Woodside Energy Group Ltd (WDS) Q2 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Woodside Petroleum Limited 2014 Half Year Results Presentation. At this time, all participants are in a listen-only mode. Today’s presentation will be followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, August 28, 2014. I would now like to hand the conference over to your host, CEO and Managing Director, Mr. Peter Coleman. Thank you. Please go ahead.

Good morning, everyone, and thanks for joining us for our 2014 half year results. You will have already seen our ASX announcement, which includes our financial headlines and business achievements for the first half of the year, and our half year results briefing slide pack, which gives you the detail behind those headlines. We also issued our half year report to the market earlier today. This morning, we are maintaining our more recent practice of providing some introductory remarks and then opening up most of the call to Q&A. We do have investors and media is on today’s call. Feedback from the split call for the full year results was positive. So we’ll keep that as a standard for the February update. I’m joined this morning by Lawrie Tremaine, our Chief Financial Officer, and Phil Loader, our Executive Vice President of Global Exploration. Firstly, achievements and financial headlines. Our key achievements and financial headlines are captured on Slide three and four in the briefing pack. Lawrie will talk in more detail about our financials, but I want to say I’m pleased with our results. Our reported net profit after tax for the first half of 2014 was $1.1 billion, a 27% increase on 2013 and a company first half record. This was underpinned by record production of 46.5 million barrels and a record operating revenue of $3.55 billion for the period. Our focus on productivity and improvement reliability is really starting to deliver tangible results across our business, and Lawrie will have more to say about that. Safety performance in the form of total recordable injury rate per million work hours worked has improved 49% from the first half of 2013. Good progress on our journey to achieve top quartile international health and safety performance, and as many of you know, this is a leading indicator that we use with respect to the health of the organization and our performance. We’ve also been focused on how we are growing our portfolio, rebalancing our exploration portfolio towards more emerging and frontier plays. In the past few months, we have acquired acreage in Tanzania, Morocco and Gabon, building on our recent entries into Myanmar, Ireland and New Zealand. These country entries are a good example of us delivering on our corporate strategy commitments and I will provide some more insights about this before we open for questions. We do continue to drill in our home waters though with success at Toro and during the half we completed five 3D marine seismic surveys, four in Australia and one in Korea. Browse continues to lead our development pipeline and remains on track for our front-end engineering and design entry decision in the second half of 2014, while other infill and tieback projects are progressing to plan. We continue to assess new development opportunities, signing a Sole Proponent agreement with the Government of British Columbia to access land at Grassy Point to undertake feasibility studies for a potential LNG development. And on Sunrise, the Australian and Timor-Leste Governments remain in arbitration concerning the treaty on certain Maritime Arrangements in the Timor Sea. While this is being resolved, the Sunrise joint venture has recommenced efforts to identify and progress an economic development of this world-class resource. On the sales and marketing side of business, we signed mid-term sale and purchase agreements with Chubu and KOGAS early in the year, and just subsequent to the end of the half, we signed a sales and purchase agreement with Cheniere Energy to purchase LNG from the Corpus Christi Project in the Gulf of Mexico from late 2019. This gives us more -- a more flexible offering as a portfolio player in the marketplace to exposure to U.S. shale gas in the future. Before I hand over to Lawrie to take you through the numbers, I want to highlight two examples from the first half of 2014 that demonstrate our commitment to taking disciplined business decisions that are in the best interest of our shareholders. In May, we took the decision not to proceed with Leviathan. While undoubtedly a world-class resource, we just couldn’t see a way to deliver the value for our shareholders that we initially hoped for. To get the best results in the longer term, we need to take hard decisions and this was a difficult one. As one opportunity ends others emerge and our entry into Gabon is in partnership with Noble Energy, a welcome addition to the many partners that we work with. On June 17, we executed an agreement with Shell Energy Holdings, Australia, resulting in Shell sell down of 9.5% of issued capital to institutional investors. The second part of the agreement was the proposed purchase by Woodside of the further 9.5% of Shell’s shareholding through a selective buyback subject to shareholder approval. As all of you know, while we came close to securing the 75% shareholder approval required to pass resolution, the final result was 72% in favor. Shell is now a 13.6% shareholder, a significant reduction from their 23% holding before the transaction. Woodside retains a strong balance sheet. We are focused on shareholder returns and on disciplined capital management, and we move forward on that basis. On slide five, you will see we are well positioned for growth as a result of our strong operational performance. We know that the market is watching closely to see what we do next, and we have a range of options available to us. Given the majority of our investors supported the proposed Shell buyback, we'll carefully consider our next steps. We continue to assess all capital management options while being mindful that our priority is to pursue growth that delivers superior shareholder returns. With that, I'll now pass over to Lawrie Tremaine to discuss our financial results in detail.

