Woodside Australian Energy 2001 Annual Report excerpts
Woodside does not have their Annual Report online in a simple version. The following is extracted from a series of files.
"We aim to be one of the nation's most successful companies."
Welcome to the About Woodside section of our website. In this part of the site you'll find some introductory information about our company, as well as information specifically for investors.
The Woodside Story is a brief history of our company, telling the story of how we developed from a small exploration company in the 1950s, to become one of Australia's largest resource companies.
The Corporate Information section contains details of the Woodside Petroleum Board, the Board's approach to corporate governance and how business and financial risk is managed at Woodside.
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Woodside is a leading Australian resources company and one of the nation's most successful explorers, developers and producers of hydrocarbon products.
We are an Australian resources company listed on the Australian Stock Exchange. From small beginnings in the mid-1950s, we have developed and matured into a leading Australian company with substantial assets and a growing international reputation as a successful oil and gas explorer, developer and producer.
Having successfully completed the initial major development phases of the North West Shelf Project, we are now strongly positioned to take advantage of new opportunities in the Australian domestic and overseas oil and gas markets.
Formed as Woodside (Lakes Entrance) Oil NL to search for oil in Victoria's Gippsland region in 1954, it was not until 1963 that we secured the exploration permits over 367,000 square kilometres off the Western Australian coast. This was the start of what we now know today as the North West Shelf Venture.
Success came in the early 1970s, with the discoveries of the North Rankin, Goodwyn and Angel gas fields, some 130 kilometres off the coast of Dampier, in Western Australia's harsh Pilbara region. These fields were eventually to form the basis of Australia's biggest energy resource development: the North West Shelf Venture.
Delivery of North West Shelf natural gas to customers in Western Australia began in 1984 under long-term contracts with the State Government-owned energy utility. With deregulation of the domestic gas market in Western Australia, we now sell directly to major energy consumers in WA. The marketing of natural gas within Western Australia is undertaken by a separate joint venture company, North West Shelf Gas.
The export of Australian Liquefied Natural Gas (LNG) began in 1989 under 20-year contracts with eight power and gas utilities in Japan. In addition, spot sales of LNG have been made to Spain, South Korea, Turkey and the United States.
Condensate, a light oil produced in association with gas, also provides an important source of revenue for us. It is sold under term contracts and on the spot market. Our first crude oil development was based on the Wanaea and Cossack oilfields, discovered on the North West Shelf in the late 1980s. Production from the Floating Production, Storage and Offtake facility (FPSO), Cossack Pioneer, began in November, 1995. The following month we also began exporting Liquefied Petroleum Gas (LPG).
In late 1999, under Woodside's operatorship, the Northern Endeavour FPSO began producing oil from the Laminaria and Corallina oilfields in the Timor Sea, about 550km north-west of Darwin, our first operations outside the North West Shelf Venture.
Woodside continues seeking opportunities to expand our North West Shelf operations and we are actively seeking customer support for additional LNG processing trains on the Burrup Peninsula.
We are also actively exploring for oil and gas throughout Australia and overseas, as well as building a portfolio of major investment opportunities that will assist us develop market opportunities for our vast reserves of uncommitted gas.
From a fledging oil and gas explorer in Victoria in the early 1950s, Woodside is now a major player not only within Australia but on the world energy stage.
As with any large, publicly-listed company, the operations of Woodside Petroleum Ltd are overseen by a Board of Directors that set clear operational guidelines for the management of our company.
All directors are non-executive, with the exception of the Managing Director, John Akehurst.
Seven Board committees assist the Board to discharge its responsibilities, which include corporate governance, acquisitions and divestments, internal auditing, risk management, health and safety, human resources, and Board nominations.
CB Goode, BCom (Hons), MBA (Columbia), (Chairman)
A Director since 3 February, 1988. Chairman of the Nominations Committee and ex-officio member of all other Board Committees. Chairman of ANZ Banking Group Limited; Australian United Investment Company Limited, Diversified United Investment Limited, The Howard Florey and The Ian Potter Foundation Ltd., and Director of CSR Ltd., Queensland Investment Corporation; and Singapore Airlines Ltd. Prior to taking non-executive directorships, was engaged for 28 years in the finance industry.
JH Akehurst, MA (Oxon), FIMechE, (Managing Director)
Director since 7 February, 1996. Appointed Executive General Manager of Woodside's operating subsidiaries from June 1994 until appointment as Managing Director on 3 April 1996.,Member of the Corporate Governance; Health, Safety and Environmental; Finance and Risk-Management and Acquisitions and Divestments Committees: Director of Oil Search Ltd. since August 1999; member of the Board of the University of Western Australia's Graduate School of Management and the Board of the Asia Research Centre. Before joining Woodside , over 20 years experience in the international oil industry.
RES Argyle, LLB, DIP PL (Dundee), FAICD
Director since 1 November, 1995. Director of Woodside Group Staff Superannuation Pty Ltd; Chairman of the Corporate Governance Committee; member of the Finance and Risk-Management , Audit and Nominations Committees. Chairman of Aurora Gold Ltd; Chairman of Leeuwin Ocean Adventure Foundation Ltd. and a Director of Scitech Discovery Centre. Consultant, Freehill Hollingdale & Page, Solicitors. Thirty six years experience as a commercial lawyer in Perth.
JR Broadbent, BA (Economics and Maths)
Director since 17 June, 1998. Chairman of the Acquisitions and Divestments Committee; member of the Finance and Risk-Management and Human Resources Committees. Board member, Reserve Bank of Australia and Coca Cola Amatil Limited. Vice President, Board of Trustees, Art Gallery of New South Wales; Sydney Advisory Board - Salvation Army Eastern Territory; Director of the Sydney Theatre Company and the Australian Brandenburg Orchestra. Over 20 years experience in the finance sector, principally as a senior executive of Bankers Trust.
KA Dean, BCom (Hons), FCPA, MAICD
Director since 18 February, 1998. Chairman of the Audit Committee; member of the Finance and Risk-Management; Corporate Governance and Acquisitions and Divestments Committees; Executive Director - Finance and Corporate Services of The Shell Group of Companies in Australia. Over twenty years experience in the Australian and international oil industry.
PJB Duncan, BE (Hons.1), DB
Director since 4 June, 1999. Member of the Nominations Committee; Chairman and Chief Executive Officer, The Shell Group of Companies in Australia; Chairman, Shell New Zealand Limited and Shell New Zealand Holdings Limited. Executive Director Oil Products, Shell Australia Limited; Director, Shell Coal Ltd; a Director of various Shell Pacific Island companies and Chairman of the Australian Institute of Petroleum. Thirty-five years experience in the international oil industry.
Dr AJ Parsley, BSc, PhD
Director since 4 June, 1999. Member of the Audit; Human Resources; Acquisitions and Divestments and Health, safety and Environmental Committees; Chief executive Officer Shell Development (Australia) Pty. Ltd. And Executive Director Resources, the Shell Group of Companies in Australia. Thirty two years experience in the international oil industry.
Professor PJB Rose, BCom (NZ), DipEc (Camb), PhD
Director since 6 December, 1990. Chairman of Health, Safety and Environmental Committee; member of Audit, Acquisitions and Divestments and Nominations Committees. Appointed Sidney Myer Professor of Commerce and Business Administration of the University of Melbourne Business School since 1984.
RH Searby, QC, MA (Oxon)
Director since 17 June, 1998. Chairman of the Human Resources Committee; member of the Corporate Governance and Acquisitions and Divestments Committees. Formerly Chairman of The News Corporation Limited and non-executive Director of Rio Tinto Group of Companies and of Shell Australia Ltd. Chancellor of Deakin University, Chairman of Equity Trustees Ltd. and Director of BRL Hardy Ltd and Amrad Ltd. Over 20 years experience in the resources industry.
RAG Vines, B.E., Hon. D. Sc., Cit. WA., FAIM, FAIMM, FTSE
Director since 19 February, 1997. Chairman of the Finance and Risk-Management Committee; member of the Health, Safety and Environmental; Human Resources; Acquisitions and Divestments and Nominations Committees. Director of WMC Resources Ltd. and Central Norseman Gold Corporation Limited and Chairman of Scitech Discovery Centre; Retired Chairman and Managing Director, Alcoa of Australia Limited. Over 30 years experience with Alcoa internationally and in Australia.
The Sunrise Gas Project, comprising the Sunrise and Troubadour fields, was discovered in 1974 in the Timor Sea 450 km north west of Darwin and 150 km south of East Timor.
Reserves are estimated at 8.35 Tcf of natural gas and 298 MMbbl of condensate. The reservoirs extend over an area 70 km long, 35 km wide and 2 km deep.
Its extremely remote location and lack of economic viability poses a major challenge for the development of the field. It was only with advances in technology along with improved expectations of fiscal and regulatory certainty that the prospects of development have improved.
More than $200 million has been spent over the past five years exploring a series of development concepts for the project:
In 1999 an offshore platform and pipeline to Darwin to supply an onshore LNG plant was considered. However the regional economic crisis reduced the demand for LNG.
In 2000-2001 a combined pipeline with the Phillips Bayu-Undan project to supply domestic gas customers, including the proposed Darwin methanol plant, and re-emerging LNG markets through an onshore LNG plant looked most attractive. However, Sunrise project economics for the onshore LNG proposal were not robust against volatile gas prices and the concept proved uneconomic.
Nearing the end of 2001, Shell tabled its Floating LNG (FLNG) proposal for Sunrise. Innovative and cutting edge technology FLNG is now the only economically viable way to develop Sunrise. A commitment to detailed design and engineering is expected by mid 2002.
The focus of LNG marketing efforts also changed during 2001. The increased confidence in FLNG technology has resulted in a new customer, Shell Western (a subsidiary of Shell) emerging in place of El Paso as the Sunrise Venture's most likely major LNG customer. Sunrise Joint Venture participant, Osaka Gas is also a potential buyer.
The Sunrise Gas Project is nearing the end of it Environmental Assessment phase which has involved submissions to the Northern Territory and Commonwealth regulatory authorities and public comment, including a shopping centre display in Darwin in early 2002.
The successful development of the Laminaria and Corallina oil fields in 1999 was our first major project since the development of the North West Shelf Venture.
Late last year Laminaria celebrated a significant milestone, with its 50 millionth barrel of oil, produced only 11 months after start-up, making the project one of the most productive in the world.
Laminaria is located in a remote area of the Timor Sea, about 550 kilometres west-north-west of Darwin and 160 kilometres south of Timor.
