Woodside Energy Group Ltd (WDS) Q4 2015 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Woodside Petroleum 2015 Full Year Results Presentation. At this time, all participants are in a listen-only mode. Today's presentation will include a question-and-answer session. [Operator Instructions] Please also be advised that this conference is being recorded today, Wednesday, the 17th of February 2016. I would now like to turn the conference over to your first speaker today, Managing Director and CEO of Woodside Petroleum, Mr. Peter Coleman. Thank you. Please go ahead.

Good morning, everyone, and thanks for joining us today for our 2015 full year results. Joining me here in Perth is our Chief Financial Officer, Lawrie Tremaine. I'll start with just a few opening remarks and then I'll open up the calls to questions. I'm sure you have many today. Before we get into the pack, I must draw attention to the disclaimer on slide two. And while it's fairly standard it's important to note for Woodside that there are some forward-looking statements in here and of course I want to remind everybody that the figures in the pack are in U.S. dollars unless otherwise stated. Wow, what a change to a year. This time last year we were reporting record net profits for the year. We just come off record production and the industry had enjoyed many years of price growth and also activity growth. But we've been reminded that we're in a cyclical business, and I'm pleased to report today that Woodside's business model is withstanding the headwinds that we currently have notwithstanding that we've had some disappointments ourselves along the way. Moving to slide three, let me start by saying that, and I want to be very clear, that our business is in good shape. We are a resilient organization. We've demonstrated that through the year with many of the changes and choices we've needed to make and we have a resilient business model and what I want to do is just spend a few minutes to explain why I believe that's the case. Our low cost of operations continued to generate significant cash to support our strong balance sheet and we've always maintained focus on our balance sheet. Through the year, we've maintained strong levels of liquidity and flexibility through disciplined capital management with $1.7 billion in cash and undrawn facilities available at the end of the year. Our continuing focus on productivity and reliability has delivered production volumes of 92.2 million barrels of oil equivalent, our second highest production result on record. And despite the current environment we continue to execute our strategy and we're very much delivering on what we control. On slide four we've outlined some of our key achievements for the year. I think those are important to reflect on before we get into the financial results. We delivered on our operating and development commitments. We achieved reserves and resources growth and we continued our focus on financial discipline. Along with an excellent production result, our progress towards achieving international top quartile health and safety performance remains very much on track. We've achieved a 60% improvement in our performance since 2012. Our proved plus probable, developed and undeveloped reserves increased by 13%, underpinned by acquisition of Wheatstone. And the acquisition of Kitimat LNG and the Pyxis gas discovery increased our 2C contingent resources by approximately 150% from 2014. We also recently had two exciting discoveries in Myanmar, and I'll talk a little bit more about those later. Our continued financial discipline is reflected in our breakeven cash cost of sales, dropping some 33% from 2013 to around $11 per barrel of oil equivalent. We also retained strong liquidity and took advantage of market conditions early in 2015 to raise $4.1 billion, bringing our pre-tax portfolio cost of debt to a competitive 2.9% at yearend. And finally, we have low levels of capital commitments and our average term to maturity is 4.7 years, with negligible debt maturities in 2016 and 2017. Next moving to our financial results on slide five, our reported net profit after tax was $26 million, driven substantially, as we all know by the sharp fall in commodity prices in 2015; nonetheless, not a profit that we expected as we started the year. Net profit after tax excluding one-off noncash items was $1.1 billion. And we also disappointingly reported asset impairments, mostly driven by the collapse in near-term forward crude oil prices and an approximately 20% reduction in our long-term forward price assumptions for the purposes of determining asset values. And Lawrie will speak in more detail about asset impairments later in the presentation but I want to reassure investors that we've taken an appropriately conservative approach to the valuation of our assets during this period. And we've made some very difficult choices in that regard but nonetheless choices that we believe are appropriate, particularly given the uncertain environment in front of us. This year the board elected to maintain our 80% dividend payout ratio, providing a full year dividend of US$1.09 per share. And this is underwritten by the dividend reinvestment plan which we've reactivated, allowing us to balance returns to our shareholders and maintain the strong balance sheet while retaining flexibility. Cash flow from our operating assets was $2.4 billion, and following asset acquisitions, our gearing has increased to 23%, consistent with the 10% to 30% target range that we've been looking at across the commodity cycle. Moving on to slide six. Our safety and environment results are positive and even more pleasing in a period of uncertainty. It's very difficult to ensure that we maintain focus on the things that are very, very important to us which are our license to operate, and safety and environmental performance are key lead indicators to that. As I mentioned earlier, our progress towards international top quartile safety performance continues, as this we believe is a very, very important lead indicator for our performance. If I move to slide seven, let me just talk about our strategy, to ensure we keep things in context. Our performance over the last five years really has delivered value for our shareholders. During this period, we've delivered $7 billion in fully franked dividends to shareholders. Our unit production cost is down 9%. This is despite bringing new assets into our portfolio. Production is up 43%. And even better, our barrel of oil equivalent per a full time equivalent employee ratio is up some 60%, representing a very significant productivity improvement within the organization. During that period, we've also grown our exploration acreage by 95% as we've worked to rebalance and grow our portfolio globally. Looking at slide eight, we had some choices to make as we entered 2015. And the resilience of our strategy was demonstrated by our response to what has turned out to be both a challenging and uncertain environment in the industry. We were quick out of the gates to reduce costs. We reorganized, reduced the size of our business, and we took a very disciplined approach to capital management, which has enabled us to maintain our balance sheet, and to deliver on our operating and development commitments during the year. In 2016 and 2017, we're going to continue this proactive approach. You'll see on slide nine that our forward business planning is based on $35 oil per barrel, and we've turned on our dividend reinvestment plan to preserve cash. We will maintain a strong balance sheet, and we will make prudent decisions to protect our credit rating. I'll now pass over to Lawrie to provide a few comments on the financial results.