Thanks Peter and very good morning to everyone. As Peter mentioned, we're not going to talk to every slide today. So I'm just going to discuss a few topics starting with revenue on slide eight. We achieved record operating revenues in the first half driven by increased Pluto pricing, the restart of production at Vincent following the FPSO refurbishment in 2013, and higher LNG production volumes, particularly at Pluto, due mainly to better plant reliability. We've also booked over $100 million in trading revenues. While this revenue has been largely offset by associated costs, it is positive to see the trading arm of that business starting to take shape. Moving to Slide 9, you’ll see that with Vincent producing, our unit production costs for oil have decreased. With our productivity improvement initiatives starting to deliver results, gas unit production costs have also decreased. We still have a lot of work to do in this area, but this is a very promising start. Slide 11 shows the year-on-year movement in reported profit. Our reported profit was a record for our first half, driven primarily by the increased revenue and the lack of impairments and charges compared to the corresponding period. Higher profits at Pluto and Vincent have resulted in us incurring a PRRT expense in the first half. Higher income tax is consistent with higher pre-tax profits. On Slide 12, you can see our expected investment expenditure for 2014 is $1.1 billion, with exploration expenditure representing $480 million of this amount. This is all consistent with our most recent guidance. These strong financial results have enabled the Board to declare a record fully franked interim dividend of $1.11 per share shown on Slide 14. This represents a 34% increase on last year’s interim dividend and a 71% increase from two years ago. This reinforces the company’s commitment to superior shareholder returns. Lastly, I wanted to draw your attention to Slide 16. We’ve achieved a 12% increase in our volume weighted average realized pricing, with much of this improvement coming from Pluto. The full impact of second period pricing on Pluto’s sales will take effect from the start of the third quarter this year. I’ll now hand you back to Peter for an update on our development projects and exploration activities.

Okay. Thanks, Lawrie. I know we’re moving through the pack quickly, but I think it will give people a lot more time in the Q&A. So it will allow us to catch up. I do want to close down this part of the call though by giving you further details about our global exploration activities highlighted in the back of the brief impact on Slides 22 to 27 and I know there’s been a lot of media this week about exploration activities in Australia and I wanted to reaffirm the fact that Woodside holds a very substantial position of the Northwest coast. So whilst we will talk about international here over the next couple of pages, now core and our current focus today is on the Northwest of Australia. We are delivering our commitment to build drill-ready inventories and testing plays through the analysis of the five seismic studies we’ve completed in Australia and Korea this year. Further studies planned across our portfolio during the second half of this year and throughout next year as we develop knowledge and understanding of our acreage. Our strategy is to secure new international growth opportunities in Frontier and emerging basins characterized by materiality and quality. In line with this, we’ve acquired acreage in the Atlantic margins sub-Saharan Africa and Australasia and we’re working to add to our portfolio this year. On the Atlantic margins, we are focused on proven but underexplored plays in a geographic region all increased industry focus. In sub-Saharan Africa opens up access to significant resources with high potential materiality and we continue to maximize and extend our core through gas opportunities in Australasia. In Myanmar, we secured four additional blocks during the first half of the year adding to our existing acreage position there. And the execution of our seismic activities in acreage acquired as part of our global growth strategy will provide us with clear targets to drill the commercial hydrocarbon commencing in late 2015. So that’s a very quick overview of the results and the focus here as we have -- as I mentioned I also have Phil Loader, our Executive Vice President for Global Exploration with Lawrie and myself. And I'll open up the floor to questions.

Thank you. Ladies and gentlemen welcome to the question-and-answer session. (Operator Instructions) Your first question comes from the line of Adrian Wood from Macquarie. Please ask your question.

Hi, guys. Just a couple of questions. First of all, can you just give us a quick update on the West Australian Government's claims around the Browse resource, obviously that was breaking news back in May and I just wanted an update there? Also, Apache has obviously got the Wheatstone stake on the market, but I wondered if first of all that would be something you would be interested in and there's also obviously speculation that perhaps they could be contemplating a full Australian pull out and would that larger portfolio interest you? And then just finally, I noted a slight change in terminology in the pack, you now refer to the Browse FEED decision as our FEED entry, I just wonder if you are in any way implying there that you could take a FEED decision on Browse at a separate juncture to Shell? Thanks.

Okay Adrian, well, let me address it. Firstly, on the WA Government claims, we're still working with NOPTA on actually understanding what the implications are with respect to the permit boundaries. We haven't seen that fully yet, but we don't expect that there's going to be an impediment at all to progressing the project, and as I've said previously I actually think it helps us with alignment because now the WA Government is a direct stakeholder particularly in Torosa. We do understand that the WA Government and the Federal government are in talks at the moment on formalizing the change, but there is some legislative activity that needs to take place to do that, is our understanding. So it's moving forward. There is no – we don’t see any impediment to the project, and it doesn’t affect the profitability. With respect to Apache and Wheatstone and their Australian assets, of course, we don’t comment on activities that we've got around the M&A part of the world. I would just say to you that we continue to look at those assets and other assets around the world and put them on our seriatim of opportunities. So, if they are high enough up the list, we’ll look long and hard at it. On Browse, with respect to the FEED decision, we've indicated to market now for about a year that we had a pretty aggressive FEED schedule. We said we would get there in first -- second half of 2014. We’re still on plan to do that. But we’re also recognizing that it’s probably moving out towards the backend of that window rather than the front-end, and as you look at the individual approvals required for each of the houses, remembering there’s five partners in this, we felt it prudent to show what Woodside was going to pre-commit to it and we couldn’t speak on behalf of some of the other houses in that regard. No impact at all, Adrian on FID, it’s just simply some of the administrative processes and recognizing that.

Great. Thank you very much, Peter.

Okay.

Thank you. Your next question comes from the line of Dale Koenders from Citigroup. Go ahead please.

Hi, Peter. Continuing on with the Browse theme, in December 2013, you mentioned that you might front off a HOA for Browse prior to moving into FEED. I’m just wondering if you could comment – is that still a requirement, and how those marketing efforts have gone so far?

