Fitch Affirms Australia's Woodside at 'BBB+'/Stable <Origin Href="QuoteRef">WPL.AX</Origin>

Wed, 22 Jan - 4:37pm
(The following statement was released by the rating agency)

SYDNEY, January 22 (Fitch) Fitch Ratings has affirmed Australia-based Woodside 
Petroleum Limited's (Woodside) Long- and Short-Term Foreign-Currency Issuer 
Default Ratings (IDR) at ‘BBB+’ and 'F2' respectively. Its foreign currency 
senior unsecured rating has also been affirmed at 'BBB+'. The Outlook on the 
Long-Term IDR is Stable.

KEY RATING DRIVERS

Greater Rating Headroom: Increased cash flow generation, lower capex, and 
improved revenue and operational diversity have resulted in increased headroom 
within Woodside’s current ‘BBB+’ rating. Fitch’s modelling of Woodside’s cash 
flows and debt highlights the ability to support sizeable additional growth 
capex in a phased manner, and higher dividend payments, as reflected in the 
company’s 1H13 results. Any immediate rating upside is, however, limited due to 
the constraints imposed by its business risk profile in terms of the size and 
scale of its reserves and operations, relative to its ‘A’ rated oil & gas 
upstream peers. In addition, limited organic growth options will require 
Woodside to seek growth via new investments which can lead to sizeable debt 
funded growth capex in the future. 

Increasing LNG profile: Woodside’s rating benefits from an increasing share of 
revenues from sales of liquefied natural gas (LNG). This relates to a sizeable 
portion of LNG sales on long-term contracts with highly rated utility customers 
in North Asia. It also benefits from strong oil-indexed LNG prices, reflecting 
the tight demand-supply for gas in the region.  

Uncertainty from Price Re-Openers: Woodside has reported that over 80% of its 
LNG sales contracts are up for price-renegotiation, with new prices to largely 
apply from 1 April 2014. The company has reported an in-principle agreement on 
pricing for the majority of these volumes in 4Q13, with price outcomes on trend 
with Asian LNG pricing, and its indexation to oil prices. On 14 January 2014, 
Woodside announced a three year 1.5 million tonnes per annum LNG sales contract 
with Japan’s Chubu Electric Power Company, which will commence on 1 April 2014. 

Lower Production Growth: 2013 production at 86.9 million barrels of oil 
equivalent (mmboe) is higher by approximately 2.5%. Production volumes were, 
however, affected by: both planned and unplanned shutdowns at the Pluto LNG 
facility; a planned shutdown at the gas processing plant for the north-west 
shelf assets; a planned overhaul of the floating, production, storage and 
offloading vessel at the Vincent oilfield; and natural field declines at other 
mature oil assets. It is lower than the initial 2013 production target range of 
88mmboe to 94mmboe. 

Measured Growth Capex Approach: Management’s 2013 total capex guidance is lower 
at approximately USD1.1bn, down from USD1.9bn in 2012. Woodside has deferred its 
approximately USD1bn investment in the Israel-based Leviathan gas development to 
1H14, and the Browse LNG development is more likely to commence in late 2015. 
Uncommitted growth capex, however, remains sizeable in the medium term, and any 
significant debt-funded project announcement will constitute a Rating event.

Limited Growth Prospects: Lower committed capex in 2013, modest success in 
exploration activities in Australia and offshore, the deferral of its investment 
decision in Leviathan to 1H14, increasing development risks associated with the 
Browse LNG project, and expansions at Pluto and Sunrise fields development, 
reflect the lack of near-term growth prospects. Woodside is, therefore, likely 
to pursue higher dividend payments in the near-term.  

RATING SENSITIVITIES

Positive: Fitch considers an upgrade unlikely over the medium-term, due to 
significant uncommitted growth capex in the pipeline. 

Negative: Future developments that may, individually or collectively, lead to a 
negative rating action include:

- adjusted net funds from operations (FFO) leverage rising above 2.5x, and FFO 
fixed charge coverage falling below 5.0x, both on a sustained basis (expected to 
be below 1.5x and around 6.0x respectively for 2013). 

Contact: 

Primary Analyst

Sajal Kishore

Director

+612 8256 0321

Fitch Australia Pty Ltd., Level 15, 77 King Street, Sydney NSW 2000

Secondary Analyst

David Cook

Director

+612 8256 0363

Committee Chairperson 

Buddhika Piyasena

Senior Director

+65 6796 7223

Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: 
iselle.gonzalez@fitchratings.com.

Additional information is available at www.fitchratings.com. 