Thanks, Peter, and good morning, everyone. I'll start with reported profit on slide 11. The bridge shows clearly the impact oil prices had on our result. The 36% reduction in revenue is largely due to price. The impact of the 46% reduction in the Brent oil price over the year has been partially mitigated by the lag built into LNG pricing and the structure of our contracts. Our reported profit has also been negatively impacted by one-off noncash charges. Impairments across a number of oil and gas assets have arisen mainly due to the use of lower oil price assumptions as Peter has noted. We have debooked $363 million of the deferred tax asset associated with the petroleum resource rent tax at Pluto. Once again, this adjustment arises mainly due to the change to oil price assumptions. Finally we have recognized an onerous lease provision related to the Balnaves oil asset. This charge reflects the lower expected reservoir and operating performance of that asset. Moving on to slide 12. The production result is one we're really proud of given two adverse unplanned events which occurred during the year. In the first half, we had an extended outage following an electrical incident at Karratha Gas Plant, and we also shut in Pluto when a drill rig on charter to another company drifted near our flowlines during a cyclone. We recovered from these events, not only to record a result at the top end of our guidance range, but also our second best annual result ever. Out of the production success story was the Pluto turnaround, completed 10 days ahead of its planned 35-day schedule, as well as the reliability and capacity enhancements which are ongoing at both our Pluto and Karratha Gas Plant. I'll now turn to unit production costs on slide 13. These costs, across both gas and oil continue to trend downwards, resulting from both cost reduction initiatives and also the weaker Australian dollar. After adjusting for the cost of the Pluto turnaround, our average gas unit production costs of $4 per barrel of oil equivalent below our North West Shelf unit cost back in 2011. Moving next to side 14 and liquidity. We took advantage of positive market conditions in 2015 to raise $4.1 billion of new and refinanced debt. By doing so, we were able to extend maturities and achieve a pre-tax portfolio cost of debt at yearend of 2.9% per annum. As you can see from the chart, we have negligible near-term maturities. We maintain a sufficient liquidity buffer at yearend of $1.7 billion in cash and undrawn facilities. And we will target $2 billion of liquidity by the end of 2016. Lastly, our productivity program on slide 15. As you know, we kicked off this program internally in late 2013 and introduced it to the market in May 2014. Since then, we've been working hard to deliver on the targets you'd see on this slide. In 2015 we delivered over $700 million in benefits, more than half of which is from production volume increases achieved through lift in reliability and capacity. We've delivered significant expenditure savings throughout our business. This has been achieved through a structured program, utilizing the labors of price renegotiation, productions in demand and scope and simplification of processes. We're starting to see the savings in our reported results but only in 2016 will you see the full year impact of what's been achieved. On that positive note, I'll hand you back to Peter.