Dale, it’s a preference. Clearly, you’d like to understand what your marketing is going to be before you go into that FEED decision. It’s not a necessary prerequisite for us, but it is a preference. The marketing activities are actually progressing pretty well. Our target market for Browse is clearly Japan. We have Japanese partners. We have a relationship -- a marketing relationship that we’ve carried on with MIMI, and we’re continuing to progress that. So I would say some of those discussions are quite advanced. Most of its now down to the old tug of war on price and who is willing to blink. So that’s where we are in those discussions. But it’s not a prerequisite for going into FEED at this point. Recognizing the FEED decision for Browse now with FLNG is a much different capital decision than the one for James Price Point. The capital at risk at FEED in FLNG is quite a small percentage of what it is for James Price Point land-based option.

If we think about your 31% interest in the first 3.9 million tonne per annum vessel, how much of that volume do you want to sign under long-term contracts and how much are you willing to maybe add to trading business or manage on the spot market?

Yeah. Look, it’s – what we’d say is, we've said previously, we’d prefer -- it’s not a hard line at all, to be quite honest, which is why we’re building flexibility in the portfolio. But rough rule of thumb on these sorts of numbers is you’d want 75%, 80% if you can. But it's like what we've done at Pluto. But how that comes together? We don’t have a hard and fast rule internally that says we must have X-signed up before we go to FID which is the whole reason that we are developing more of a portfolio approach. We've said the best way to protect the value of these projects in fact is to not be at the mercy of when buyers are able to sign-up, and so,I'd say rule of thumb on that Dale, but nothing hard and fast.

Okay. Very good. Thanks.

Thank you. Your next question comes from the line of Stuart Baker from Morgan Stanley. Please ask your question.

Good morning, gentlemen. Just wanted toi get a bit of color if you like on the Outer Canning exploration strategy. It looks pretty remote. It's obviously Greenfield and it targets gas, and kind of begs the question of why you'd want to do any of that given the timeline, it is very long duration timeline it has taken to commercialize Browse. And also given the fact that there have been sort of gas assets around discovered resources, it may be -- could have been acquired which would perhaps bring you closer to commercializing by production than would a Greenfield discovery in the Canning for example. So, I just wanted to get a bit of color around that please?

Yea, Stu, I'd probably argue with you around the remoteness of the Canning, as you know it’s between Browse and the North West Shelf. It is Greenfield definitely, Greenfield and there is no infrastructure there existing at the moment. So those points are definitely valid. If you go back to the exploration strategy though, we really said that we needed to go after things that were material to us to move to dial. A lot of what we were drilling in our existing acreage was getting smaller and smaller and as costs had increased over the last 10 years in particular, the commerciality of some of the small refines has been challenged. So we really needed to open up the amateur and go after things that are material. The Outer Canning well that we are drilling are chasing quite material multi-Tcf targets and so that’s important to us. So that would be the first thing, I would say, why are you there? It’s because these are play opening activities that if it works, it works really, really well and it’s in a part of the world that we should be able to be successful in bringing it on quite quickly. The past -- the results of earlier this week are of interest to us. I know a number of people probably wondering what the results from Apache, what does that mean and so forth. It just means that the explorers are going to look a little differently at the potential for liquids in some of these plays. And so while we can -- we are not going to provide comment on the materiality of what others are finding. I think the key takeaway there is some of the modeling or some of the thought process around the liquids content of some of these plays has changed. And I would say that’s a net positive for both our acreage in the Outer Canning and also the acreage we have in the Beagle Basin.

Thanks very much for that. And just a follow-up question, if I can please, in terms the drilling schedule, where you’ve outlined on Page 27 of the slides, a lot of the prospects there being drilled in 2014 and 2015, could you please just run through pretty briefly the speed of which of those or which mines might be oil?

Yes, Stuart, if you don’t mind, I will get Phil Loader to just provide comment on that.

Good morning, Stuart. It's Phil Loader speaking. In terms of the longer term planning for 2014 and 2015, obviously the majority of the Australian portfolio is gas dominant, Malaguti being an exception. And as always with the longer term drilling program, there is an element of flexibility. Myanmar would be a gas prospect, Peru would be oil and Spain would be oil. So, there is some degree of flexibility. What you will appreciate in our efforts to grow the portfolio is a number of the provinces we've entered into in the last few months have been predominantly oil dominated. So we are getting more of the balance to oil versus gas portfolio in the longer term.

Okay. Thanks very much.

(Operator Instructions) Your next question is from the line of John Hirjee from Deutsche Bank. Go ahead please.

Thank you. Good morning, everyone. A question on the exploration and the extent to which now you are your portfolio out there. Peter or Phil, are you happy with the current -- in terms of geographic dispersion that you have or is there more targets on your agenda given that you’re going to have to build this up over a period of time?

John, thanks for that, because it’s a that exercises our mind quite a lot is, at what point to you it become too geographically dispersed and you’d introduce complexity into the business that has been as difficult to focus and manage on. If you have a look -- if you draw three kind of circles around Australasia, around sub-Saharan Africa and around the Atlantic margin that’s really where the focus would be. So if you see us entering anything additional either in existing countries or complimentary plays and think about our strategy as following some of those plays, then it will be essentially in those three circles Epsom, Peru, which is a legacy asset for us and something that we continue to look at although quite positively these days. So now I would say, so if you -- going to see anything new within those sorts of areas. As Phil said the -- enticing for us, particularly outside of Australasia has been to try and get more oil into that inventory and to be targeting oil prospects and chasing those sorts of plays. And again, you can see we are executing a strategy of a low entry cost being able to take a large position working with existing players there, so that we can leverage their knowledge and expertise in those areas. So a number of plays we’re getting into were actually non-operated which is unusual to start -- because we’re going for operate a ship. We think that just helps us manage complexity in the business hoping out to grow quite rapidly in the portfolio. So it’s about resource capability and capacity and making sure that we got that right balance for us.

