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  • pickboone pickboone Mar 23, 2013 8:23 AM Flag

    Woodside's $US2bn cash conundrum

    Ross Kelly
    From: The Wall Street Journal
    March 15, 20131:55PM

    AS a hole opens in Woodside Petroleum's oil and gas production outlook, the case is building for management to pull off a big acquisition or return some of its cash pile to shareholders.

    Or it could do both.

    That's the view of Citigroup analyst Mark Greenwood, who says Australia's second-biggest oil company after BHP Billiton could afford to launch a $US1 billion ($960m) buyback of its own shares - even if it spends another $US1bn buying a new asset.

    "Based on our outlook for the timing of Woodside's growth, we think that a buyback of $US1bn could be implemented comfortably," Mr Greenwood says in a detailed 21-page analysis of Woodside's options.

    Calls for either a buyback or raised dividend are growing louder amid increasing doubts about three Australian liquefied natural gas, or LNG, growth projects that Woodside Chief Executive Peter Coleman inherited from predecessor Don Voelte last year.

    Mr Greenwood says a final investment decision on the Browse LNG project in Western Australia state, due in mid-2013, is expected to be pushed back until 2015 at the earliest, partly due to a "prohibitively high" construction cost of over $US45bn.

    Another growth project, Sunrise LNG, is mired in a political dispute with the tiny nation of East Timor over where the gas should be processed, while an expansion of the Pluto LNG project is stymied by a shortage of gas.

    Already aware of a looming revenue crunch, Mr Coleman last year agreed to buy a stake in the massive Leviathan natural gas discovery offshore Israel for more than $US1.2bn. However, while a final investment decision on a smaller domestic gas project could happen this calendar year, Mr Greenwood doesn't expect a decision on a larger LNG project until at least 2015..

    Mr Greenwood says his $US1bn buyback and $US1bn acquisition scenario is feasible even if final investment decisions are taken on Browse and Leviathan LNG in 2015 and oil prices fall

    Sentiment: Strong Buy

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