We first discovered oil at Laminaria in 1994 and at Corallina in 1995. We hold a 50% equity interest in Production Licence AC/L5 and the Corallina oilfield, with BHP Petroleum (North West Shelf) Pty Ltd (25%) and Shell Development (Australia) Proprietary Limited (25%). Equity interests in the Laminaria oil field, post unitisation, are different, with Woodside holding 44.9%, BHP 32.6% and Shell 22.5%.
The development of the $1.37 billion Laminaria Venture was the first in this part of the Timor Sea. At the centre of the production process is the Northern Endeavour - a large Floating Production, Storage and Offtake (FPSO) barge, which can produce up to 170,000 barrels of oil a day and has a storage capacity of 1.4 million barrels.
The Northern Endeavour is permanently moored between the Laminaria and Corallina fields which allows production on-site, and allows tankers to moor alongside the Northern Endeavour to load the crude oil that Laminaria produces.
Crude oil is pumped to the Northern Endeavour from the Laminaria-Corallina fields by a series of subsea pipelines which are connected to four production wells in the Laminaria field, two production wells in Corallina, and a separate gas re-injection well.
The reserves of the Laminaria-Corallina fields, as at October 2000, are 121 million standard barrels (proven), 178 million standard barrels (probable) and 245 million standard barrels (upside).
Oil and gas are mixtures of compounds of carbon and hydrogen, known as hydrocarbons. They are formed as part of a natural cycle that begins with deposits of plant and animal remains and fine sediment. Trapped over millions of years, often deep beneath the ocean, this organic matter is transformed by the combined effect of temperature and pressure into oil and natural gas.
The formation of oil and gas deposits, or reservoirs, occurs when these hydrocarbons migrate upward through the rock layers towards the surface. They often escape to the surface where they may form natural oil seeps or, in the case of gas, simply dissipate. Any hydrocarbons remaining on the surface are soon oxidised by bacteria.
Sometimes oil and gas are trapped in deep underground structures that prevent it reaching the surface. It may be trapped underneath curved layers of rock called anticlines, or by faults in the rock. Faults occur when layers of rock split and move, such as in an earthquake or during normal seismic events.
The term reservoir can be misleading, giving people the impression of large subterranean lakes full of hydrocarbons. In fact, oil and gas are trapped within porous sedimentary rocks such as sandstones or shales and may occupy as little as five per cent of the rock volume.
Over the past 100 years, oil and gas have assumed vital importance as a source of fuel, to the point where human civilisation now depends on them for nearly half of its total energy needs.
Increasing demand for these fossil fuels has led to the development of new technology to assist in the search for oil and gas. Hydrocarbons are often found kilometres beneath the seabed. Geological mapping and seismic surveys are used to detect subsurface traps, but only by drilling can explorers determine whether they contain oil or gas.
The Company achieved real progress across the breadth of its business activities during 2001, enabling it to build upon its excellent performance in 2000.
Operating performance was very good, approved projects progressed on, or ahead of, schedule and within budget, progress was made with the definition of future production opportunities and a number of good discoveries were made to replenish the longer-term portfolio of development options. The year also presented a number of significant challenges for Woodside including its response to Shell’s takeover offer and revised asset transfer proposal.
The Company successfully expanded its existing business with the Ocean Legend mobile offshore production unit commencing oil production from the Legendre fields in late May and the Echo-Yodel gas/condensate development commenced production in late December, some three months ahead of the original schedule.Woodside also continued to make steady progress towards its long-term growth objectives. Major achievements include the start of construction of the fourth LNG processing train on the Burrup Peninsula, progress with LNG and domestic gas marketing opportunities and oil and gas discoveries in Australia and offshore Mauritania.
The Company’s 2001 financial performance was underpinned by consistent production from the North West Shelf Venture’s (NWSV) LNG, LPG, domestic gas and oil assets and the start-up of oil production from Legendre. This production more than offset lower condensate production from the NWSV and the natural decline in the Laminaria and Corallina oil field reservoirs.
Overall Woodside achieved record annual production levels. Despite a significant decline in oil prices in the second half of 2001, the Company’s strong production performance together with favourable A$/US$ exchange rates resulted in sales revenue in 2001 only marginally decreasing by 0.4% from A$2,353.9 million in 2000 to A$2,344.5 million. Net profit for 2001, was A$909.6 million, a decrease of 5.9% over the 2000 profit of A$966.6 million.
The net profit figure includes a A$185.2 million (after tax) contribution from the divestment of 16.39% of the Greater Sunrise gas and condensate fields. This was partially offset by a A$64.4 million (after tax) write-down of the value of the Company’s carried-forward exploration-expenditure in its Gulf of Mexico area of interest. (The net profit in 2000 included A$108.7 million (after tax) from the divestment of 10% of Greater Sunrise.) Earnings per share in 2001 decreased slightly to A$1.36 compared to A$1.45 in 2000.
Debt at the end of 2001 was US$850 million, an increase of US$65 million compared with 2000. Gearing ended the year at 37% compared with 34% at the end of 2000.
Woodside will pay a final dividend of 20 cents per share (fully franked). Together with the interim dividend of 14 cents per share (fully franked), this makes a total ordinary dividend for the 2001 year of 34 cents per share (fully franked) up from 30 cents per share (fully franked) in 2000.
In addition, as a result of the favourable profit result, Woodside will pay a final special dividend of 26 cents per share (fully franked) bringing the total special dividend for 2001 to 36 cents per share (fully franked). This compares with the total special dividend of 52 cents per share (fully franked) for 2000.
The combined ordinary and special final dividend of 46 cents per share (fully franked) will be paid to shareholders on 21 March 2002.
In early 2001, management and the Board devoted considerable time and energy to responding to Shell’s takeover offer and revised asset transfer proposal. In April 2001, the Federal Treasurer made orders under section 18 of the Foreign Acquisitions and Takeovers Act 1975 prohibiting Shell from increasing its existing 34.27% shareholding in Woodside.
As a consequence of the Treasurer’s decision, the foreign investment condition on Shell’s takeover bid could not be fulfilled and any acceptances received by Shell were void. The Treasurer’s orders also meant that Shell’s revised asset transfer proposal could not proceed. Shell withdrew its takeover offer and revised asset transfer proposal soon after the Treasurer’s decision.
During the period of Shell’s takeover bid, Woodside management engaged in discussions with a number of parties, including BHP, to identify possible alternative proposals which might have provided higher value to shareholders than the terms offered by Shell. After withdrawal of the takeover offer and revised asset transfer proposal, dialogue with third parties continued, but no firm proposal was received and these discussions were terminated.
Discussions have subsequently taken place between Woodside and Shell aimed at ensuring that the relationship between the two companies moves forward on a basis that is mutually beneficial. The discussions with Shell are of a general nature in respect of mutual cooperation and are continuing under conditions of confidentiality.
During the year, the Company achieved a number of corporate milestones including:
an upgraded credit rating from BBB+ to A- from international credit ratings agency Standard and Poors;
inclusion in the Morgan Stanley Capital International (MSCI) Australia Index for the first time at the close of trading 30 November 2001; and
the successful completion of a rule- 144A note issue for US$300 million with a 6.7% coupon and a 10-year maturity which was used to repay shorter-term debt facilities.
During the period, there were no changes to the composition of the Board. The Shell Relationship Committee which was set up at the time of the first Shell asset transfer proposal in 2000, had its tenure extended into 2002. This permits the non-Shell Directors to consider, in the absence of the Shell-nominated Directors, matters related to the ongoing discussions with Shell.
Over the last five years, the Company has sought to achieve top quartile financial performance within its sector. In addition to committing funds to maturing its development plans for current Australian gas resources and its inventory of new oil discoveries, the Company makes a significant commitment to exploration. Initially, this effort was principally directed to Australia, but with Australia’s progressively declining oil prospectivity, the Company has increased its international focus. This trend can be expected to continue in the future unless there are changes in the risk/reward balance for exploration in Australia.
Over the last year, Woodside screened around 20 acquisition targets and in mid-January 2002 it submitted an expression of interest in acquiring the international oil and gas operations of Veba Oil and Gas from BP.
In late January 2002, the Company was advised that it had not been selected as the preferred bidder. While this result was disappointing, the quality of research and due diligence undertaken on the Veba assets demonstrated that Woodside has the necessary capability and discipline to pursue strategic acquisition opportunities of this type in the future.
Looking forward, the Company has a portfolio of organic growth opportunities. The most significant of these is the development of a number of recently discovered oil fields in Permit WA-271-P in the north-west of Western Australia, in which Woodside holds a 100% interest.
The results of the Enfield-4 appraisal well in February 2002 was an important step in confirming that these fields can be profitably developed.
The Company also expects to progress development plans for an LNG and a domestic gas project based on gas fields in the Timor Sea and plans for the supply of gas from the Geographe and Thylacine discoveries in the Otway Basin. Development planning associated with the oil exploration success in offshore Mauritania has commenced and the outcome of an appraisal well to be drilled in 2002 will be critical to the scope and timing of a commercial development. Success would be a particularly exciting outcome as it would be likely to lead to Mauritania’s first oil production. Woodside is actively pursuing a range of LNG market opportunities in Asia through Australia LNG. If some of these LNG marketing efforts are successful, it will enable the establishment of a fifth LNG processing train on the Burrup Peninsula. The Company also has planned a major exploration program with wells being drilled in a number of exciting prospects
in both its Australian and international exploration acreage.
On behalf of the Directors, I would like to thank the Managing Director, John Akehurst, his management team and the Company’s employees and contractors for their contributions to Woodside’s performance in 2001. Their combined efforts have enabled the Company to manage its existing business effectively and profitably while planning and implementing a range of business enhancement and expansion activities designed to maintain Woodside’s growth momentum into the future.
I look forward to reviewing the Company’s performance and prospects with you in more detail at the Annual General Meeting to be held on Tuesday, 16 April 2002 at the Sheraton Towers Southgate Hotel, Melbourne, Victoria.
Charles Goode AC
20 February 2002
Year 2001: A Year of Progress
In addition to managing the response to Shell’s take over bid for the Company, Woodside started 2001 with four key challenges.
They were to ensure that:
existing revenue-generating activities continued to be safe, operationally efficient and highly profitable;
major investments in new producing facilities continued on schedule and budget using the Company’s new capital management processes;
progress was made with appraisal drilling and conceptual design to create a firm basis for the approval
of further investments in new production opportunities which have arisen from the Company’s recent exploration successes; and
new exploration drilling was successful and the portfolio of longer-term opportunities from New Ventures continued to be refreshed.