Okay. Thank you. Another question if I may, and this is referring to your trading element now of your business and particularly now you’ve taken some volumes coming out of Corpus when that goes to FID, can you give us some idea of the sort of risk appetite that would start to prepare to do in terms of its trading business because it will be a marginal business. So if you could give us an idea of the sort of, risk appetite that you are prepared to have put on the balance sheet in terms of the element of LNG trading that you -- that embark on over the next while?

Yeah. Look, it's a good question that again exercises our mind a lot. This current strategy, as we’ve talked about, is really to ensure that the first step is to protect our existing projects and to provide maximum flexibility around that. And while some of the trading numbers you will see that – revenues just about balance costs. The reality is, we’ve been able to create a lot of value in other parts of the business through that trading activity. And those profits get booked to that part of the business, on our trading business. So, we're quite happy with the why the trading is working at the moment. The Corpus Christi trade brings another element to it and how do you manage the risk of that. And we’re looking at that very hard, because you go a couple of steps on from there and you’re right, we're starting to develop more risk in the balance sheet with respect to their trading activity. I’d tell you today we’re not there, we really need to. This is the strategy of incremental growth for us to make sure that we don’t get ahead ourselves. So we had no aspirations to take over the world trading market of LNG. You won't hear me say that. Equally, it's a good business to be in. And so, we want to walk toward this, not run towards it. So you asked me, where our appetite is, I'd say our appetite is closely linked to where I think our competency and capability is in the organization and the other things that we’re trying to do. Because as we take on more trading risk. It’s also going to baked in – intentionally baked our investment grade in some of the other risk there. We’ve got to look at that compared to some of the capital investments, we want to pay. So I didn’t say that something we’re talking about quite a lot but it’s – what I would say is what you’re seeing today is where we have agreed to get to, let’s get this right before we take the next step.

Sure. Thank you very much, Peter.

Thanks.

Thank you. Next question does come from the line of Mark Samter from Credit Suisse. Go ahead please.

Yeah, hi. I have got three questions. I would go one by one while I might forget what I asked by the time to get around to the third one. First one, is just its theme believe based in the market that Tango project to get a price adjustment and it’s a supply agreement with Cheniere. I guess the common perception out there is about North West Shelf and Tango projects didn’t have price close with Cheniere. Is there any active discussions from North West Shelf and Cheniere about the price movement and do you think there are any conditions that could challenge the ongoing supply on that contract?

That’s a good question, Mark. I think you’ve been reading some of the wires. Look, we don’t comment on those sorts of discussions. Clearly we watch closely what’s been happening with Tango and the price reviews on Tango. There are some subtle differences in the contracts so they are not exactly the same. But it’s something that we watch closely and it is an opportunity to engage with our buyers on that and I can assure you we will do that.

It’s fair to say, that contract runs on a pretty material cash loss of present numbers there?

No, I wouldn’t say runs at a cash loss -- but without getting into too much of the details of the contract, clearly it’s a good contract for our buyers into today's markets.

Yeah, sure. And next -- just question on LNG market I was interested, you said the negotiations really just come down to price. I'm wondering if interoperability comes into I guess within that -- to what extent the deal with Corpus Christi we're all talking about is a bill-string trading, but actually it's having interoperability a necessary market until in this stage when your competitors some of the recent contracts signed given their elements of interoperability to particularly to Japan with the uncertainty about nuclear restarts?

Look, I would say -- what we have seen today is we're been able to build far more flexibility to our contracts and so one of the things that we push quite hard is being able to have sourced flexibility and that's been quite advantageous for Woodside. We've been to get that into our recent negotiations because of the fact that we're such reliable supplier out of the North West Shelf and Pluto. So, the advantage that we have over some others who were trading in the market is we had physical volumes coming out of reliable sources. And so the flexibility that Corpus Christi brings with it is two-fold. One is it helps us even more with that trading activity. So, you think about these contracts then sourced flexibility becomes even more valuable to us. And then the second part to it is, it allows us to phase our projects so they start out when they should, not when the buyer needs them and it allows us to meet the buyer's need at the same time, is making sure we execute efficiently on the capital part of the project. So all the pieces of that puzzle come together and they are all complimentary. So going back to an earlier question, this is about putting all those pieces together and we've seeing that flexibility this year. We've not been so akin to some of the downward price pressures either that you have seen there in the spot market because of some of that trading activity or the flexibility we have been able to negotiate into our contract.

Ò Thank you, and then just one last question, if I can. I guess we are just pretty nameless on the East Coast with industrial action and the disputes over roistering etcetera. It looks like Gabon is next in the firing line for the unions and I guess that would eventually on this, which has impact for cost on any future development, any construction via Brownfield or Greenfield. I would, I guess, it depends where the gas is discovered to an extent, but do you think Brownfield expansion at our place if you find gas somewhere reasonably proximal, are the economic still there in a changing cost environment if industrial relation situation changes?