Okay. Thanks, Lawrie. Look, I'll just go through some of the supporting slides now moving firstly to slide 17 on Wheatstone. The Julimar project is 80% complete and targeting ready for startup in the second half of 2016. So we're pleased with that progress. The Wheatstone itself, the project as we know is over 65% complete targeting first LNG in mid-2017. Moving on to the next page, Greater Enfield, work continues to achieve further cost savings at Greater Enfield. You might recall this is a project that we've back into recycle on this development plan. We're very pleased with the progress we've made and we're still targeting to be ready for an FID late this year. Moving to Browse on slide 19. We've made good progress in pursuing value enhancements on Browse. We've reduced costs. We've increased facility capacity and reliability since we entered FEED. That said, the value enhancement delivered is mostly been offset by the current lower oil price environment. In the joint venture, we'll work together through this year to achieve, to work towards a decision on Browse. On exploration, our exploration strategy is beginning to deliver results. Slide 20 provides some of the detail of that. We've worked hard to rebalance our portfolio. We're now high-grading and strengthening positions but we will balance this with disciplined control of expenditure to maximize our exploration returns and also very mindful of the impact that exploration has on our reported profits. So these are things that we'll be balancing as we go through the year. Finally, I want to touch on Myanmar on slide 21. We've had two great results over the last three months. It's been a good start to the year for us. It has established the petroleum credentials of the basin. As you're aware, this is one of the largest unexplored, relatively unexplored basins in the world. And Woodside, we're an early mover into the basin. We are seeing diversity in play type which speaks to the robustness of the basin, water depth and, of course, commercialization options. As I mentioned, we gained early mover advantage in Myanmar and have 47,000 square kilometers of acreage in the Rakhine Basin, about 20% of Woodside's global exploration portfolio. Thalin, our latest discovery, is 60 kilometers from existing infrastructure, and so we'll have a close look at development options but we're excited by the optionality we have around this particular discovery. We also have a significant and balanced equity position, strong partnership across our six blocks. More than 30,000 square kilometers of 3D seismic is being planned and is actually being acquired as we speak to accelerate our portfolio build in Myanmar. And with all of that said and the excitement of early exploration success, I want to be really clear, we are very mindful of the challenges of where we are in this low price environment. Look, just to recap on slide 22. Today's results really reflect where we are in the commodities cycle. We've built a resilient business model. The balance sheet is strong but we're not immune to the external environment. We need to be very mindful of that. We have maintained and will maintain liquidity and flexibility. And we continue to focus on productivity and reliability. Our work is not finished in that area. And we'll continue to execute and make sure we deliver on our strategy and on our promises and commitments we make to our investors. With that, I'll open up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Mark Samter from Credit Suisse. Go ahead. Thank you.

Morning, guys. Just a couple of questions, if I can. First of all with the balance sheet, I guess with the introduction of final dividend and DRP, one could argue that both ways, that you do that to leave a tiny bit of balance sheet headroom for inorganic opportunities, or it's an indication that you sort of the gearing rate doesn't want to slip any higher than it currently is, particularly given this year will be free cash flow breakeven-ish, should we be entirely excluding balance sheet funded inorganic opportunities at the moment?

I would say, Mark that we've always said that cash is king in this environment, so we need to be very mindful about our cash positions. I think the reality is the types of opportunities we're looking at inorganically are mainly small, accretive opportunities. We're really not looking at large opportunities at this point but we just don't know where we are in the cycle. We would say today that it's too early in the cycle to be thinking of larger opportunities because the valuations on those opportunities don't reflect today's prices. And so as we said previously, we'll be taking a bit on prices improving into the future, and putting at risk your own shareholders, funds or balance sheet strength in that regard. So I'm not going to rule out anything in that regard but equally you can see we're keeping the flexibility in our balance sheet should an opportunity arise that we think is a compelling one. But clearly in this environment, there's lots of little stuff running around. It needs to be a compelling investment proposition for us to go and use that balance sheet flexibility that we have.

Got you. And then just one quick question on the reserve. It looks like the reserve booking for Wheatstone and Balnaves; it's about 10% lower than the reserve guidance given at the time of the acquisition. There's been no reserve downgrades on the organic portfolio. Is it possible just to get a bit more clarity around that? And it looks like Balnaves is now under a two-year reserve, 2P reserve, rather. Is that right? And just talk about how we should be thinking about modeling Balnaves now?

We've not changed Wheatstone at all. So the Wheatstone assumptions are the same. And the drilling results on Julimar and Brunello had been quite positive for us. So we've not only found the sands that we were expecting but the resource there is the resource that we expected pre-acquisition. So that's been good news. Balnaves has been disappointing for us, to be honest. It was always a short life opportunity. It was one that we felt was de-risked because it had a leased FPSO on it, there was a short life opportunity. Unfortunately, the reserves look like they're coming in at a 1P basis, rather than the original 2P that we expected. So I would rate Balnaves that it's now - and as reflected in some of the impairments, that Balnaves is now on a 1P basis versus our original expectation.

Okay, perfect. Thanks very much, guys.

You're welcome.

Thank you. Your next question comes from the line of John Hirjee from Deutsche Bank. Go ahead. Thank you.

Good morning, everyone. I just wanted to ask a question on Browse, please. In terms of the slide 29, where you've got the development pipeline, it does look as though FID has moved into 2017. So I just wanted to see if that is confirmed, if we're reading the slide correctly. And secondly, the question on the economics, given you said you now use $35 a barrel as a planning price and your requirement that you must be NPV positive. So, Peter, do you think you can get there in this current environment with Browse?