I am happy to report that Woodside achieved considerable success in its pursuit of each of these objectives. There can be no doubt that the decision made two years ago to re-organise the Company into distinct business units was a key factor in facilitating this success at a time when the high profile and protracted nature of the Shell takeover offer and revised asset transfer proposal demanded considerable attention by senior management.
I would like to thank all the men and women who have chosen to work at Woodside for the commitment that they have shown to achieving high levels of performance in all the Company’s activities.
Health, Safety and Environment (HSE)
Woodside expects to achieve consistent top quartile operating and financial performance while, at the same time, we ensure the health and safety of those participating in our business and the integrity of the environment in which we work. Our fundamental philosophy is that, if a conflict arises between safety and other business targets, the safety of the individual always takes priority.
The first quarter of 2001 continued the disappointing performance of the second half of 2000, during which we failed to achieve our HSE objectives. We saw a marked increase in injuries and incidents, reversing the long-term downward trend that had been achieved over the previous five years. Following a number of cross-company workshops, two specific responses were selected. Firstly, the rigour and discipline with which we implement the Company’s management system was reinforced. This was then complemented by fostering the development of a more caring approach by each of us to those for whom we have responsibility.
It is very good to see that, following these initiatives, safety performance improved significantly in the second half of the year and we have now regained some of the ground that was previously lost. This does not alter the fact that, during the year, a number of those involved in our operations received painful injuries, some of which have resulted in permanent disability. This is a source of great regret for both management and the Board.Health, safety and environmental matters are dealt with in greater detail in pages 46 to 51 of this report.
Maximising the Value of Existing Assets
Under Woodside’s operatorship, the North West Shelf and Laminaria/Corallina Joint Ventures delivered consistent and reliable production and processing performances throughout 2001. The onshore gas plant also achieved high levels of reliability except for a period of production interruption due to failure of a critical part in one of the compressors.
Operational performance of the Cossack Pioneer floating production, storage and offloading (FPSO) facility in the North West Shelf continued to exceed expectations during 2001. Natural decline of the reservoir did not proceed as predicted and the Cossack field’s estimated oil recovery has since been upgraded to reflect this better than expected reservoir performance.
As a result of excellent uptime of the facility, oil production from the Northern Endeavour FPSO also exceeded expectations, despite the onset of natural decline in early 2001. Of particular note was the significantly better than expected production from the Corallina field.
Estimated oil recovery for the Laminaria and Corallina fields was also upgraded following technical studies, with the bulk of the increase being attributed to the Corallina field.
This all-round good performance together with additional oil production from the newly commissioned Legendre oil fields enabled Woodside to achieve record product sales of 66.4 million barrels of oil equivalent (MMboe), an increase of 2.6% compared with 64.7 MMboe in 2000.
As a result of lower product prices in the latter part of the year, sales revenues decreased 0.4% to A$2,344.5 million in 2001 compared with A$2,353.9 million in 2000. Cash flow from operating activities in 2001 (before net interest and tax) was A$1,595.0 million, a decrease of 13.2 % compared with A$1,838.1 million in 2000.
Net profit after income tax in 2001, was A$909.6 million, a decrease of 5.9% compared with A$966.6 million in 2000. After deducting the contribution from asset sales and allowing for exploration write-offs and other one-off costs, underlying profit in 2001 was A$817.8 million.
This compares with an underlying profit of A$895.3 million in 2000. The primary difference in underlying operating profit between the two years is the commencement of Petroleum Resource Rent Tax payments related to production from the Laminaria and Corallina fields (A$81.1 million after tax). The opportunity cost of oil price hedging and currency hedging in 2001 (after tax) was A$285.1 million and A$90.1 million, respectively.
Woodside’s gas lifting costs in 2001 increased slightly to A$1.89 per barrel of oil equivalent (boe) compared to 2000.
As expected, oil lifting costs increased by A$0.99 (compared to 2000) to A$2.17 per barrel mainly as a result of the start-up of the Ocean Legend which is operated under a service agreement with the owner of the facility, Oceaneering International. The Company’s finding cost for 2001 was A$1.23 per boe, compared to a finding cost of A$0.61 per boe in 2000.
At the end of 2001, Woodside’s net debt was US$850 million, representing a gearing ratio of 37%. Capital expenditure, including exploration was A$789 million, an increase of A$301 million compared to 2000. A return on shareholders’ equity of 35.6% was achieved compared to 45.8% in 2000.
Good Management of New Capital Investments
North West Shelf LNG
During the first half of 2001, the North West Shelf Venture’s LNG marketing team continued to mature commercial negotiations with Japanese LNG customers. By the end of April, negotiations had reached the stage where the Venture participants felt confident to commit to the A$2.4 billion investment required for the construction of a fourth LNG processing train and associated infrastructure on the Burrup Peninsula. Woodside’s interest is 16.7%. At the end of the year, this major construction project was on schedule and budget and was 24% complete.
Subsequently, the marketing team further enhanced the value of LNG expansion to the North West Shelf Venture by signing a Key Terms Agreement for the sale of up to 3.7 million tonnes of LNG over five years to Shell Gas and Power. The agreement will enable the Venture to utilise its initial surplus capacity and supply LNG from the build-up period of the fourth train between 2004 to 2009.
Echo-Yodel Field Development
The benefits of improvements to the Company’s project and capital expenditure management processes were also evident in the performance of the North West Shelf Venture’s Echo-Yodel gas/condensate development. An excellent performance by the project team ensured the development was completed in late December 2001, enabling first production to be achieved some three months ahead of the original schedule and within the approved budget of A$205 million. The development will provide additional condensate production of up to 30,000 barrels per day from these fields. Woodside’s interest is 16.7%.
Legendre Field Development
The successful execution of the final stages of the Legendre oil field development in mid-2001, provided additional oil production during the second-half of 2001. This project was also completed ahead of the original schedule and within the approved budget. It did, however, suffer initial difficulties with its gas re-injection compressor. This is now working satisfactorily and the facility is currently producing 42,000 barrels per day. Woodside’s interest is 45.94%.
Progress with Identified New Business
Vincent - Enfield - Laverda Oil Fields
Further appraisal and technical studies were carried out on the Vincent, Enfield and Laverda oil fields in Permit WA-271-P, west of Exmouth in north- western Australia during 2001 and early 2002. Reserves are currently booked at 164 million barrels at the Probable level with further scope for recovery of 146 million barrels. Woodside has a 100% equity interest in the permit. During 2001, concept definition work identified two preferred development options, an early Enfield stand-alone which would commence production in late 2005 and a combined Enfield and Vincent development which would commence production on a later time-frame. In February 2002, the Enfield-4 appraisal well demonstrated the presence of oil in a fault block adjoining the main field. This outcome has had a very positive impact on the commercial viability of the two-field development options and the Company is now working towards a final investment decision in 2003.
Marketing activities by Australia LNG
Pty Ltd (ALNG) on behalf of the six North West Shelf Venture participants, continued during 2001, with China, South Korea and Taiwan being the main focus of attention. In late 2001, the Chinese customers commenced a tender process for the supply of three million tonnes of LNG per year, commencing in late-2005, to a new terminal to be constructed in Guangdong Province. In January 2002, the North West Shelf Joint Venture was advised that it was one of three short-listed tenderers.
Sales Agreement with Methanex
A gas sales agreement was signed between the North West Shelf Venture and a potential new Western-Australian-based gas customer, Methanex Australia Pty Ltd. The agreement was reached with Methanex following their decision not to proceed with a development based in Darwin. The successful start-up of Methanex’s methanol plant will see the Venture supplying an initial 200 terajoules of gas per day with first gas deliveries in late 2005. Woodside has a 16.7% interest in this domestic gas supply contract.
In northern Australia, further progress was made during the year with plans to realise the commercial potential of the Greater Sunrise gas and condensate fields through a dedicated LNG project. Currently, Woodside’s preferred development option is via a floating LNG facility to be located adjacent to the wellhead platform in the Sunrise field. The technology for this new approach has been developed by Shell with Woodside contributing to the cost of the research.
An alternative approach which would see all gas delivered to Darwin for LNG and domestic gas usage, is also under consideration although the economics of this approach currently do not offer an appropriate return on investment.
In August 2001, Woodside drilled the Blacktip gas discovery well in the southern Bonaparte Basin in northern Australia. Further gas prospects have been identified in the area providing the promise of an additional supply source close to shore.
Otway Basin Gas
In south-eastern Australia, Woodside made considerable progress towards its objective of becoming a major gas supplier to the region. Two gas discoveries (Thylacine and Geographe) were made by Woodside in the Otway Basin during 2001. The Company now has access to a material gas resource, in relatively shallow water and close to shore with the potential to provide secure, long-term and competitive gas supply into Victoria and South Australia.
In addition to its recent gas discoveries, the Company maintained its strategic involvement in Bass Strait through interests in the Kipper, Manta and Gummy gas fields and in the Papua New Guinea to Queensland gas project, through its shareholding in Oil Search Limited. Woodside is now well placed to participate in a range of emerging gas supply opportunities in eastern Australia.
Creating Longer-Term Opportunities
Woodside’s exploration performance over the past five years has consistently exceeded the Company’s expectations and the 2001 program was no exception with seven discoveries made during the year.
As expected, the Company’s Australian portfolio delivered the majority of discoveries in 2001, however, the initial results in Mauritania were encouraging for future success in this region and the Timberwolf discovery, despite Woodside having only a 2.75% interest, was the Company’s first exploration success in the Gulf of Mexico.
The 2001 program of 21 wells drilled a significant proportion of the mature prospects in the exploration portfolio. As a result, the focus in 2002 will be on maturing new exploration prospects within existing acreage and accessing high quality new acreage within Australia and internationally in order to continue to provide the quality exploration opportunities which will be required to enable Woodside to maintain its growth momentum. In 2002, the Company plans to drill at least nine prospects in Australia and two in Mauritania.
Woodside has a 15% interest in the (BHP Billiton-operated) Ohanet gas and liquids project in Algeria. The project remains under construction and is on schedule to commence production in late 2003. Woodside’s share of this investment is US$154 million.
Bid for Veba Oil and Gas
In January 2002, Woodside submitted an expression of interest in acquiring Veba Oil and Gas, a company with oil and gas assets concentrated in three regions, the North Sea, North Africa and Northern Latin America and production of nearly 60 million barrels of oil equivalent per year. The Company viewed this acquisition as an opportunity to supplement production from its Australian-based oil assets and build a portfolio of international assets to significantly increase production and revenues and provide a platform for future growth.