No, we -- that’s an open-ended question. We could talk about this for hours. Look all I would say is, is go back to Pluto. And the industrial environment wasn’t too dissimilar. It was at the other end of the cycle. You might recall we were trying to complete Pluto at a point of time where projects were ramping up everywhere and we also had many options as to where that went to. We are allowed to complete the Pluto project with really no industrial disruption at all as distinct from what you are saying elsewhere. So that was a strategy we put in place in early 2011 and we knew one of the hardest things to do would be to actually finish the project with the people that we needed, given that new projects were starting up and those people had opportunities to go elsewhere. So, if you have a look at overall, while we had some early industrial action at Pluto, the overall lost time was well under 1%. Your question around costs, it is concerning to see negotiations occurring late in a project life with significant cost or rate increases are being agreed to and that’s difficult because it won't be limited to that project till we flow on into the future projects. I would suggest to you that this is decision on Browse and go into FLNG is even more robust in that particular scenario. With respect to Pluto expansion, I don’t see any issues at this point around the Pluto expansion whether that would affect that and of course you know the Northwest Shelf has a continuity of supply agreements over with respect to some of the other industrial action. We don’t expect any flow-on disruptions to our current producing activities because of that continuity of supply agreement with the union.

Okay. Peter, that’s it for me. Thank you.

Thanks Mark.

Thank you. Next question comes from the line of Ben Wilson from JPMorgan. Go ahead. Thanks.

Good morning, Peter. I just wanted to ask about the Toro discovery and whether that reinvigorates your efforts to chase down a scale resource and for potential expansion of Pluto or otherwise around the Northwest Shelf. And also how much did the gas in some of those other hubs do you need to justify a platform or tie back is an option there?

Yeah, what I’d say, Ben, is Toro didn’t quite get us there, while it’s – we’re still evaluating it as a commercial discovery, and we expect that will be the case, but we haven't completed the work on that. But it does tell us a lot about what we can expect in that Ragnar hub area, and I would tell you that the guys are actually now looking at additional ideas. So, we learn a lot out of Toro. But we’re not at a point where I can tell you we have a commercial development around Toro that will tie into Pluto or anything at this point in time. We actually think it’s more likely to tie into an infield development, and potentially into domestic gas development out of that rather than be in expansion with Pluto. Phil’s looking at me at the moment. We actually took a review on exploration yesterday and the guys are working vigorously on a number of new play types that they are chasing. So, I would say the opportunity and idea generation kitchen is working very hard at the moment, and the things got excited by some of the things that they are seeing. So, I think we’re benefiting from the pores that we had in the exploration program. As you know, we kicked it off again, but it’s – we’re benefiting from that idea generation. Too early for me to tell you though that Toro is going to make or break any of that. It’s just – it’s positive that we learn where the gas is, we've learned what the track looks like, we learn a lot more around what our seismic is doing to us and so forth. But it’s more likely to be a greater in field to tie and then something standalone.

Okay. Thanks, Peter.

Thanks, Ben.

Thank you. Next question comes from the line of Nik Burns from UBS. Go ahead, please.

Thanks, guys. So just a question on capital management. There's obviously heightened anticipation around what you may or may not do, following the Shell buyback not getting approved. And, I guess, when we look at your gearing now at 3.9% and your target gearing of 25%, there seems to be surplus cash on your balance sheet at the moment. So the question, I guess, is, what is the timing in which you’re going to make a decision and how you marrying that up with, I guess your guidance in May where you talked about your investment sizes and looking at M&A opportunities in the $1 billion to $5 billion range. If you give back more cash now, is there a risk that that could hamper your ability to undertake material M&A in the next, say, six to 12 months?

Okay. Well, Nik, thanks for asking the question that six of your peers were not willing to ask before you. As I note and thank everybody for not leaving with this one. The issues around capital management, as you know, the Shell buyback was – you can term it what you want, was it an efficient use of capital for us to be able to leverage out a long-term investor who had already indicated that they wanted to exit the register. And we achieved -- to be fair, we achieved quite a lot of that, made good progress and got feedback from our shareholders. We need to remember that, Lawrie and I are about to go on road show and we need to be able to get some feedback from the 72% of shareholders who voted in favor of the Shell buyback and then form a view and make a decision after that. We balance that by always saying that the first thing we want to do is look for growth and we want to make sure that whatever we do in capital management doesn’t impede in any way our ability to pursue our growth projects. And so you know, I consistently said to market we use a rule of thumb of about $5 billion as we look at -- as the size of company what growth opportunities can we be pursuing? What do they need to look like now can we handle that in our balance sheet? And about $5 billion plus or minus fits quite nicely for us. So as we look forward anything we do, we look and say, can we maintain that sort of capacity either within debt or equity raising as we move forward? And so all I’d say Nick is you know, that we’re still considering all of those options and now we’ll probably form a view over the next few months as to what the best thing to do in that regard is. We do have -- we do have a view though that M&A opportunities are coming on to the market. They are bare priced than what they were two years ago and we are going to look long and hard at those opportunities as well. So we’re not being stagnant at all in our thought process so static refinery whatever you want to call. We’re going back to the top of the list again that says how do we find growth and what growth opportunities and what’s the best use and let’s make sure that we don’t do anything that prevents us from doing something else. I think that’s the key. We’ve learned from past experiences where we committed a lot to a certain outcome and then found that the well changed and we were locked into that particular strategy for a period of time that made it very difficult for us and we just don't want to be locked into that again.