John, I'd probably - and thanks for the clarification. I'd probably draw at two things. Firstly, where we are with respect to our cost targets and value creation on Browse and the current price environment just indicates to us that the joint venture is going to go through a number of discussions this year with respect to where Browse goes for it. So I think it would be imprudent for me to put a hard date out there and tell you that that date's going to be there because each of the partners is going to have to consider their own positions as we move forward on Browse. What I would say is that the team's working hard to get decision ready so that we can start engaging with all of the joint venture partners. I would say I'm being appropriately prudent here in the expectations for when an FID may be taken. Equally I think it's fair to say everybody in this price environment is trying to work out, is this short term or are we in a period of significant structural change with respect to oil and gas as a commodity and as a business. And the longer that we're at these sorts of price levels, the reality is the more likely we ought to make a structural change, at least with respect to some of the companies that are currently in the oil and gas business. And if you run these prices out through the end of this year, then it's certainly at the low end of the market there's going to be a lot of stress. And you're already seeing that in some of the credit spreads. As you've seen, the interest rates that you have to pay for debt today are significantly higher than they were even six months ago. So all of those factors I think play into the timing of a particular decision. Now on $35 a barrel, please don't read that as being our long-term price forecast. That's just simply saying as we look at the next two years, 2016, 2017, sources and uses of cash, the way Lawrie's run the books for me is on that basis. It's just simply saying let's stress test our business plan for the next two years and look at sources and uses of cash. And if at $35 it's robust, then it's a good plan. And of course we tested lower scenarios than that and higher scenarios than that, looking for opportunities but thanks for the opportunity to clarify. The $35 is our planning basis for the next two years. It's not necessarily our long-term investment basis.

All right. Thanks for that clarification, Peter. Just one more question and perhaps addressed to Lawrie. Lawrie, in terms of your productivity program, $700 million of benefits in 2015. Are you able to guide us to see what productivity benefits you can achieve in 2016?

Look, John, many of the projects are [indiscernible] completed in 2015 or there is a tail that is still coming through in 2016. What you're more likely to see in 2016 is rather than us starting new programs, you're more likely to see us consolidate the ones that we've delivered already. And not only that, you'll also see a full year benefit rather than the part year that you've seen our results this year, in 2015, I should say. So I think we are on a path here. In particular we've achieved really good results around reliability in the gas plants. And so it will be a matter of sustaining that level of performance going forward given that at Pluto we've lifted performance, they're up into what we can call first quartile, approaching world class; North West Shelf would have been there as well but for that substation incident during the year. And so we really just want to sustain that level of performance. In our broader cost program, we've covered pretty much the full spectrum of our external spend, and so again, it will be a matter of looking towards sustainability of that. I mentioned the levers that we pulled in my speaker comments just now because I wanted to make it clear that there is a component of just going for price reduction but we also have pulled levers which are more sustainable in nature, reducing the scope of what we ask for, reducing demand and making process simplification changes. So it would be a matter of locking that in and ensuring that there are sustainable benefits for the next few years, not just short term.

John, it's Peter. I would add the principles in which we went through the program were no compromise on our license to operate objectives. And what that simply means is we will continue our fabric maintenance programs. We will continue our inspections programs. We will continue our preventative activities and so forth to ensure that we maintain the integrity of our assets. That was a non-negotiable as we went through this. 2015, as Lawrie mentioned, was really a final transition year for us, so we were still in implementation. And so along with enjoying a full year of those initiatives in 2016 we'll also not have in 2016 some of the out costs that were required for implementation of those programs. And some of those out costs were quite significant as we chose that it was the time to make difficult choices so we could bed those things and get full value from them.

Great. Thanks very much, Peter and Lawrie.

Thanks, John.

Thanks, John.

Thank you. Our next question comes from the line of James Redfern from Merrill Lynch. Go ahead. Thank you.

Peter, good morning. Just had two questions, please. The first one is regarding the DRP for the final dividend. Should we assume that the DRP is reactivated for the final dividend only? Or is this going to be ongoing until otherwise advised by Woodside? And secondly, in terms of acquisitions you're saying earlier that you're not seeing any compelling material opportunities out there given the bid/ask spread remains quite wide. Can you just remind me where the deep-water oil exploration fits your criteria that you alluded to at the investor briefing in May 2014? Thank you.