The Company's bid was underpinned by a set of strict financial parameters which established a price that would deliver value to Woodside's shareholders. The Company was not prepared to go beyond that price. As a result, Woodside received advice in late January 2002, that it had not been selected as the preferred bidder.
As a result of activities undertaken during 2001, growth in Woodside's hydrocarbon reserves at the Probable level exceeded production for the sixth year in succession. Woodside's reserves replacement ratio was 132% at the Probable level. As at 31 December, Woodside's reserves position had increased to 923.9 million barrels of oil equivalent (MMboe) at the Proved level and increased to 1,214.3 MMboe at the Probable level. A full breakdown of changes to Woodside's hydrocarbon resource portfolio during 2001 is presented in the Reserves Statement in this report.
Sustainable Energy Solutions
During early 2001, responsibility for Woodside's interests and investments in renewable and cleaner energy technology were focused in a (wholly- owned) subsidiary, Metasource Pty. Ltd.
These interests comprise a small portfolio of opportunities that are continuing to be pursued and expanded, namely:
a biomass project in the Esperance region of Western Australia utilising oil mallee trees as the supply source;
an investment in US-based company Ocean Power Technologies, a leading developer of wave energy power
an investment in Ceramic Fuel Cells Limited, an Australian company developing solid oxide fuel cell products to produce electricity.
In addition, work is continuing with Curtin University in developing synthetic natural gas hydrates as an alternative fuel for road transport in the future.
Looking Forward to 2002
Woodside's strategy to meet its target of sustained top quartile financial performance remains unchanged. The Company's core competencies lie in the exploration for oil and gas, in the development of discovered resources and in their subsequent production and processing. This is where Woodside will continue to focus its activities.
During 2001, the Company delivered against its key strategic objectives. Woodside continued to extract a high level of value from its existing business and maintained unit-operating and unit-finding costs at levels which continue to benchmark well against international peer company competitors. Good progress was made with a number of capital investments and gas marketing activities and 2001 saw one of the most successful exploration programs ever undertaken by the Company.
During 2002, in addition to maintaining an excellent operating performance, it is also imperative that development planning is finalised for at least two major new production opportunities, the development of the Vincent, Enfield and Laverda oil fields in offshore Western Australia and the development of the Sunrise gas field in offshore northern Australia. Together these developments will enable the Company to achieve a significantly higher plateau of production during the second half of this decade. Within the same period it is Woodside's intention to complement these developments by further production from other discoveries made by the Company in recent years.
As well as continuing to seek good prospects in Australia, the Company will also be pursuing the continued development of its international business portfolio through greenfield exploration, brownfield developments and acquisitions. Over the medium term, Woodside's objective will be to continue to invest A$200 to A$300 million per year on exploration provided suitably attractive prospects can be identified.
In this context, discussions with Shell are continuing with the objective of defining a specific program of activities which the companies would undertake together which will assist Woodside in the achievement of its growth targets.Over the last two years, the Company has also developed its competence in assessing major acquisitions and is now well placed to build additional shareholder value through active portfolio management, including a significant acquisition at the appropriate time.
With gearing now at 37% and with a strong balance sheet and cashflow generation capability, Woodside is now well positioned to fund a heavy program of new capital investment.
20 February 2002
Woodside’s existing North West Shelf Venture business delivered a sound operational performance in 2001 with the onshore gas plant and offshore production facilities continuing to make a major contribution to Woodside’s financial performance by exceeding planned production targets for most products.
The environmental performance of the onshore gas plant during 2001 was again notable through the achievement of sustained high production and processing levels without a single reportable environmental incident or an environmental licence exceedance for the second year in a row. The plant was also presented with a runner-up award in the prestigious 2001 Greenhouse Challenge Awards for implementing a project to re-route flash gas to LP fuel. The award, which is part of the annual Institute of Engineers Australia National Engineering Excellence Awards, acknowledges the efforts by Woodside and the North West Shelf Venture participants in reducing Greenhouse emissions from the onshore gas plant by 300,000 tonnes of carbon dioxide equivalent per annum.
The Ventures’ safety performance in the beginning of 2001 was disappointing with the number of safety incidents being recorded continuing to increase. However, as a result of a major new safety leadership and awareness program, this trend was reversed during the year as evidenced by the Venture achieving zero lost-time injuries (LTI) in the second-half of the year. The Venture’s improved safety performance in the second-half of the year enabled it to record a number of safety milestones including one million hours LTI-free for both the fourth LNG train project team and the supply operations team.
Liquefied Natural Gas
The North West Shelf Venture sold 128 cargoes of LNG to Japanese customers in 2001. In addition to the contract sales to existing customers, spot cargoes were sold to the Korea Gas Corporation, BP Gas Marketing and Tohoku Electric Power Company taking the North West Shelf Venture’s total sales in 2001 to 131 cargoes.
Woodside’s share of 2001 LNG production was 1,291,703 tonnes compared with 1,279,944 tonnes in 2000. The existing Japanese customers continue to support the North West Shelf Venture with deliveries to Japan in 2002 currently planned at 126 cargoes. Opportunities will be developed to sell additional LNG cargoes in Asia and other markets.
Domestic Gas (Domgas)
Production of Domgas for the Western Australian market during 2001 was significantly higher compared with the corresponding period in 2000 as a result of increased demand from AlintaGas, Alcoa and BHP Billiton’s Direct Reduced Iron plant in Port Hedland. Production during the period averaged 536 terajoules per day (Tj/d) compared with 483 Tj/d in 2000.
Woodside’s share of Domgas sales from the North West Shelf Venture averaged 268 Tj/d during 2001 compared with 242 Tj/d in 2000.
The Domgas marketing highlight for 2001 was the signing of a Gas Sales Agreement with Methanex Australia Pty Ltd (a subsidiary of Methanex Corporation of Canada) for the supply of gas to a proposed Methanol plant on the Burrup Peninsula. The Agreement covers the supply of up to 200 terajoules of gas per day for 25 years, commencing in late 2005. It also contains a provision for the North West Shelf Venture to supply a further 200 terajoules per day if Methanex proceeds with plans to expand its Methanol plant at some stage in the future. Woodside’s interest in the Gas Sales Agreement is 16.7%.
Condensate production averaged 95,568 barrels per day (bbl/d) in 2001 compared to 98,864 bbl/d in 2000. Woodside’s share of condensate production was 8,741,254 barrels (bbl) compared with 8,935,707 bbl in 2000. The decline in production was as expected, and is due to progressive depletion of the Goodwyn field’s condensate-rich reservoirs.
Woodside continued to pursue its policy of balancing spot and term sales. Approximately 36% of the Company’s condensate entitlement was sold on a spot market allowing the Company to secure sales at the then prevailing firm spot-market prices whilst securing term sales to key regional customers. 100% of 2001 sales volumes were sold on the export market.
LPG production was 803,624 tonnes in 2001 compared to 801,931 tonnes in 2000.
Woodside’s share of LPG production in 2001 was 133,937 tonnes compared to 133,655 tonnes in 2000.
Woodside’s entire LPG entitlement was sold into Japan under a new three-year term contract, commencing in January 2001.
The Cossack Pioneer FPSO’s performance continued to exceed expectations with production in 2001 averaging 117,517 barrels per day compared with 115,869 barrels per day in 2000.
Woodside’s share of Cossack crude oil production in 2001 was 7,147,796 barrels compared with 7,068,042 barrels in 2000.
Approximately 36% of Woodside’s entitlement to Cossack crude oil was sold under term contracts during 2001. Sales to Australian refineries accounted for approximately 28% of Woodside’s entitlement with the balance being exported to the United States and Asia.
Echo-Yodel Condensate Development
The Echo-Yodel development consists of two subsea production wells on the Echo-Yodel gas and condensate fields being tied back 23 kilometres to the Goodwyn-A offshore production platform for processing, with production being exported to the onshore gas plant via the existing subsea trunkline. The production of approximately 30,000 barrels of condensate per day from Echo-Yodel will mitigate the effects of declining condensate production due to the depletion of the Goodwyn reservoirs.
The development is expected to produce 37 million barrels of condensate and 0.4 trillion cubic feet of gas (Tcf) over a four-to five-year period. It also provides the infrastructure to develop further satellite fields in the wider Echo-Yodel area.
Significantly better than expected progress was made on the project during 2001, enabling production to commence in late December, some three months ahead of the original scheduled start-up target. The estimated final cost of the project remains within the approved budget of A$205 million. Woodside’s interest is 16.7%.
Japan LNG Sales
In April 2001, the North West Shelf Venture participants approved the final investment decision for a fourth LNG processing train and associated infrastructure to be located on the Burrup Peninsula. At the same time, in-principle support was also given to the construction of a second offshore trunkline linking the onshore gas plant to offshore production facilities.
At the end of 2001, commitments had been received from six customers totalling 3.9 million tonnes of LNG per annum with contract periods ranging from 15 to 30 years. The status of the commercial negotiations with the Japanese customers at the end of the year is shown below:
Tokyo Gas and Toho Gas - Sales and Purchase Agreement signed for the supply of 1.37 million tonnes per annum, commencing in 2004;
Osaka Gas - Letter of Intent signed for the sale of 1 million tonnes per annum, commencing in 2004;
Tohoku Electric - Letter of Intent signed for the sale of 0.4 million tonnes per year, commencing in 2005;
Kyushu Electric - Letter of Intent signed for the sale of 0.5 million tonnes per year, commencing in 2006; and
Chubu Electric - Key Terms Agreement signed for the sale of 0.6 million tonnes per year, commencing in 2009.
Negotiations to finalise Sales and Purchase Agreements with the balance of these customers are continuing as are Letter of Intent negotiations with other customers.
Fourth LNG Train
The fourth LNG processing train will have a capacity of 4.2 million tonnes per annum and will require an investment of A$1.6 billion. A further investment of A$800 million is required to construct the second trunkline (which was formally approved by the North West Shelf Venture participants in mid-December 2001) and an additional LNG ship will require an investment of more than A$300 million. Woodside’s share of the total investment in these three items is expected to be some A$450 million.
Construction of the LNG processing train commenced in September 2001 and it will be completed in time to enable the first deliveries of LNG to be made from mid-2004. Completion of the second trunkline is scheduled for April 2004 to coincide with completion of the LNG train.