Okay, that's clear. Thanks for that. And just a question on Pluto if I can, just the header on Slide 27, you've highlighted you're planning to drill a well there in 2015, you recently sanctioned Xena development. I'm just wondering is there any concerns behind the scenes around the deliverability from the field in order to maintain output? Or these wells planned as part of the full field development going forward?

No questions around output or reserves. We may go into work-over on one of the Pluto wells next year and that's more initial deliverability out of that well. But you may recall, we only need three of the Pluto wells to keep the work -- the plant full and we have five wells drilled. So, no issue on reserves or capacity. Xena really is acreage management or resource management and I'd point you that the proximity of others across the lease line. So, it's just simply saying let's make sure that that resource remains in our hands and doesn’t fleet somewhere else. So I wouldn’t read anything more into that Nik, than that's just simply us brining forward a decision to ensure that we preserve the resource that we have put on Xena. With respect to the exploration well, I'd put it as an optional well. As we looked at our drilling program and ins and outs in the drilling program, the team have decided to put this one in, but it's not of the size that I'd say look this is successful, I'll guarantee or an extra train. Its substantial, it will be commercial. But at the moment it’s more of a filler in the program and its something else more attractive comes in then we'll pursue that, but read anything else into it.

Okay. Great. Thanks guys.

Thank you. Our next question comes from the line of [Craig Hamble from North Capital] (ph). Go ahead, thank you.

Good morning, gentlemen. I've got two questions. Firstly, in terms of some of the regions where you're targeting exploration, some of the countries would be relatively new to having oil companies visit their shows. I am just wondering how you manage fiscal terms before you go into places such as Myanmar. Do you get all of that fixed or does that tend to be work in progress and the other fiscal terms production or re-sharing agreements or how does that work for you before you enter and then I've got a follow-up question.

Craig, we do spend a lot of time looking at both the surface and sub surface risk as we look at new countries that we want to enter and we look at the legal structure in the company, how is drill and low enforced, arbitration processes. And then we look at the construct of the contract and so their revenue received and distributed, the currencies of those revenues that were in and so forth. All of that's around managing capital risk and ongoing revenue risk. With respect to countries like Myanmar, for example, I would actually say, Myanmar is a very mature oil and gas country, that’s been producing onshore for about better part of hundred years. We look at it and it has -- so it has structures in place that don’t exist in maybe some of the emerging East Africa countries. So, Myanmar is good example, because it's actually a country that has a very stable, legal and regulatory structure behind its oil and gas activity, both onshore and offshore down to the South of the country. Clearly, the new exploration blocks that have been opened up in the Rakhine Basin are in new provinces. But the agreements that were originally proposed by government were essentially a copy of the agreements that existed elsewhere in the country. So we knew what we were getting into when we bid on those blocks. The normal process, though, as you bid on blocks, you’re then awarded the block and then you sit with government and negotiate the final fiscal terms. We are currently in that process of negotiating the final fiscal term. So you'll find wording in our announcement is quite deliberate. It's says we've been awarded. The blocks were in the final processes of negotiating those fiscal terms and so we do that before we commit capital and that’s how we manage our capital risk in those countries. The other countries in West Africa are, again, all mature hydrocarbon producing regions. Gabon, in particular, has been producing for the many, many years. Tanzania is probably the newest, but it's had some offshore activity, as you know, and so we've already got our line of sight as to where Tanzania is going in their fiscal structures. So we do look very long and hard at the rule of law, the arbitration process and so forth and over the last couple of years Woodside has hired some external people to come in who have particular expertise in that area to make sure that we are able to enter those countries in a way and preserve it. And it’s not just those things, we get down to the level of customs duties and how do you move things in and out because often it's not just the fiscal firms, it's actually, you certainly get slapped with the bill for customer and then you realize that our drilling rig was going to trigger customs charge. So that’s the sort of detail we are getting.

All right. Thank you for that answer. Second question, it’s related to quite long data production profile the North West Shelf joint venture. So looking at some of the analyst numbers that would appear that there is potentially one, maybe even two cranes we see in the JV that might drop off from production just because of declining resource reserve availability. And looking at the exploration, lot of talk around maybe hoping fill-up Pluto, you obviously got Browse. So my question is, if there is actually a specific exploration if that will be coming to take North West Shelf joint venture primes or father then full, or should we just expect that that run fan overtime as analysts are forecasting?

Yes, I will – a couple of things. One is, we have said to the market, we think not only to start to appear in the North West shelf sometime around the middle of next decade. We have really focused on a North West Shelf exploration program and we’ve just completed the Fortuna, I think was largest 3D survey we’ve ever done. So we’ve just completed that work with a view to filling that potential knowledge that you’re referring to. We've not had a large seismic survey in the North West Shelf for about 10 years. So the significance of this survey is very important to us. We expect we will be drilling exploration wells around the North West Shelf commencing 2016 based on the results of that survey. So now we’re all aligned to there’s always opportunity coming for the North West Shelf for the next 10 years and given the lead time, we’re ahead of the curve on that. We’ve already run the survey and we're now into the interpretation phase and we expect to have drill-ready prospects in the inventory for 2016.

Right. So if I was to look at the balance of risk against what people are projecting in the market it would be perhaps more to the upside than the downside, if this exploration effort yield success?