That's a good leading question, the last one, particularly given some of the assets up for sale. But let me - I'll come back and address it. Let me talk about the DRP and I would look at the DRP in the context of a couple of things. Firstly, as I mentioned during the presentation, for us maintaining our investment grade is important. It really is important. It's one of those things that it's like gravity. It's really easy to go down and really, really hard to go back up again. And obviously the ratings agencies are looking very, very closely at the industry and looking at the sustainability of investment grades. So for us maintaining, that's important but we will only do it in what we believe is a sensible way. We won't compromise value for our shareholders. And certainly if there are opportunities for us to pursue them, we'll look at it but we'll be mindful of that credit rating. The DRP gives us two opportunities. One is that it's an opportunity for us to ensure we have the right cash flow cover on the credit rating. It allows us to maintain our liquidity position and then also very importantly it allows us for a certain class of shareholder to ensure that they get access to an asset that they value very highly which is our franking credit. And so there's always arguments, do you turn off dividend or you keep it on and so on. And as we look at it, we're in quite a unique position compared to a number of our peers globally, and that our dividends have that added benefit to many of our shareholders, particularly the small retail guys with respect to the franking credits that are available to them. As you know, we're fully franked. With respect to acquisitions and so forth, our core competency, we've always said, is typically where the water is deep and remote because we have competencies both around gas and oil in those areas. We have drilling competency and we also have floating production competencies in that regard, [indiscernible] operating competencies. So if there are deep-water assets globally that are compelling in nature then we would look at those. But I'd go back to an earlier question, today they really need to be well priced in the marketplace. And I think the key thing we said is the buy/sell spread. I actually think it's harder today in some parts of the market than it was when oil was at $100. And that's simply because the buy/sell spread is actually on a percentage basis. It's gone larger rather than smaller. It's a little counterintuitive. But assets are on the market today and assets will continue to come on the market over the next 12 months, and we'll look at them very closely.

Thanks. Thanks, Peter. Just one last really quick one. 2016 CapEx guidance has increased by $90 million. I know it's quite small but just wondering if you could holler out the reasons for that compared to guidance provided a month ago. Thank you.

James, if it's increased, I'd be surprised. Our view is it's the same number as what we guided in the quarterly report.

Yeah. So James, it's nothing we're aware of but let's go back and double check.

We'll check, okay.

We'll just double check and make sure but there's certainly nothing from an operating point of view of the business and so forth that we're aware of.

Okay. Okay. Thank you.

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

Good morning, gentlemen. Firstly, Peter, I guess a question for yourself. Could you provide an update on the activity you've undertaken in terms of Browse contracting? I guess six months ago, you spoke about starting early discussions, but how has that progressed given what sounds like potentially an uncertain progression for Browse from here?

Look, short answer to that, Dale, is we haven't landed a contract yet. So I think that's fair to say. And I'd also say it's very difficult to find long-term buyers in the marketplace. So look, we have some things out there but buyers, just to be clear, are still sitting on the fence. So if we had anything material from a contracting point of view, we would have disclosed that to the market.

Okay. And then I guess secondly for Lawrie, just following on from John's question. I guess cost or cash initiative programs prior target of $800 million by the end of 2016, which you previously said would still be achievable even given the capitulation in oil prices. Do you still think of that target as achievable based on where you stand today?

It is. It is, Dale. But as you noted, it gets harder because we had an oil price assumption built into the value that comes from the increases in production which again are related mainly to reliability. So it is tougher but still achievable.

Okay, excellent. Thanks, guys.

Thank you. Your next question comes from the line of Nik Burns from UBS. Go ahead. Thank you.

Thanks, Peter and Lawrie. So just a high-level question on your approach to M&A at this point in the cycle, just following your approach on Oil Search last year, just wondering what you learned from the whole experience? Has it changed your approach or appetite for M&A? And so should shareholders expect Woodside to be active in the M&A market over the coming months, understanding that the bid/ask spread's still very wide, or given your recent exploration success, whether that would see you refocusing on the exploration side to drive growth in the medium term? Thank you.

Well, as you know, Nik, we've always said that our growth would be two paths. One would be by the bit, drill exploration program and what I would say on the exploration side of the business as distinct from traditional M&A, there are very interesting assets starting to - or opportunities coming to the market on the M&A - on the exploration side of the business. So my previous comments were more around traditional M&A, discovered resources and so forth. We've consistently said to be really, really good at exploring, you have to have really, really good acreage. And so there is an opportunity over the next couple of years to continue to high grade and improve our acreage position globally. That doesn't mean that I think we're reaching a point where we think we're kind of at capacity with respect to our organization's ability and also diversity of some of the areas but you'll see us continuing to chase the hardest plays and the most prospective plays. So that part of the business I would say to you I think is alive and well and the bid/ask spread is starting to come into a more manageable range. And then some of the commitments on those activities of course are becoming more manageable because the unit costs of executing some of the commitments have come down as well. And I'll put that into context. Seismic acquisition rates at the moment are about a quarter of what they were 18 months ago, which has been very beneficial for us in Myanmar, for example, because we've almost we may have to double the amount of the seismic that we're going to shoot in Myanmar and will come in under the original budget assumptions. So that area of the business I would say is very active and starting to hot up. The traditional part of the market as we look at it - it's interesting, what have we learned? Well, we've learned a lot of things. I'm not going to share it on the telephone call. With respect to how organizations will react and so forth, it's difficult for me to predict how organizations are going to react over the next 12 to 18 months. The only analogy I can give you is it's kind of like financial institutions, our business is no different. The guy who puts out the white flag first is destined to not be in a good place and you'll find people will hold on by their fingernails for as long as they possibly can. You would hope people would make what we all think as sensible decisions but to be fair sensible decisions are in the eye of the beholder and the choices you have in front of you. I think we need to respect the choices that people think they have in front of us. So look I'd say we're always open to the right opportunities. And as you can see, we're trying to manage that within our balance sheet but the reality is large M&A would require us to think differently about the funding. And it would be something we'd have to - it would be a high test for us in this particular environment.