By the end of 2001, contracts for supply of goods and services for the fourth train to the value of A$1 billion had been finalised. This includes the award of a contract for A$280 million to the Kellogg Joint Venture for the engineering, procurement and construction management of the LNG expansion project. Of the total contract amount awarded, approximately A$560 million had been awarded to Australian companies and Woodside expects that the Australian content figure will reach A$1 billion or 66% at the completion of the construction phase in 2004.
Fifth LNG Train Marketing Activities
Since commencing operation in mid-1999, Australia LNG Pty Ltd (ALNG) has been pursuing a range of LNG market opportunities, outside of Japan, aimed at monetising the uncommitted gas reserves of the Greater North West Shelf. During 2001, ALNG’s primary focus was on LNG sales opportunities in China, South Korea and Taiwan.
The China Guangdong LNG project will be located in the Shenzhen Special Economic Zone and is expected to serve the prospective Pearl River Delta gas market. Initial demand of up to three million tonnes per annum is expected with first deliveries required in late 2005.
The North West Shelf Venture is one of three LNG suppliers shortlisted to participate in the Guangdong LNG supply tender process which commenced in late 2001. The selection of the LNG supplier or suppliers is expected to be finalised by the end of the third quarter of 2002.
In parallel, the North West Shelf Venture signed a Heads of Agreement in late 2001 for CNOOC Limited (a subsidiary of the China National Offshore Oil Company) to participate in an upstream joint venture to produce and process natural gas to supply LNG to China. The terms and conditions for CNOOC's participation are still to be finalised and are dependent upon the North West Shelf Venture securing a contract to supply LNG to China.
During 2001, Woodside continued to work opportunities with the Korean Gas Corporation in South Korea to supply both long-term and winter-peak LNG cargoes. The timeframe in which these sale opportunities may be realised will be influenced by the timing of plans to break up the Korean Gas Corporation into separate business units and subsequent privatisation of these business units.
During the year, work also continued on an LNG supply opportunity to Taipower's proposed Tatan power station in northern Taiwan.
In late 2001, Taipower suspended the LNG supply tender as a result of the economic downturn in Taiwan, which in turn has delayed the requirement for this power project.
North West Shelf Venture Exploration
Two exploration wells were drilled in the North West Shelf Venture's acreage in 2001 in search of opportunities to use future spare capacity on the Cossack Pioneer FPSO. Unfortunately both the Planaire-1 well in Permit WA-28-P and the Maia-1 well in Production Licence WA-4-L, failed to find hydrocarbons.
Looking forward to 2002, the Company expects to drill at least two gas exploration wells on behalf of the Venture. The two most likely candidates are the Egret Deep prospect in Retention Licence WA-10-R and a deep-water prospect in Permit
WA-296-P in the offshore Canning Basin.
During 2001, Woodside continued to make significant progress towards its strategic objective of commercialising its Timor Sea gas resources as well as developing a strong position as a major gas supplier to eastern Australia.
The Company’s activities in support of its strategic objective have been focused on four key areas, namely:
The development of an LNG project utilising the Greater Sunrise gas resources and pursuing domestic gas market opportunities in Darwin and the Northern Territory;
Divestment of a portion of Woodside’s equity in Greater Sunrise to support commercialisation activities through the inclusion of potential customers or new strategic joint venture partners;
Exploration activities in the Otway Basin to identify new gas supplies close to markets; and
Planning for the development of Otway Basin gas discoveries to satisfy the demand and diversity of supply requirements of eastern Australia.
Timor Sea LNG
During the first half of 2001, the Sunrise Joint Venture made further progress with the development of an onshore LNG project based on the Greater Sunrise gas resources in the Timor Sea.
These activities included:
An agreement for Woodside to transfer to Phillips Petroleum a 16.39% interest in the Greater Sunrise fields in exchange for payment of Woodside’s capital costs for developing Sunrise Permit NT/RL2 to the value of US$176 million, escalated at 10% nominal per year. Woodside’s remaining interest in Greater Sunrise is 33.44%;
A Letter of Intent between Phillips and El Paso which was intended to result in the supply of 4.8 million tonnes of LNG per year from an onshore LNG plant in Darwin using Greater Sunrise gas; and
Subsurface studies and technical work to optimise Sunrise offshore facilities.
In the second-half of 2001, a new LNG development option, with the potential to enhance project economics compared to the onshore LNG plant concept, emerged based on floating LNG technology developed by Shell Global Solutions International.
By year-end, floating LNG was established as the preferred LNG development option and Woodside, as the upstream operator of the Sunrise Venture, was continuing to pursue alignment of the participants on a number of technical and commercial issues. Technical work on the Sunrise gas project is now focused on gas development options for a floating LNG development, including a decision on whether a well-head platform or subsea development would be utilised together with preliminary design work.
In parallel, Shell is progressing technical work on a floating LNG production facility, including preliminary design work.
Subject to satisfactory progress with commercial negotiations and technical work, Woodside expects both the selected gas development option and the floating LNG facility to enter the basis of design and front-end engineering phase by mid-2002. A final investment decision is envisaged in the third-quarter of 2003 and the start-up of LNG production is targeted for 2007.
The focus of LNG marketing efforts also changed during 2001.The increased confidence in floating LNG technology has resulted in a new customer, Shell Western (a subsidiary of Shell) emerging in place of El Paso as the Sunrise Venture’s most likely major LNG customer, with Sunrise Joint Venture participant, Osaka Gas, also being a potential buyer.
Timor Sea Domestic Gas
During 2001, discussions continued with potential domestic gas customers in the Northern Territory and eastern states including Methanex, the Northern Territory Power and Water Authority, QNI’s Yabulu nickel and cobalt refinery located in Townsville as well as other electricity generators and mineral processors located in the region. However, in the latter part of the year, it became apparent that LNG represented the only opportunity for the development for the Greater Sunrise gas resources.
As it was not possible to conclude terms to support gas sales commitments in the timeframe required by the customer, the conditional Letter of Intent with Methanex Australia for the supply of up to 110 petajoules of gas per annum to a proposed methanol plant near Darwin lapsed. Methanex subsequently negotiated a Memorandum of Understanding with North West Shelf Gas for the supply of gas to a proposed methanol project to be based in Western Australia.
In late July, the Blacktip-1 exploration well was drilled in Permit WA-279-P in the southern Bonaparte Basin and encountered a 339-metre gross gas column. Woodside’s interest is 35%. The discovery has proven a potentially commercial gas resource to be present in relatively shallow water, 100 kilometres off Australia’s northern coastline. Subsequent production testing confirmed Scope for Recovery volumes of 0.92 Tcf of Dry Gas at the Probable level.
The Company is well placed to pursue domestic gas opportunities from this new hydrocarbon province. It has a 35% interest in Permit WA-280-P, a 90% interest in Permit NT/P57 and a 33.3% interest in a new permit WA-313-P which already contains the small, Penguin gas discovery (0.2 Tcf) made in 1972.
East Timor Fiscal Terms
In early July 2001, representatives from the United Nations, East Timor and the Australian Commonwealth Government signed a Memorandum of Understanding with an attached “Timor Sea Arrangement”. Upon ratification by an independent East Timor (expected in early 2002), this will form the basis of a Treaty to replace the previous Timor Gap Treaty between Australia and Indonesia. It is designed to enable petroleum exploration and exploitation in the Joint Petroleum Development Area (JPDA) which covers the same area as the current Zone of Cooperation Area A. East Timor will receive the rights to 90% of JPDA petroleum and Australia 10%.
The arrangement is a significant first step towards resolving regulatory uncertainty. It is designed to preserve the terms of the existing Production Sharing Contracts which contain 20% of the Greater Sunrise field. However, a number of major issues regarding specific taxation arrangements and the formal unitisation of Greater Sunrise remain to be resolved.
South Eastern Australia
During 2001, significant progress was made towards the Company’s strategic objective of becoming a major gas supplier to eastern Australia with the Thylacine and Geographe gas discoveries in the Otway Basin which are located 70 kilometres and 55 kilometres, respectively, offshore from Port Campbell on the coast of Victoria.
The initial discoveries were followed up with an appraisal and an exploration well. The Thylacine-2 appraisal well located 5.7 kilometres west of Thylacine-1 in Permit T/30P encountered a 182-metre gas column and subsequent production testing achieved a gas flow of 28 million standard cubic feet of gas per day. The Geographe North-1 exploration well was drilled in Permit VIC/P43 and encountered only minor gas shows.
Initial estimates of combined Probable Scope for Recovery for Thylacine and Geographe are 0.80 Tcf of Dry gas and 8.0 million barrels of condensate. Woodside’s interests in the two fields are 50% and 55%, respectively.
The exploration/appraisal results confirmed that Thylacine is the largest gas discovery to date in the Otway Basin and both fields are well placed to provide Victoria and South Australia with a secure, long-term and competitive source of gas supply to meet future
A Woodside development team has been established to carry out technical and commercial feasibility studies on behalf of the Joint Venture participants. Initial work is focused on understanding the reservoirs and considering the range of potential development concepts to enable the selection of the preferred development concept by the end of 2002. At this stage, start-up of gas production is being targeted for mid-2006. Work has commenced on planning for the environmental studies and initial discussions have been held with government regarding the approvals required for development to proceed.
Market development activities have also commenced with potential customers. The signing of conditional gas sales agreements with foundation customers is being targeted for the end of 2002.
During 2001, the Kipper Joint Venture (Exxon-Mobil, BHP Billiton, Santos and Woodside) continued to progress plans for a potential stand-alone development, with an expected start-up of gas production in early 2006.
In parallel, Woodside continued to work with the Kipper Joint Venture to mature options to develop the Manta and Gummy oil fields in conjunction with Kipper and Exxon-Mobil, examined the potential for the development of Kipper through existing regional infrastructure.
In 2002, the Company will continue to press for the optimum development opportunity for the Kipper, Manta and Gummy gas resources.
Oil Search Investment
At the end of 2001, Woodside held 74,914,500 Oil Search Limited shares or approximately 11.3% of issued ordinary shares in Oil Search.
The Company's equity position enables it to maintain a key eastern states growth option and benefit from Oil SearchÕs exploration success in Papua New Guinea and its considerable gas reserves being marketed in eastern Australia.
Pulse Energy and EdgeCap Investments
At the end of 2001, the Company continued to hold a 10% equity interest in two unlisted entities, Pulse Energy Limited, a Victorian energy retail business and EdgeCap Limited, a wholesale energy trading business. The two companies are owned jointly with Shell, United Energy and the Energy Partnership Group and have provided Woodside with a significant insight into the downstream energy markets in eastern Australia.