Applicable criteria, ‘Corporate Rating Methodology’, dated 5 August 2013, 
‘Recovery Ratings and Notching Criteria for Non-Financial Corporates’ dated 19 
November 2013, ‘Short-Term Rating Criteria for Non-Financial Corporates’ dated 5 
August 2013, and ‘Evaluating Corporate Governance’, dated 12 December 2012, are 
all available at www.fitchratings.com.

Related Research: 

Rating Oil and Gas Production Companies’ dated 9 August 2012

Applicable Criteria and Related Research: 

Corporate Rating Methodology: Including Short-Term Ratings and Parent and 
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714415

Evaluating Corporate Governance 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649

Rating Oil and Gas Production Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682334

Additional Disclosure 

Solicitation Status 

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816150

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Fitch Australia Pty Ltd holds an Australian financial services licence (AFS 
licence no. 337123) which authorises it to provide credit ratings to wholesale 
clients only. Credit ratings information published by Fitch is not intended to 
be used by persons who are retail clients within the meaning of the Corporations 
Act 2001.

(Repeat for additional subscribers)

Jan 22 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Australia-based Woodside Petroleum Limited's (Woodside) Long- and Short-Term Foreign-Currency Issuer Default Ratings (IDR) at a€˜BBB+a and 'F2' respectively. Its foreign currency senior unsecured rating has also been affirmed at 'BBB+'. The Outlook on the Long-Term IDR is Stable.

KEY RATING DRIVERS

Greater Rating Headroom: Increased cash flow generation, lower capex, and improved revenue and operational diversity have resulted in increased headroom within Woodsideas current a€˜BBB+a rating. Fitchas modelling of Woodsideas cash flows and debt highlights the ability to support sizeable additional growth capex in a phased manner, and higher dividend payments, as reflected in the companyas 1H13 results. Any immediate rating upside is, however, limited due to the constraints imposed by its business risk profile in terms of the size and scale of its reserves and operations, relative to its a€˜Aa rated oil & gas upstream peers. In addition, limited organic growth options will require Woodside to seek growth via new investments which can lead to sizeable debt funded growth capex in the future.

Increasing LNG profile: Woodsideas rating benefits from an increasing share of revenues from sales of liquefied natural gas (LNG). This relates to a sizeable portion of LNG sales on long-term contracts with highly rated utility customers in North Asia. It also benefits from strong oil-indexed LNG prices, reflecting the tight demand-supply for gas in the region.

Uncertainty from Price Re-Openers: Woodside has reported that over 80% of its LNG sales contracts are up for price-renegotiation, with new prices to largely apply from 1 April 2014. The company has reported an in-principle agreement on pricing for the majority of these volumes in 4Q13, with price outcomes on trend with Asian LNG pricing, and its indexation to oil prices. On 14 January 2014, Woodside announced a three year 1.5 million tonnes per annum LNG sales contract with Japanas Chubu Electric Power Company, which will commence on 1 April 2014.

Lower Production Growth: 2013 production at 86.9 million barrels of oil equivalent (mmboe) is higher by approximately 2.5%. Production volumes were, however, affected by: both planned and unplanned shutdowns at the Pluto LNG facility; a planned shutdown at the gas processing plant for the north-west shelf assets; a planned overhaul of the floating, production, storage and offloading vessel at the Vincent oilfield; and natural field declines at other mature oil assets. It is lower than the initial 2013 production target range of 88mmboe to 94mmboe.

Measured Growth Capex Approach: Managementas 2013 total capex guidance is lower at approximately USD1.1bn, down from USD1.9bn in 2012. Woodside has deferred its approximately USD1bn investment in the Israel-based Leviathan gas development to 1H14, and the Browse LNG development is more likely to commence in late 2015. Uncommitted growth capex, however, remains sizeable in the medium term, and any significant debt-funded project announcement will constitute a Rating event.

Limited Growth Prospects: Lower committed capex in 2013, modest success in exploration activities in Australia and offshore, the deferral of its investment decision in Leviathan to 1H14, increasing development risks associated with the Browse LNG project, and expansions at Pluto and Sunrise fields development, reflect the lack of near-term growth prospects. Woodside is, therefore, likely to pursue higher dividend payments in the near-term.

RATING SENSITIVITIES

Positive: Fitch considers an upgrade unlikely over the medium-term, due to significant uncommitted growth capex in the pipeline.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

- adjusted net funds from operations (FFO) leverage rising above 2.5x, and FFO fixed charge coverage falling below 5.0x, both on a sustained basis (expected to be below 1.5x and around 6.0x respectively for 2013).

((Bangalore Ratings Team, Hotline: +91 80 6677 2513, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))

Keywords: Fitch Affirms Australia's Woodside at 'BBB+'/Stabl

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