Okay, great. So thanks for that. And just a second question just on your LNG contract profile. Just conscious of the fact that you have some short-term LNG contracts that roll off next year and I think you're ahead of Pluto repricing event that's due to occur next year as well. Just in terms of the global LNG market at the moment, it looks over-supplied. Have you started engaging with prospective buyers or the existing buyers on that front? And I guess just referring back to a slide you presented at your investor briefing last year, which showed some degree of downside protection in LNG pricing below $55 a barrel oil. Just wondering if you are confident that you'll be able to achieve something similar when you complete negotiations with LNG customers for these volumes.

I think there's two types of contracts. There's the midterm contracts of Pluto you might be referring to. And yes, we're out in the market at the moment, talking to prospective buyers about those contracts and those volumes. The interesting nuance at the moment is at least on a market basis, if you look at JCC, some of the spots are actually trading at high prices than some of the crude length pricing. So it's kind of one of those little nuances in the market. But we would like to secure those contracts or secure those volumes into the market. And we've been actively discussing those for some period of time with prospective buyers. With respect to the base Pluto contracts, my understanding is we don't have anything for a few years, and it's 2019. So we've gone through a repricing period, commencing in 2014 on that particular contract. And we're now into a five-year repricing period. You may be thinking that the first pricing period was four years, and now we're into five-year repricing periods.

Okay, great. Thanks for clarifying.

And to finalize, yes, we do believe that the contract is favorable in low oil prices. I'll leave it at that.

Just before we move onto the next question, I wanted to come back to James. It does look like our investment spend has changed a little but it essentially reflects a change in FX assumption. So we adjusted it for the purposes of our original budget, our FX, our Aussie dollar down to A$0.70, and we've taken it back up to A$0.72. So I think it's just a valuation but our work program hasn't changed.

Great. Thank you. Our next question comes from the line of Ben Wilson from RBC. Go ahead. Thank you.

Good day, Peter and Lawrie. Two quick ones from me. One, can I just ask you to affirm that your commitment to credit rating is for an investment grade credit rating, not necessarily your current rating? And secondly, I was just hoping to pick up, Peter, on one comment you made earlier with respect to oil pricing, and you noted that the longer we stay at these type of levels, the more it suggests a structural change in oil pricing long term. I just wonder whether you have any empathy for the view that perhaps the longer we spend at these type of oil price levels, the more violent the likely upswing is, particularly given the reduction in offshore exploration and development budgets we're seeing from some of the majors and some of the big international E&Ps.

Ben, I'll start just on the credit rating question. Absolutely, we're committed to our current rating and I think you can track our actions over the last few years and you can see that we have acted in a disciplined way to protect our rating. But of course, you've got to reexamine those decisions from time to time but we remain committed to our current rating. We use the expression investment grade more for convenience but, yes, we have that commitment.

Okay.

Look then on structural change. There's many scenarios, but if you run a scenario that says, well, let's play at current oil prices plus or minus a few dollars between now and the end of the year, there will be changes within the industry. Whether that's permanent structural change, I don't know, but there will be changes. And those changes will be particularly for those people who have reserve based lending, and we'll see a couple of signposts on that. One will be in April, the other one will be in that August, September timeframe of this year. And we'll just see what the underlying value of those assets are with respect to the reserve base lending and whether there are any covenants on the debt that trigger particular actions that need to be taken. Longer term, I think the market has seen a pretty strong signal. And in my view, I always look at the big end of town, I don't look at the small end of town. The small end of town has, as you know, a much smaller or a much shorter timeframe in which they need to manage the business. But the super majors, the national oil companies and so forth, have much longer timeframes. And when you see super majors with cumulative CapEx reductions of 40% or more over the last - from the beginning of 2015, that's a really strong signal to the market with respect to where they think change is going. So we look at those things as a bellwether for where they're going because they're very, very large organizations. They have a lot of momentum and inertia. And they don't take those decisions lightly. And you've probably seen they've been slower movers than the rest of the market in doing that. As we play out through this year, what does it mean? I also think in my view there will be some debt holders, looking at the risk of commodities, in particular oil and gas, and I would also suggest to you the business models that are out there. There's been a lot of activist investors in particular parts of the world have encouraged a very narrow business model that we've always questioned the financial robustness of through the full cycle. And I would suggest that there will be creditors who are now starting to rethink the basis upon which they look at the credit that's available to those types of business models because you're not seeing the resilience that we've been used to in the industry when many companies were vertically integrated or had diversity across their portfolios, which could include things like royalty tax regimes or PSC regimes and so forth. PSC regimes, as you know, are very, very helpful in low price environments because of the methodology used. So now I would just say it just depends on how long. Now how quickly will the changes be? Well, it's an interesting one because even a modicum of price increase in the long term, actually if you think stocks are being re-rated, results in actually quite a healthy year-on-year increase in price. And so that's the thing that's a little puzzling to me at the moment as I look at some of these longer-term projections and where people get back into the long term, it's almost saying that there's a point in time where you're going to get double-digit compound increases in price over a four or five year period. And to me that's the biggest unknown at the moment is, is that real, and can the market actually sustain that from a demand point of view. And will you get a demand reaction? So I think all of those things need to be put in there and you need to guide your business in the right way.