Tidco LNG Regasification and Power Project
During the year, the Company undertook a review of its involvement in the Dakshin Bharat Energy Consortium and in late 2001, it withdrew from the consortium.
Prior to this decision, Woodside held a 15% interest in the consortium which was awarded preferred bidder status in 1998
to finance, build, own and operate a US$1.6 billion LNG importation terminal and power station at Ennore, in the state of Tamil Nadu, in south-east India.
Laminaria and Corallina Oil fields
Despite the onset of natural decline during the year as a result of the depletion of the Laminaria reservoirs, the Northern Endeavour’s floating, production, storage and offloading (FPSO) facility’s performance in 2001 exceeded expectations in achieving an average production rate of 117,497 barrels per day.
Total production in 2001 was 42,886,473 barrels compared with 54,247,580 barrels in 2000. (AC/L5 share 40,551,257 barrels in 2001 compared with 50,868,872 barrels in 2000). Woodside’s share of production in 2001 was 20,613,879 barrels compared with 25,591,993 barrels in 2000.
As part of the yearly review of the Company’s reserves position, technical work and due diligence was conducted on both the Laminaria and Corallina oil fields. As a result, Probable oil recovery in Production licence AC/L5 increased by 32 million barrels (of which 22 million barrels is attributed to the Corallina oil field). This represents an approximate 15% increase to total Economic Ultimate Recovery volumes carried at 31 December 2000.
The performance of the operations team on this facility has been exceptional in achieving “oil uptime” availability of 97% which benchmarks very favourably against world best-practice for FPSOs. These efforts are also reflected in a number of significant milestones achieved during 2001, which include the production of the 100-millionth barrel and the loading of the 150th cargo in early December. The production of 100 million barrels of oil represents around 50% of the recoverable reserves (as at start-up of operations) being produced in the first two years of an expected 12-year field-life.
Significantly, these achievements are underpinned by an outstanding safety performance, as the Northern Endeavour’s operations team have not sustained a single medical treatment case in the past year and only one case in the past two years.
During 2001, exploration wells with potential for tie-back to the Northern Endeavour FPSO were drilled on the Pandorina structure in Permit AC/P8 and the Kuda Tasi prospect in the adjacent ZOCA 91-01 Production Sharing Contract. The Pandorina-1 well was dry and the Kuda-Tasi-1 well encountered a 17.5-metre gross oil column. Plans were also matured for the drilling of an exploration well on the Laminaria-North prospect in AC/L5, which if successful, could be tied-back to the Northern Endeavour.
Laminaria crude is now well established in the oil market and is sought by key refiners and petrochemical producers. In 2001, Woodside sold approximately 75% of its entitlement under a variety of term contracts. Woodside’s entire entitlement was exported to Asia and the Americas.
Laminaria Oil field Phase II Development
The A$130 million Laminaria phase II development was approved in early May 2001 (Woodside’s share is approximately A$58 million).
The development consists of two horizontal in-fill wells in the Laminaria field tied-back to the Northern Endeavour FPSO. Drilling commenced in early 2002 and initial production of an additional 65,000 barrels per day from both incremental reserves and accelerated oil volumes, is expected to commence in mid-2002. In the most likely case, the two wells are expected to contribute an additional 21 million barrels of oil production in the period mid-2002 to the end of 2003.
Legendre Oil fields Development
Good progress was made during the first half of 2001 in the development of the Legendre South and Legendre North oil fields, 34 kilometres south-east of the Wanaea and Cossack oil fields in Production Licence WA-20-L (Woodside’s interest 45.94%).
Hook-up, testing and commissioning activities commenced in mid-January with the arrival of the Ocean Legend on site. The drilling of the production wells commenced shortly thereafter and first oil was achieved in mid-May after the completion of the first production well. In mid-June, the first cargo of Legendre crude oil was loaded onto an offtake tanker having been sold to Shell International Eastern Trading Company. The cargo containing approximately 630,000 barrels of oil was delivered to oil refineries on the east-coast of Australia.
By early July four production wells and a single gas re-injection well had been completed and commissioning of the gas re-injection facilities commenced.
Unfortunately mechanical problems were experienced with the gas re-injection compressor which were not resolved until late 2001. As a consequence, gas disposal constraints limited total production in 2001 to 6,477,679 barrels (Woodside’s share 2,975,846 barrels).
Two exploration wells were drilled during 2001 in search of potential tie-back opportunities to the Ocean Legend production facility.
The Delilah prospect in Permit WA-208-P, 4.5 kilometres to the west of the Ocean Legend was drilled in early 2001 followed by the drilling of the Patriot structure Permit WA-1-P, 20 kilometres to the north- east in mid-2001. Neither exploration well encountered hydrocarbons.
Legendre Crude Oil is a 43-degree API, light, sweet, crude oil similar in quality to Malaysian Tapis Crude Oil. Sales of Legendre crude oil commenced soon after production started in July and the attractive qualities of this crude have enabled the Company to establish new markets in Thailand, New Zealand and Indonesia. Woodside sold its entire entitlement on a spot basis. Approximately 20% of sales were to Australian refineries with the balance exported to Korea, China and the new markets described above.
Vincent, Enfield and Laverda Oil field Developments
The Company continued to progress exploration activities and development studies for the Vincent, Enfield and Laverda oil discoveries in Permit WA-271-P (WoodsideÕs interest 100%) during 2001.
To optimise the Company's position
in the lead up to retention and relinquishment decisions in the second half of 2003, key exploration efforts have centred on the evaluation of prospects within tie-back range of existing oil discoveries and determining the extent of gas prospectivity in the western half of the permit. During 2001, processing of the 1,032-square-kilometre Indian 3-D seismic survey was completed and the Montesa exploration well was drilled. Although this well was dry, the results enabled the recalibration of existing seismic data which will further assist evaluation studies elsewhere in the permit. In addition, the 3,600 kilometre Skorpion 2-D seismic commenced in mid-December and was completed several weeks ahead of schedule in early January 2002.
Woodside's development plans for this permit received a considerable boost in early February 2002, following the drilling and production testing of the Enfield-4 appraisal well. The well was drilled in a fault block adjacent to the main field and encountered an 18.1-metre gross oil column which subsequently production tested at 5,626 barrels of oil per day and 1.38 million standard cubic feet of
gas per day.
This result will allow the technical work associated with the two principal development options for the oil discoveries in WA-271-P to move ahead with greater confidence. The two development
options consist of an Enfield stand-alone development starting in late 2005 or a later combined Vincent-Enfield development, starting production in 2006. A combined development is expected to provide access to significantly greater oil reserves. However, the development will be more technically challenging and the schedule dependent on resolving unitisation and other joint development issues such as common-user infrastructure with the Joint Venture participants (BHP Billiton - Exxon - Inpex) in the adjacent Permit WA-155-P.
Woodside expects to be in a position to make a decision by late 2002 on whether it will pursue early oil production from an Enfield stand-alone development or a combined Enfield-Vincent development.
Audacious Oil Accumulation - AC/P17The Audacious-1 exploration well (operated by OMV) was drilled in Permit AC/P17 in early 2001 and encountered an 11.5-metre gross oil column. The Audacious-2 appraisal well located 2.3 kilometres to the south-west of Audacious-1 was drilled in late 2001 and encountered a 14-metre oil column. As a result, the Scope for Recovery volumes for the Audacious field are estimated to be 20 million barrels at the Probable level. Woodside's interest in this permit is 30%.
During 2002, the Company will participate in the drilling of at least one exploration well in a prospect adjacent to the Audacious discovery.
The primary objective of Woodside’s exploration strategy is to deliver high quality and material development opportunities through exploration success.
The second objective is to continuously replenish the portfolio of opportunities to enable the Company to continue to meet its medium to longer-term growth ambitions. The exploration target of achieving a minimum of 130% reserves replacement remains appropriate.
In addition, Woodside recognises the need to create a portfolio of opportunities which reflects an acceptable balance of technical risk, country risk, timing of project start-up and financial robustness against low oil prices.
The Company’s growth strategy continues to include a significant exploration program within core Australian acreage. Woodside’s Australian exploration portfolio comprises 39 permits, of which 34 are Woodside operated. The strategy is focused on four key activities including:
Pursuit of tie-back opportunities around the Northern Endeavour, Ocean Legend and Cossack Pioneer producing oil assets and tie-back gas opportunities around the North West Shelf gas infrastructure;
Pursuit of opportunities to add value to or accelerate development of
non-producing oil assets such as Vincent - Enfield - Laverda and Audacious, and non-producing gas assets such as Sunrise - Troubadour, Scott Reef - Brecknock, Blacktip and Thylacine - Geographe;
Pursuing quality stand-alone oil prospects in basins with proven oil charge and frontier basins with high oil potential such as the Great Australian Bight; and
Pursuing large gas prospects with potential for early commercialisation.
Despite Woodside’s continuing successful exploration track record in Australia, a portion of the readily monetisable reserves required to replace production and significantly expand the Company’s development opportunity base needs to be sourced internationally. This is based on an assessment that Australia has insufficient remaining prospectivity to provide all of the projects required to maintain the Company’s production growth targets in the appropriate timeframe.
Woodside’s search for international opportunities is focused on a small number of proven hydrocarbon provinces, which are assessed to have greater potential for oil or monetisable gas and a higher probability of success, than similar opportunities in Australia. The Company’s objective is to build a significant position in these areas in order to maintain the number, diversity and quality of prospects in the portfolio. Key elements of Woodside’s strategy and activities in its four focus areas include:
North West Africa - build on the recent success in Mauritania through continued exploration activities, exploratory appraisal drilling and development studies;
North Africa - obtain access to additional gas and/or oil production business in onshore North Africa by pursuing brownfield and greenfield opportunities, with particular focus on Libya and Algeria;
Iran/Middle East - secure access to attractive gas and/or oil production opportunities; and
Gulf of Mexico - continue to develop an understanding of the sub-surface and business aspects of the Gulf of Mexico, with the aim of accessing high quality greenfield and brownfield opportunities.
In addition, the Company also aims to identify two alternative/additional focus countries in the event that some of the existing entry positions cannot deliver the business outcomes being sought.
During 2001, 20,190 kilometres of 2-D and 810 square kilometres of 3-D seismic data were acquired in support of future Australian drilling programs. A total of 17 exploration wells were drilled in Australian acreage resulting in five significant new discoveries in 2001. These include two oil discoveries and one gas discovery in northern Australia and two gas discoveries in the Otway Basin in south-eastern Australia. The well results and Woodside’s interests are as follows:
The Audacious-1 well in Permit AC/P17 encountered an 11.5-metre gross oil column and the Kuda Tasi-1 well in ZOCA 91-01 encountered a 17.5-metre gross oil column. Woodside’s interests are 30% and 40%, respectively.
