Woodside navigates to position of strength

FOR Victorians eyeing Western Australia’s resources boom with envy, oil and gas giant Woodside Petroleum must represent the most frustrating case of the one that got away.

When the company, which started life as Melbourne-based Woodside Lakes Entrance Oil Co in 1954, shifted its head office to Perth in 1996 it barely raised a murmur.

Though Woodside was then, as now, Australia’s biggest standalone oil and gas producer with a one-sixth managing stake in the North West Shelf, problems at the shelf and plunging oil prices ensured few saw it as a blue-chip investment.

Yet Woodside today now stands tall as the country’s premier oil and gas stock, with a market value of more than $35.5 billion.

That reflects not only the critical value of the North West Shelf, but also the company’s increasing independence and visionary strategy to become one of the world’s biggest producers of liquefied natural gas.

By the time Woodside’s $13 billion Pluto LNG project comes on-stream at the end of the year it will have built six of Australia’s seven LNG trains and will operate almost 90 per cent of the nation’s LNG capacity.

Furthermore, it expects to approve a further expansion at Pluto and commit to the $30 billion Browse LNG project in the Kimberley by 2012. Last week, it also announced a floating LNG facility was the best way forward for the Sunrise LNG project in the Timor Sea.

All up, Woodside aims to be producing around 20 million tonnes of LNG annually in its own right by early next decade, ranking it second only to state-owned Qatar Petroleum in world LNG ranks.

That pioneering zeal has much to do with the vision of early Woodside chairman Geoff Donaldson.

After a decade of fruitless exploration in Victoria’s Gippsland Basin, it was Mr Donaldson who decided Woodside should instead apply for permits in the remote untested waters off the Pilbara coast in 1962 in partnership experienced British oil groups Shell and Burmah Oil.

The move was a watershed. In 1971, the joint venture discovered the massive Scott Reef gas field in the Browse Basin quickly followed by the North Rankin, Angel and Goodwyn gas fields off Karratha, which are now the backbone of the North West Shelf.

Developing the Shelf was a herculean achievement, given its remote location at a time of limited domestic gas demand and with the LNG industry still in its infancy.

Development was ultimately approved on the back of generous gas supply contracts with the WA government, which underwrote the initial domestic gas plant and 1,600-kilometre gas pipeline to Perth. Domestic gas production started in 1984, laying the foundations for first LNG exports in 1989.

But Mr Donaldson’s greatest achievement was arguably his resolute defence of Woodside’s operatorship of the shelf despite unrelenting pressure from its international partners, which at times owned as much as 80 per cent of the company.

That independent spirit came to the fore in 2000 when (then) managing director John Akehurst fought off a takeover bid from 34 per cent shareholder Shell, which was ultimately blocked by the federal government on national interest grounds in 2001.

By the time Mr Akehurst was sacked as managing director in 2003, to ease tensions with Shell and the rest of the board over future growth, Woodside had already started to focus on growing its LNG footprint.

The arrival of current chief Don Voelte in 2004 heralded an even tighter focus on LNG, with underperforming assets ditched and Woodside setting a world LNG record to develop Pluto just five years after its initial discovery.