Great. Thanks, guys.

Thanks, Ben.

Thank you. Your next question comes from the line of Mark Wiseman from Goldman Sachs. Go ahead. Thanks.

Hi, Peter, Lawrie. Thanks for the update. Just two quick questions. Firstly on Wheatstone and the recently announced delay, just wondered if you're able to give a bit more color just on the timing of startup and perhaps some of the onshore progress and what drove the delay? And how wide that window to startup could potentially be? And secondly at your Investor Day, you're talking about some commercial arrangements or investment in some Asian regas facilities. Just if you had any update on that strategy?

Hello, Mark. On Wheatstone, as the operator has mentioned a few times, the major portion of the delay has actually been the delivery of the modules to the site. So the site's being prepared, the infrastructure's being prepared, but the modules were late getting out of the yard in Malaysia. And they've taken some actions in the yard but at that point it was really preserving schedule. They weren't open to call schedule back. The good news is all of the modules are now on site as of late December, and so they're now moving forward in hooking them up. The major uncertainty is actually the way the modules have been prepared though in the yard and that's something that we'll watch very closely with respect to productivity at Onslow. And that uncertainty is around the fact that these modules did not come pre-wired with respect to their electrical systems and so forth. And so the design for Wheatstone is to have an above-ground electrical supply system. If you go to other sites, including Woodside's other sites at North West Shelf and Pluto, these systems are typically in culverts that are underground, which means you can pre-install a lot of the electrical cabling. Our understanding is that cabling activity is progressing well but it's early days. So I'd tell you today that probably the biggest uncertainty is productivity we did around the hookup of the cabling. With respect to the startup window, we concur with the startup window. We had conversations with Chevron prior to their announcement around what was important to us as a co-equity owner in Wheatstone. And I was very clear with them. What's important to us is the money we spend. Schedule will be what schedule is, particularly at this point in the project. And so while we would all love to hold on to 1 January startup, the reality is, as you know, at this point we could have spent a lot of money and not seen many results from that. So we said no. Efficiency of capital is the important thing at this point and develop a schedule that is the most capital-efficient. The guidance that they have provided to market is guidance we're very comfortable with. Yes, there is some potential upside but I think it's also balanced by potential delay but it's within a range within 2017 that we're quite comfortable with at this point. The operator is yet to give updated guidance to the market on capital. We expect that in the next few months. We haven't got guidance as to when that will actually occur. At this point in the acquisition we made allowance for additional capital to spend on the project based on the contingency rundown that we'd seen at that point and we've put that allowance in our impairment calculations along with the delay in startups. Our impairment calculation included a midyear startup for Wheatstone. I think it's yet to be seen what the final cost numbers we'll come out at. All I can say is give you confidence that at least the thing we're working on, which is Julimar, is on cost, is on schedule and actually may come under a little bit on cost. But it's within the round-up. And then on Asia regas, not a lot of progress on Asia regas. We mentioned we've been in India. We've also been looking at other markets around Asia. And so I'd say 2016 is a year of delivery for our marketing group in that particular area. So we're looking at that. We're also progressing other options globally. So we're progressing discussions with Sempra around potential LNG plant at Port Arthur in Texas. Of course that one would be a risk-covered plant with - you would want buyers on a take-or-pay. So there's some risk with respect to startup and being able to get buyers on that one. We're trying to manage that. That would provide a nice platform to entry into that U.S. market. So we're looking quite broadly globally. The European market with respect to regas, while the regas numbers are low at the moment, the actually capacity take-up is quite high. So I think a lot of people are trying to cover their positions in the European market with respect to their commitments to capacity take-up in those systems. So not a lot of opportunity there at the moment.

That's great. Thanks Peter.

Thank you. Your last question for the day comes from the line of Kirit Hira from Macquarie. Go ahead. Thank you.

Morning, Peter and Lawrie. Just a question around exploration, this year obviously you're spending quite a bit on exploration, also appraisal at Kitimat, just wondering how you rationalize spending that much versus planning the business for a $35 a barrel oil price environment whether you can actually potentially defer some of the commitments there into subsequent years? Is there actually much flexibility around that program?