Yeah, what we would point to and it’s difficult to predict those things. But what we would point to is analogs elsewhere in the world we’re now into the third phase of development in the North West Shelf and so the types of things that we’re looking for you'll typically find their tie backs to existing facilities, which is why we’re really focused on the development cost in that area. Yeah, I would say we are working very diligently to ensure some of those forecasts get extended out in time. And the whole reason for this is to have a successful exploration program that would come in time to existing facilities and extend the life. We’re also spending money on the North West Shelf existing plant to extend its life, add another 25 years. So, clearly our intention is to continue the life of the North West Shelf, and this exploration activity is designed to do that.

Great. Thank you very much.

Craig, this is Lawrie. I just wanted to add that, obviously, we are in a phase now of developing projects tie back opportunities, Greater Western Flank, Persephone and so on. And the observation that I’ve made is that there’s very, very good money in those investments and so IRRs are 20%, 25% plus. So, any discoveries that we can make in and around the existing North West Shelf facilities are very economic, it seems so far.

All right. Thanks very much, gents.

Thanks.

Thank you. Your next question comes from the line of Angela Macdonald-Smith from The Australian. Go ahead, please.

Hi, yes, the AFR actually. Look, Peter you made some comments about Sunrise and your instructor, you're now just about to renewing efforts to progress development fastened. Just really wanted to get a bit of an idea about what’s happening there with that work and, notwithstanding, of course the arbitration that’s going on at the moment?

Where Sunrise is going, Angela, it's a good question. What I would say is we're maintaining engagement with team around Sunrise while some of the issues around estimates and other time bound is that they work at government-to-government level. And I probably can't take much further than that. We maintained our office in deli, we’ve maintained our social programs up there. We are maintaining our senior executive visits to the Timor Sea. So we have an – what I would say is we have an active engagement with them. What we’re doing is preparing ourselves for the arbitration to be resolved. We don’t want to just get in way and then the arbitration gets resolved one way or the other. And then we say, now what. We’re actually preparing ourselves now as a joint venture and making sure that we maintain those relationships, because the issues at hand are government to government. They’re not things that the joint venture can resolve. What we’ve said at the joint venture, we just need to get a better business and make sure that we have development plans and options in place that allow us to move forward very quickly as the joint venture, once we get a signal from both governments that the issues that are in hand are resolved. So, read what you want into that. And – but what I would say is we’ve recommenced the engagement.

Okay. Thanks.

Thank you. Our next question comes from the line of Mark Wiseman from Goldman Sachs. Go ahead, please.

Good morning, guys. Thank you for the updates. Just a quick follow-on question on the LNG trading business. You spoke to the margins from that business and the synergies with which you had a project spend. I was just wondering if it's possible to – obviously, Corpus Christi is the step change for that business in 2019. Is it possible to just talk to what the activities were for the half and what your expectations are from that business over the next one to two years?

Well, boy, Mark you are testing memory. I mean there were a couple of cargoes really in the half that you can look at – you can kind of work it out and say what were the costs and you know look at cargo cost but there are couple of cargoes that work into the trading activity and those cargoes will bode through Asia and through the Atlantic. I think we took one out of the Atlantic and bordered across so that’s how the trading activity is working. So it’s not just simply in Asia trade where we’re getting Atlantic trades coming through. The real benefit from it though was actually in support having the vessel capability that is supporting our base business and unfortunately, it’s really difficult to get a look through into that but there are – you can imagine with the excellent production and liability we’ve had out Pluto and the North West Shelf. There are opportunities that presented themselves in our base business that we relatively used that trading actually come down and help us move cargoes one of the basis in the base business and of course, that gets book to the base business not to the trading business. So I’d say, at the moment that activity just reflects a couple of cargoes. Pretty good utilization on the vessel, so it’s utilizing the vessel both around charters and also sub chartering it to others, so it’s not simply moving our cargoes as well. So we think fortunate in that regard but very early days. Now where this Corpus Christi fit into that just as – well, we’ve got 29 teams to work out how to do this and build out capability both front office and back office in trading. We made do continue to build on the Corpus Christi type opportunities over time, but we don't have anything on port. But that's where it kind of fits in. Corpus just opens options up. I think one of the earlier questions was -- does that help you with your major projects Browse and so forth? And the short answer to that is yes and one of the reasons that we took on Corpus was to enable us to have that sourced flexibility build into our contracts. So, hopefully that answers your question. Its early days in the business. We think it’s the right direction for us and we hope to see that margin continue to increase over time.

That's great. Thank you. And just one more quick question if I may. Based on what you're seeing in the FEED process through Globus and flank and for Stephanie and the oil business, is the life of retention guidance that you gave for the next several years is roughly $300 million per year, still what you're seeing for life extension CapEx?

Yeah, look short answer to that is yes. So, short answer is yes. We're actually seeing a lot of -- what should I say efficiency improvements in that project that we're able to execute. And I'm pleased to report that all of our turnaround this year have either met our targets or exceeded, being shorted than the durations that we had set. So, a lot of the performance you've seen both out of North West Shelf and Pluto is actually better turnaround performance and that quailing in directly onto the cost as well for that a large part of that at North West Shelf is life extension activity. We've not found anything. We haven’t found any bad surprises yet in the North West Shelf as we've gone through the trains. So we've not found anything yet that would – I am dying to expect to find anything that would change our view on what that cost structure is going to be.

Got it. Thanks, Peter.

And Mark, just to clarify, the $300 number, the $300 million number that you show out there it sounds like it’s across all our assets not just North West Shelf or just contemplating whether it was a 100% number. But I think its – I think it sounds a little less, a little less than the 100% number for North West Shelf but more like the signing CapEx across the whole business.