The Thylacine-1 well in Permit T/30P encountered a 281-metre gross gas column and the Geographe-1 well in Permit VIC/P43 encountered a 240-metre gross gas column. An appraisal well Thylacine-2 was subsequently drilled and encountered a 182-metre gross gas column which was production tested at a combined rate of 28 million standard cubic feet (MMscf) of gas per day over two intervals. Woodside’s interests are 50% and 55%, respectively.
The Blacktip-1 well in Permit WA-279-P encountered a 339-metre gross gas column and was subsequently production tested at a combined rate of 89.4 MMscf of gas per day over three intervals. Woodside’s interest is 35%.
During the year the Company relinquished its 22.5% interest in Permit WA-263-P, its 50% interest in NT/P53 and its 60% interest in AC/P16. It also divested 16.39% of its interest in the Greater Sunrise fields to Phillips as part of a cooperative effort to pursue development of both companies Timor Sea gas resources. At the end of the year, Woodside’s interests in the Greater Sunrise fields were 26.7% in NT/P55 and ZOCA 95-20, 27.7% in ZOCA 95-19 and 35% in NT/RL2. A 30% interest in Permits WA-279-P and WA-280-P was farmed-out to Agip Australia to assist Woodside in managing its exploration risk and spend profiles. The Company retained a 35% interest in both WA-279-P and WA-280-P.
New interests were acquired in Permits EPP27 (90%) and WA-313-P (33.3%) and additional interests were acquired in Permit WA-270-P (20%) and in Permit VIC/P43 (5%), increasing equity in these two permits to 100% and 55%, respectively.
During 2001, a total of five exploration wells was drilled in the Company’s international acreage. Woodside made its first significant international oil discovery in offshore Mauritania in May 2001, where the Chinguetti-1 well intersected a 90-metre gross oil column in Production Sharing Contract-B (PSC-B), offshore Mauritania. A second exploration well Courbine-1 located 15 kilometres north-west of Chinguetti in PSC-B encountered a non-commercial 9-metre gas column. Woodside’s interest in PSC-B is 35%. A 35% interest was acquired in Block-7 in offshore Mauritania. An additional 22.5% interest was also acquired in PSC-C in offshore Mauritania increasing the Company’s total interest in this PSC to 60%.
During 2001, the Company reduced its equity from 25% to 2.75% in Block- MC554 in the Gulf of Mexico but gained 2.75% equity in adjacent Blocks-MC555, MC598 and MC599 by forming a Unit Agreement. Woodside also participated in the Timberwolf exploration well (Woodside interest 2.75%) in the Gulf of Mexico Block-MC555 which encountered hydrocarbons. The Company relinquished its 12.5% interests in the Gulf of Mexico Blocks-GC195, GC239 and GC240 and its 6% interests in WR209 and WR210. New interests were acquired in the Gulf of Mexico Blocks-MC447 (25%) and AT95 (40%).
Algeria-Ohanet Gas and Liquids Project
Woodside has a 15% interest in the Ohanet gas and liquids project in Algeria. The project is run under a Risk Service Contract with Sonatrach and is currently under construction. Under the terms of the contract the project participants receive a fixed rate of return based on the sale of LPG and condensate. Woodside’s participation remains subject to Algerian Government approval formalities.
The project represents a total investment of US$1,030 million (Woodside’s share approximately US$154 million) and first production is expected in the fourth quarter of 2003. At the end of 2001, the project was 45% complete and remained on schedule and budget.
As part of the Ohanet entry deal, Woodside participated in the drilling of two exploration wells in the (BHP Billiton operated) Boukhechba PSC with OIR-1 discovering a substantial column of gas in a tight reservoir. The second well was dry.
2002 Exploration Outlook
In support of its exploration strategy, Woodside will maintain a substantial exploration spend of about A$200 million in 2002 with plans in place to drill at least 11 exploration wells. Nine of these wells will be drilled in Australia. They include a potential tie-back to Laminaria, a follow-up prospect adjacent to Audacious, a North West Shelf gas exploration well, a Bonaparte gas exploration well (follow-up to Blacktip), three quality stand-alone oil prospects and a very large frontier gas prospect in the Beagle Basin. Preparations will also be made to drill a frontier oil prospect in the Great Australian Bight in the first quarter of 2003. Internationally, an exploratory appraisal well is planned on the upthrown fault block of the Chinguetti discovery in Mauritania together with one or two additional exploration wells. In the Gulf of Mexico, the Redwood-1 exploration well is currently being drilled in Block- GC1002.
An extensive seismic survey program was conducted in Woodside’s Australian acreage during late 2001 and as a result, there will be very little seismic survey activity in Australian acreage during 2002. Firm plans are in place to acquire an additional 2,450 square kilometres of 3-D seismic data in offshore Mauritania to complete an assessment of the major play fairways. As well, the Company will continue to purchase ‘speculative’ 3-D seismic data in the Gulf of Mexico to enable better prospect evaluation.
In contrast to preceding years, there are relatively few commitment activities in 2002, giving the Company greater freedom to choose to execute only the highest ranking activities in the portfolio. The major focus during the year will be to rebuild the portfolio of prospects and leads by maturing prospects within existing acreage and securing quality new acreage both within Australia and in our focus countries overseas.
Exploration and production interests available to download in PDF format.
Maps of Woodside's exploration and production interests available for download in pdf format.
This statement presents a summary of the changes to Woodside’s hydrocarbon resource portfolio during 2001 and the resulting Reserves position as at 31 December 2001. Unless otherwise indicated, all Reserves and Scope for Recovery volumes quoted herein are 100% permit or licence totals.
As a result of activities and studies undertaken during 2001, Probable hydrocarbon recovery attributable to Woodside has increased by an amount that exceeds production for the sixth successive year. Woodside’s reserves replacement ratio in 2001 was 132% at the Probable level.
A summary of Woodside’s year-end reserves position is provided in the above table.
Full replacement of 2001 production plus reserves growth was realised from a range of revisions, including study results and new acquisitions. Key changes contributing to an increase in reserves include:
Gas sale and production agreements with the WA-17-L Joint Venturers, giving the North West Shelf Venture (NWSV) access to the gas in the WA-17-L extension of the Perseus field (Athena);
Development and performance studies in preparation for the Laminaria Phase II drilling program during 2002;
Development optimisation studies in the Vincent and Enfield oil fields for which more efficient recovery mechanisms were identified; and
Acquisition of a 15% interest in the gas-liquids by-products of the Ohanet gas development in Algeria.
Woodside’s share of developed Reserves additions has also exceeded 2001 production, increasing by a net 61 MMboe to 381 MMboe at the Probable level. This increase was due to the drilling of the PEN02 and PEN03 wells in the Perseus field (gas and condensate), tie-back of the Echo-Yodel field (gas and condensate) to the Goodwyn-A platform in the NWSV, and development of the Legendre North and South fields (oil) in Production Licence WA-20-L.
North West Shelf Ventures Gas Recovery
Revisions to gas recovery in 2001 were based on commercial outcomes and well results. The largest revision was due to the signing of commercial agreements with the WA-17-L Joint Venturers in relation to the extension of the Perseus field, generally referred to as Athena, into this licence. These agreements dedicate the Athena gas to the NWSV.
Because of the nature of the agreements, the NWSV now has full production control of the Athena volumes and is exposed to the same downside risk and upside benefit inherent in the ownership of hydrocarbon resources. Based on internationally recognised guidelines dealing with unconventional contracts, these gas volumes are bookable as reserves. Commercial confidentiality prevents disclosure of the volumes involved, however, Woodside share totals discussed below incorporate Athena.
As a result of the GWA18 well drilled into the GD reservoirs in the Goodwyn Field, volumes associated with these reservoirs have decreased slightly. Revised full-field Dry Gas Reserves are now estimated to be 3.64 trillion cubic feet (Tcf) at the Proved level and 4.67 Tcf at the Probable level.
Probabilistic addition of reserves within the NWSV acreage, which takes into account dependencies between fields, indicates that an incremental 2.08 Tcf of Dry Gas is available with a higher degree of certainty. This gives a total of 18.54 Tcf of Dry Gas Reserves at the Proved level and 21.58 Tcf at the Probable level (excluding Athena volumes).
Excluding the adjustment for inter-field dependencies, but including Athena volumes, Woodside’s share of total remaining Dry Gas Reserves is 3.61 Tcf at the Proved level and 4.52 Tcf at the Probable level. (Note: Athena reserves cannot be directly inferred from these totals.)
North West Shelf Ventures Condensate
The Athena booking resulted in an increase in condensate Reserves. These volumes are included in the Woodside share totals below.
As with gas Reserves, there has been a decrease in Goodwyn condensate volumes as a result of the GWA18 well. Full field condensate Reserves are now estimated at 122.9 million barrels (MMbbl) at the Proved level and 179.1 MMbbl at the Probable level.
Total condensate Reserves in NWSV acreage (excluding Athena) are now estimated at 470.3 MMbbl at the Proved level and 692.9 MMbbl at the Probable level. Woodside’s share of these Reserves is 104.5 and 143.1 MMbbl at the Proved and Probable levels, respectively <(including Athena).
North West Shelf Ventures Oil
Multi-disciplinary studies, including revisions to geological mapping and a production performance review, have resulted in increased Proved recovery in the Cossack field. This reflects continued reduction in uncertainty.
There was a minor increase in oil recovery at the Probable level. Cossack field reserves are now estimated at 10.6 MMbbl at the Proved level and 20.6 MMbbl at the Probable level.In addition, Proved recovery was increased by 3.6 MMbbl for the Hermes field, following continued good production performance. The Probable estimate has not changed. Woodside’s share of total remaining oil Reserves is 12.2 MMbbl at the Proved level and 24.7 MMbbl at the Probable level.
Laminaria and Corallina Venture (AC/L5)
Preparation for Phase II development drilling scheduled for 2002 dominated activities during 2001. As a result of the studies underpinning the drilling recommendations and the continued strong production performance, estimated oil recovery has been increased for the combined fields by 28.4 MMbbl at the Proved level and 32.2 MMbbl at the Probable level (AC/L5 share). The bulk of the increase occurred in the Corallina field, based on better than forecast performance. Following combined production of 40.5 MMbbl oil during the year, total AC/L5 oil Reserves are estimated to be 74.1 MMbbl at the Proved level and 116.1 MMbbl at the Probable level.