It's a good question, Kirit. Yes, there is. I would - firstly on exploration, there are two impacts you'll see on 2015. I know there's been some questions to why we couldn't cut 2015 more than we did. Firstly, we were working off a work commitment particularly in Australia through our backlog. And there was a couple of [indiscernible], one in particular that was capitalized in 2014 that was subsequently expensed in 2015. So that actually added to the numbers and made it look like we did more than we actually executed, simply because of the carry-through. With respect to the program going forward, we've provided some guidance in the pack. You can say it's quite a modest program out through 2016 and 2017, and the focus would be on the areas where we think we have the highest impact. And so you can see we're really focusing on Myanmar and trying to accelerate our understanding of the commerciality of that. With respect to Kitimat, we came into a joint venture that had a work program in place, and we worked very actively with our partner there. You'll see on the definition part of it, we've basically buttoned up the work that we had underway which were fleet activities, and we're looking at what we could do to lower the costs in the pipeline area. But that's just engineering work at the moment. So we're back to that level. In the Liard, the Liard was pretty much under-appraised, and so we actually made a business decision that we needed to do some work in the Liard to really understand it - did it have the prospectivity that we hoped it would. And so we had a two-rig drilling program in the Liard. In response to the lower price environment, we high-graded that program and pulled it in. We've laid off one of those drilling rigs. So we've completed that activity. So the cash burn today is a lot lower than it was as we entered the year. And then the second rig will be laid down in third quarter of this year. It's completing another couple of wells in the appraisal program. So to answer your question, yes, we're actually pulling back quite significantly in that. But before we do it, we wanted to make sure we gathered enough information and had some long-term well tests or flow tests in place now that we have a firm basis to actually do some of the development planning work. And then just finally the early results have been very, very promising and have actually exceeded our purchase assumptions with respect to the early result. But I'd say to you that it's early, and we'll continue to appraise.

Okay. And just one more question from me regarding LNG trading. Obviously, we're kind of entering a period of fairly challenged environment. It seems to be reflected in your trading margin. What's the outlook for the trading business over the next 12 to 24 months, in terms of the ability to actually deliver a positive margin from that portfolio trading business?

Look, I would say we've always said our trading business, it's a small T - trading business in respect that it's actually a value enhancer. It's not a trading business per se, as you would think one of the major traders. And so it's really an enhancer or optimizer of pretty much our equity volumes. So those trading numbers you're seeing there is just a number of cargoes multiplied by the cost of the cargo. And we wanted to make sure that, that business was - it needs to sustain itself. But where it really makes money for us is around moving our equity cargoes around, Pluto and North West Shelf cargoes. And you don't see that. Unfortunately, it doesn't come through the trading line. What that does is it stays at the asset level. So we're very comfortable actually as we see our internal numbers to see the value add through having that trading optionality up in Singapore as it flows through to the asset level. You will see us actually over the next period of time look at opportunities to expand some of that business because we actually see the shifting market is very distressed at the moment. And so there are opportunities in that particular market to take advantage of it. And then enhance some of that flexibility. We need to do that, some of that anyway, because we have Corpus Christi volumes coming out in 2019 or thereabouts. And so, we are taking a long-term view and taking advantage of what is very much a distressed shipping market today. But no, please don't think that you're going to see big trading numbers at least in the short term, because as I said, that business is a value optimizer or a value enhancer. And it's unfortunate that you don't get to see all the moving parts of that as to how it works on our equity volumes.

Perfect. Thank you so much for your questions. I will now hand back to Mr. Coleman for closing remarks.

Thanks very much, everybody, for your questions today. We really do very much appreciate the effort you put into understanding Woodside and most importantly, communicating with our investors and shareholders. It's important to us. We appreciate the work that you put in. We know this is a difficult time. There is a lot going on. And Lawrie and I just want to pass on we appreciate the time and effort that you give to us and the efforts that you put into understanding our business. Just with respect to the business, I'll go back, we are not immune, and we've never thought we've been immune to the external environment. What we've done is we believe we've designed a business that is resilient through that. It's resilient to the point where we'll continue to deliver on our commitment to investors to get funds back to them as quickly as we can throughout the entire part of the cycle. But more importantly, we're not going to tread water. We are moving forward on our strategy albeit it may be at a different pace or we may be deploying capital to different areas than we were 12 months ago but we're doing that mindful of the fact that we're not relying on oil price to bail us out. And I think as we talk over the next few weeks some of the tough decisions that we've made around impairments and so forth reflect where Woodside wants our balance sheet to be and they are tough decisions. They're not popular decisions but we think they're appropriate in the uncertainty that we have in this particular environment. As we've said consistently, we will choose to act early because we are great believers that those who act early have choice, those who do not, don't. And so we'll continue to act early and honor our commitment to our shareholders. So again, thanks for everything today and I'm sure we'll catch up over the next few days and weeks and be able to provide more clarity on some of these issues.

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