Woodside seeks expansion in Kenya and Libya

Apr 18, 2005 02:00 AM

Don Voelte, hired a year ago as CEO of Woodside Petroleum, plans to fulfil his mandate to make Australia's No. 2 oil company "more global" by expanding exploration abroad, including to Kenya where no oil has yet been found.
Voelte, 52, a former head of exploration at Mobil, plans to start drilling for oil this year in Libya and Kenya to add to projects in the US Gulf and Mauritania, he said on April 13.

The venture in Kenya has just a 3 % chance of success, he said.
"What we're trying to do is have a few home runs, a few huge hitters out there," Voelte said. Chairman Charles Goode hired Voelte to cut the company's reliance on Australia, which accounts for 93 % of its reserves. As demand for oil rises, sending global prices to record highs, Woodside must compete with larger rivals such as ExxonMobil that are also searching in deeper waters and riskier areas to replace dwindling reserves.

In the past 18 months, Woodside has started exploration work in Liberia, Sierra Leone, Iraq, South Korea, Ghana and Cameroon.
"They're going to have to go out and look in different areas, in slightly higher-risk areas, whether that's politically or geologically, along with their peers in the industry," said Tim Barker, who helps manage the equivalent of $ 30 bn at BT Financial Group in Sydney. "They're going to have to start to find things reasonably soon to fill in the potential production gap for oil."

Woodside wants to more than double oil and gas output in the next five years, with some of the forecast growth depending on fields that are yet to be found.
"Some of that production growth is still not certain, there's a riskiness associated with that," Barker said. As the company increases production of oil, where returns are higher than in gas, it needs to make even more oil discoveries to sustain production and returns, he said.

Woodside said in November it plans to raise spending on exploration to about A$ 275 mm in 2005 from about A$ 250 mm in each of the previous four years. That's lessthan a fifth of 34 % shareholder Shell's $ 1.5 bn budget, a company six times its market value. About 70 % of Woodside's 2005 budget will be spent overseas, Merrill Lynch & Co. said in a Nov. 17 report.
Woodside's last oil discovery of more than 100 mm barrels, about 17 months ago, was in Mauritania, a country in West Africa. Oil accounts for 20 % of its total proven and probable reserves, while it has more than 19 tcf of undeveloped gas resources.
"Frankly, we can take a little break from gas because we've got plenty to get on the market," Voelte said. "The reason we're able to do a Kenya is that, in the exploration world, our portfolio is considered fairly low-risk."

Woodside's proven and probable oil reserves fell 24 % last year, after asset sales. Its oil output is expected to surge by more than 80 % next year as new fields start up in Mauritania and Australia, UBS said in an April 6 report.
Woodside is seeking board approval to double this year's budget in the US Gulf, to drill five wells instead of two, Voelte said. Woodside's first US production will start this year at the Midway gas field and it has a stake in the Neptune oil field, which may start up in 2007. In 2001 it wrote off A$ 64 mm after unsuccessful drilling with Marathon Oil.
"The house isn't built yet, we cannot claim success yet," Voelte said. "We're in a hole right now. We've spent quite a bit of money out there with not enough to show for it."

Woodside expects to drill about six exploration wells this year in Mauritania, where it is developing the West African nation's first oil production, the $ 625 mm Chinguetti project. Discoveries at the Tiof and Tevet fields were followed last year by three failed wells.
“If there's less excitement about Mauritania now it's because there's more to be excited about in the rest of the portfolio," Voelte said. "Libya has the potential to overtake Mauritania" for Woodside, he said.

Woodside plans to drill at two of its 13 wells permits onshore Libya this year and may drill the first offshore wells there next year, in a region that may be an extension of the Sirte Basin, Voelte said. The basin contains 16 oil fields and more than 500 mm barrels, according to the US Geological Survey.
The Kenyan well, which may be drilled in the fourth quarter, is much higher risk than any others that are planned, Voelte said. Kenya has no known oil or gas reserves, though a study found areas that may hold as much as 1 bn barrels of oil, Sentinel Stockbroking said in a September report.
"If it hits, it will be huge," Voelte said. "Don't go buy our stock for Kenya, but if you own our stock and Kenya hits, you'll be very happy."

Source: Bloomberg
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