Yeah. Perfect.

Yeah.

I think as Mark views makes of gross versus net numbers in there. The guidance we've got on Page 12 of the pack shows North West Shelf sustaining CapEx at about $70 million net to Woodside. That’s what we expect to continue going after the future and that includes that growth of life expansion activity. So you can read that we are well into that activity this year. You would have seen the shoulder of that occurring last year. We had a big turnaround on trying too last year. But this year you've seen the fall effect of that activity. So I don’t expect it to be much of an increase from that opinion.

That's right,

Got it. Thank you.

Thank you. Our next question comes from the line of Matt Chambers from the Australian Newspaper. Go ahead, thanks.

Hi, Peter. I was interested in what you said about M&A opportunities, it’s becoming a bit more prevalent. So if you can expand on that where they are and what's driving that?

I think there's a couple of things driving that, Matt. We are seeing a number of our peer group refocus their activities towards North America in particular, and so those companies that are North America focus with international assets, are looking at those assets. I'd also say we're seeing some of the super majors look at their -- the efficiency of capital on their balance sheet and you've seen a lot of signals early this year talk about return on capital employed and trying to improve that. And really the only way you can do that in the short term is to sell assets. There is no magic pudding to that one, that’s very simple. And since there is a return -- improved return on capital employed in the short term they need to sell assets. The other part of that is that the NOCs are out of the market, which in my view brings a more rational market. And so the NOCs were heavy into the market a couple of years ago as they were trying to build resource. They need things to being satisfied for the most part, although they will continue to be in that market. But as there is number of things happening amongst the NOCs, you've seen both in China and here and elsewhere, as they are being asked to account for the value of some of their own acquisitions. So I would say to you that the markets now coming to what I would say is a more rational phase and a more normal phase for it and we just go through these cycles. Where are the opportunities? Well, you've got to careful on this. It's like all of us -- we all generally sell things, first that we don’t want and then we move through the list and so you have to be patient as you go through that and assets will have different value to different people. Woodside has been very clear on the types of assets that are important to us. So you won’t see us picking around tiny assets. We could have been in that market some time of the year. For us it’s more material type assets and we knew that because the type of company we have structures. So I would say that there’s some of that – I think there is going to be more occur over the next two to three years as investors focus more on profitability as well. There are number of companies out there that have grown in IV, but have not grown profitability and I think there’s going to be more natural evolution as people move from focusing on rationalization of assets, balance sheet where are you. I think the easy things have been done, the refinancing the going out and getting cheap dab all those sorts of things. If you've not done it already you’ve been asleep. All those things have been redone. I think people looking at portfolio those things are well in play. The next step is going to be let’s look at margin and what’s the robustness in the portfolio of the business. So just a natural progress cycle.

Okay. So not having done the Shell buyback, does that put you in a better position to see this?

I don’t think it puts us in a worst position. As we looked at the Shell transaction, we had always contemplated M&A as well. So as we look through that, we say well, what sort of M&A capacity will we maintain in the balance sheet if the right opportunity comes along. So no, I don’t think it changes our view on our ability to execute the right transaction. But clearly the starting point is a different one; Lawrie starts with cash in the bank. So, it’s a different starting point that’s for sure.

All right. Thanks Peter.

Thank, Matt.

Thank you, ladies and gentlemen. That was the final question call for today. I’ll now hand back to Mr. Coleman for closing remarks.

Look, everybody thanks very much for staying on the line with us today and I’ll take by the ton of the question, but we are delivering on the strategy that we said we would. I thank you for the inquiring nature of the questions and the positive nature in which the questions were post to Lawrie and myself. As we said, our commitment is to continue to execute the strategy. You're probably seeing some progress in some areas of the strategy that have been a little faster and some may have expected in the marketplace that’s our intention. Our intention is to make sure that we over-deliver on the commitments that we make. We are focused clearly on our base business and you’ve seen that in our performance of the base business. We are the leading indicator of safety performance, the excellent reliability we've been able to get in the business, the improvement in unit production cost that we’re getting in that business. So, we’re not simply focused on growth in other places. We are very much focused on getting as much as we can out of the existing business we have. We do have a commitment to continuing to extend that that’s indicated in the seismic surveys we've been running, the questions that we've had about North West Shelf and that extension. The drilling activity we currently have underway. We put one drilling rig. We’ll have another one coming in soon. The large prospectivity we have around the Outer Canning programs. So I think we're well exposed to all of the growth opportunities that the North West currently offers for us and we are working well through our development pipeline with Browse re-engagement on Sunrise and so forth and of course, the expansion, life expansion activities of Greater Western Flank and so forth. Internationally you had us, we've grown probably surprisingly fast for some in some of the most prospective oil plays. I think going around at the moment. That’s credit to our exploration team and the real hard work they've done over the last couple of years of identifying the places that we need to get into. We'll move soon into an execution activity in those plays and you'll start to see seismic controlling program come as early as 2015. So we will start to see some things coming into the offer. And of course the expansion of our marketing and trading activity lost early steps. You can clearly see the intent and where we are going to and how we want to manage that risk both on a trading, but also on a balance sheet risk as well. So I think we are moving forward at quite a rapid pace. The change is very important for us. And of course, we're continuing to work on our organization effectiveness and our own cost structure. So again, thank you very much for participating in this morning’s call and I am sure we will be -- Lawrie and I will be talking to a number of you over the next few days this week going around on road show.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your attendance. You may all now disconnect.