By ROSS KELLY, Dow Jones Newswires
BRISBANE, Australia—Woodside Petroleum Ltd. will restart efforts to find natural gas for an expansion of a flagship Australian export facility early next year, but it isn’t anxious to compensate for slow organic production growth with a big acquisition, Chief Executive Peter Coleman said.
Woodside, Australia’s second-biggest oil company by output behind BHP Billiton Ltd., has long led the nation’s push to capture rising Asian demand for clean fuels, operating two of the country’s three existing gas-export facilities and joining companies like Royal Dutch Shell PLC in discovering new gas fields.
However, a lack of drilling success in recent years and rising costs means the Perth-based company is starting to lag rivals in developing new projects. Woodside put an expansion of its $15 billion Pluto gas-export facility in Western Australia state on ice last year after it failed to find enough gas nearby and talks with rival suppliers broke down.
Woodside has hired two rigs to drill in waters near Pluto from early 2014, targeting at least eight natural gas prospects, Mr. Coleman said in an interview. The rigs—for drilling in deep and shallow water, respectively—are contracted to Woodside for about two years.
Woodside wants to expand Pluto because existing infrastructure makes it cheaper to bolt on extra liquefied natural gas, or LNG, processing units than starting developments from scratch. The high cost of new LNG projects was cited by Woodside and partners in their recent decision to abandon plans to develop the Browse gas resource in Western Australia using an onshore plant.
Analysts say the setbacks mean Woodside will struggle to increase its annual production until 2018 at the earliest unless it uses surplus cash to buy rival companies or oil and gas fields already in development.
Mr. Coleman said Woodside retains the ability to make a “sizable” acquisition despite a recent US$500 million cash return to shareholders and a pledge to pay more of future profits as dividends.
But potential targets currently look expensive, he said.
“When you look at prices and so forth, it’s not clear to me that it’s a good time to be out in the market at all,” Mr. Coleman said.
He added that Woodside would only be interested in acquiring willing sellers, and therefore isn’t eager to make hostile takeover bids.
Aware of a looming production plateau, Woodside last year bought some exploration acreage in Myanmar and agreed to acquire a stake in the massive Leviathan natural gas discovery offshore Israel for more than US$1.2 billion.
Leviathan, which contains an estimated 18 trillion cubic feet of natural gas, is the world’s largest deep-water gas find in a decade. Its discovery with other large fields off Israel’s coast in recent years has potentially set up Israel as an exporter of energy.
Woodside is still waiting for advice from Israel’s government on how much natural gas will be allowed to be exported from the country, holding up the deal’s completion. “They’ve assured us that as soon as their budget’s finalized they’ll put their attention directly to energy policy. So we’re expecting to hear back in weeks, not months,” Mr. Coleman said.
Woodside has also submitted an expression of interest to develop an LNG plant in Canada, but Mr. Coleman said this was a “long-dated” investment option for the company.