Woodside: Fitch

Fitch Ratings has today affirmed Woodside Petroleum Ltd's long-term issuer default rating as stable, with its senior unsecured rating at BBB+.

"The ratings reflect Woodside's cash flow stability supported by long-term contracts with quality off-takers on its legacy natural gas operations in Australia's North West Shelf (NWS), and the superior economics as a result of the size of these assets," said Janet Willoughby, Associate Director in Fitch's Asia-Pacific Energy & Utilities team. "The ratings also reflect the quality of the company's reserves due to their geographic position in relation to their markets and the maturity and reserve life," added Ms. Willoughby.

Liquefied Natural Gas (LNG) provides Woodside with stable revenue from long-term contracts with North Asian electricity utilities with credit ratings in the 'A' category. These contracts and small equity stakes by off-takers underpin LNG investment.

Woodside's strategy is to become a global leader in LNG production. The company has ambitious expansion plans, with three major Australian LNG projects in development; work is underway on the Pluto LNG project. This project has 2P (proven plus probable) reserves of 2,122 billion cubic feet (bcf) with a final investment decision on an expansion of the project due later in 2008. Final investment decisions are yet to be made on the Browse and Sunrise projects which have 3P (proven plus probable plus possible) reserves and resources of 8,645bcf and 1,820bcf, respectively.

Woodside's oil production is largely unhedged. As a result, revenue from oil overtook LNG revenue in 2007 due to an increase in production from new projects at Enfield and Stybarrow in Western Australia and strong oil prices. Oil revenue will fall as a proportion of total revenue as new LNG projects come on line.

Woodside spent over AUD3bn on capex in 2007. Despite this, net debt actually fell to AUD893 million from AUD1.5bn, due to the strength of the company's cash generation. Woodside had undrawn bank facilities of AUD1.7bn and cash of AUD138m as at 31 December 2007. Short-term liquidity is considered good, however Woodside is likely to have to raise additional capital to fund LNG development projects.

The Stable Outlook reflects Fitch's expectations that Woodside will maintain credit ratios commensurate with the current rating despite its large capex programme. Woodside has some headroom within its ratios to increase debt to fund capex should it choose to do so. Fitch considers trigger points for a rating downgrade for Woodside to be debt/P1 reserves of 3.0x (FY07:0.8x), funds from operations gross interest cover 5.0x (FY07:26.2x) and CFO/capex 0.6x average over a period of 3-5 years (FY07:1.0x), provided reserve replacement ratios and reserve life remain strong.