Woodside’s share of AC/L5 Reserves is 37.7 MMbbl at the Proved level and 59.0 MMbbl at the Probable level.
Legendre Oil Development (WA-20-L)
The Legendre North and South oil fields commenced production during 2001 through the Ocean Legend Mobile Offshore Production Unit (MOPU). The fields have reached oil production levels of 45,000 bbl/d through four wells. As a result of the development drilling, there has been a small reduction in oil recovery, particularly in Legendre South. Reserves are now estimated at 16.9 MMbbl at the Proved level and 33.7 MMbbl at the Probable level.
Woodside’s share is 7.8 MMbbl at the Proved level and 15.5 MMbbl at the Probable level.
Hydrocarbon reserves available for download in PDF format
Vincent and Enfield Oil Field Discoveries (WA-271-P)
Reserves have increased in both Vincent and Enfield following a year of multi-disciplinary field studies aimed at optimising the development concept for the fields in this permit.
Because of a lack of natural water drive in the main reservoirs in Enfield, the field is likely to be developed using water injection to enhance recovery. Successful results from the recent Enfield-4 appraisal well indicates further upside to the field’s oil Reserves.
In contrast to Enfield, the Vincent field is expected to have the benefit of a natural water drive. Development studies indicate that a gas cap blowdown concept for Vincent will be essential for the feasibility of the field development.
As a result of these revisions, the combined WA-271-P Reserves are estimated to be 115.9 MMbbl at the Proved level and 164.0 MMbbl at the Probable level. This is an increase of 41.5 MMbbl at the Probable level. These volumes are 100% Woodside share (WA-271-P area only).
In early 2001, Woodside purchased a 15% interest in the Ohanet gas development in Algeria. This project, operated by BHP Billiton, is governed by a Risk Services Contract (RSC) with Algeria’s national oil company (Sonatrach). In this RSC, the participants agreed to develop several gas fields and install a gas processing plant in return for the opportunity for cost recovery plus a fixed return taken from the sale of gas-liquid by-products (LPG and condensate). Woodside does not have any share in the sales gas delivered from the development.
This type of contract is frequently used internationally by national oil companies to develop their indigenous resources. While Woodside does not have a direct mineral interest in the gas-liquids, it is recognised international practice to book reserves in such circumstances based on economic interest, ie, value rather than technical estimate of volumes. Woodside has estimated Reserves volumes that reflect the value of this asset, using product prices at the end of 2001. The product prices are quoted along with the resulting volumes. Higher prices should not be applied to these volumes to estimate their value, as the RSC specifies a maximum return.
LPG Reserves have been categorised as Dry Gas Reserves for consistency with NWSV definitions. Again, this does not imply any Woodside interest in the sales gas. The resulting Dry Gas Reserves are estimated to be 0.10 Tcf at the Proved level and 0.13 Tcf at the Probable level. Woodside’s share is 0.02 Tcf at both the Proved and Probable levels. These estimates are based on a 31 December 2001 LPG price of US$157.00/tonne.
Condensate Reserves are estimated to be 60.8 MMbbl at the Proved level and 76.7 MMbbl at the Probable level. Woodside’s share is estimated to be 9.1 MMbbl at the Proved level and 11.5 MMbbl at the Probable level. The corresponding condensate price on 31 December 2001 was US$20.16/bbl.
Pdf of hydrocarbon reserves between December 2000 and December 2001.
Scope for Recovery
A significant increase in the Scope for Recovery (SFR) volumes was also achieved, aided by a number of exploration discoveries in Australia and overseas. Scope for Recovery estimates for Dry Gas and Liquids (condensate and oil) increased by 0.93 Tcf and 112.7 MMbbl, respectively, at the Probable level. Woodside’s share of the Dry Gas decreased by 1.03 Tcf, while Liquids decreased by 1.8 MMbbl, due to the sale of equity in Sunrise/Troubadour, resulting in a total Probable SFR of 2,998 million barrels of oil equivalent at year-end.
Scott Reef, Brecknock and Brecknock South Gas Discoveries
(WA-33-P, WA-275-P, EP-36, TP/4)
Resource estimates in these Browse Basin permits remained unchanged from 2000. Total Probable Scope for Recovery is 20.49 Tcf Dry Gas and 311.0 MMbbl. Woodside share is 9.65 Tcf and 142.0 MMbbl.
These fields continue to be considered commercially viable in the future, but await firm development plans dependent on significant growth in domestic gas and LNG markets.
Sunrise and Troubadour Gas Discoveries (NT/RL2 and P55, ZOCA 95-19 and 96-20)
As a result of ongoing multi-disciplinary studies, incorporating an improved understanding of expected reservoir performance, total Probable Scope For Recovery has been reduced slightly to 8.35 Tcf Dry Gas and 298.0 MMbbl condensate.
These volumes await firmer market commitments prior to booking as reserves. During 2001, the market focus changed from combined onshore industrial/domestic and international LNG customers to the LNG market supplied by an offshore LNG facility. The impact of these changes are yet to be reflected in resource volumes, although a minimal impact would be expected.
Woodside’s share of this resource has also been reduced due to a net reduction in equity as part of a cooperative agreement with Phillips Petroleum. Woodside share Probable Scope for Recovery is now
2.79 Tcf Dry Gas and 99.7 MMbbl.
Vincent, Enfield, and Laverda Oil Field Discoveries (WA-271-P)
Some of the increase to the Vincent oil Reserves discussed previously were added from Scope for Recovery. Remaining Probable oil Scope for Recovery of 46.8 MMbbl (WA-271-P area only) is largely dependent on development concept.
Following the identification of a fault block with a high likelihood of containing oil beside the already discovered Enfield accumulation, Enfield Probable Scope for Recovery has increased by 25.0 MMbbl to 43.1 MMbbl. The successful Enfield-4 well has subsequently confirmed that this fault block contains oil. As with Vincent, Enfield Scope for Recovery volumes include substantial oil dependent on the development concept.
Volumes for Laverda field did not change during 2002 and the combined Probable Scope for Recovery for this 100% Woodside permit is 146.2 MMbbl.
Woodside-Operated Bass Strait Oil and Gas Fields (VIC/RL6,VIC/RL9, VIC/RL10)
Only minor revisions (increase) have been made to the gas and condensate volumes reported in 2000 for the Basker/Manta/ Gummy fields. The combined total Scope for Recovery is 0.20 Tcf of Dry Gas, 6.6 MMbbl of Condensate, and 27.0 MMbbl of oil at the Probable level. Woodside's share is 0.18 Tcf, 6.3 MMbbl, and 27.0 MMbbl, respectively.
Blacktip Discovery (WA-279-P)
Exploration well Blacktip-1 discovered gas in the Bonaparte Basin, offshore northern Australia. Development studies have been initiated which focus on supplying natural gas to customers in Darwin and other Northern Territory regional areas. Initial study results have provided Probable Scope for Recovery estimates of 0.92 Tcf Dry Gas and 1.1 MMbbl condensate. Woodside has a 35% equity in this permit, resulting in Woodside's share of Probable Scope for Recovery of 0.32 Tcf Dry Gas and 0.4 MMbbl of condensate.
Thylacine (T/30P) and Geographe (VIC/P43) Discoveries
Exploration wells Thylacine-1 (Woodside 50%) and Geographe-1 (Woodside 55%) discovered a substantial gas resource in the Otway Basin, offshore Victoria.
Appraisal well, Thylacine-2 was later drilled to better define the resource. Initial estimates of combined Probable Scope for Recovery for both fields are 0.80 Tcf Dry Gas and 8.0 MMbbl condensate. WoodsideÕs share of Probable Scope for Recovery is 0.41 Tcf Dry Gas and 4.1 MMbbl of condensate. Development studies looking at various options for supplying the nearby eastern Australian market by producing the gas to an onshore (Victoria) processing facility, have commenced.
Chinguetti Discovery (Mauritania)
The Chinguetti-1 well (Woodside 35%) discovered an oil accumulation in offshore Mauritania. Initial volume estimates based on the discovery well indicate a Probable oil Scope for Recovery of 65.0 MMbbl. Woodside's share is 22.8 MMbbl.
Multi-disciplinary studies are currently concentrating on development concepts and appraisal strategy, and appraisal drilling and step-out exploration is scheduled for later in 2002.
Kuda Tasi and Jahal Discoveries (ZOCA 91-01)
Kuda Tasi-1 exploration well (Woodside 40%) discovered a small oil accumulation in the Timor Sea. This discovery has added to the previous Jahal discovery in this permit. The size of the fields suggest that a combined development, possibly requiring another larger discovery, may be required to commercialise these resources. Initial studies indicate a combined Probable Scope for Recovery of 24.5 MMbbl. Woodside's share is 9.8 MMbbl.
Audacious Discovery (AC/P17)
The OMV-operated Audacious-1 well (Woodside 30%) discovered a small oil accumulation in the Timor Sea. A follow-up well, Audacious-2, further delineated the discovery. OMV is considering development of the field using an FPSO. Woodside's estimate of Probable Scope for Recovery is 20.0 MMbbl. Woodside's share is 6.0 MMbbl.
Managing Health, Safety and the Environment
Woodside views all injuries and work place related health issues as preventable and is striving to continuously improve the health and safety of its employees and contractors.
Regrettably, in the last 12 months, people have continued to require the services of a medical practitioner as a result of work place injuries. In some cases the impact on the person’s health, lifestyle and family was considerable and is continuing.
Through improvements to its processes and procedures, the Company has been able to reverse the previous trend of increasing safety incidents and injuries, as evidenced by improvements to the key safety statistics. More significantly, these initiatives have been supported by people throughout all areas of the Company committing to reinforce best practice safety management, by taking personal responsibility for health and safety matters and providing leadership by continuing to place safety considerations at the forefront of all decisions.
Protecting and Promoting the Health of Our People
Woodside values its people and is committed to protecting and promoting the health of its workforce. Considerable attention continued to be paid to health management during 2001. The corporate health promotion theme was Skin Cancer awareness. The majority of the workforce participated in skin cancer screenings throughout the year. This was supported by promotions targeting healthy relationships, preventing sunburn, healthy eating, exercise and awareness of the immune system. In addition, the Company continued to sponsor the Heart Foundation’s “Climb to the Top” stair climbing campaign which continues to be popular amongst Woodside’s employees. More than 100 teams from Woodside were involved in the event and again this was the highest number of teams from any participating company in Western Australia.
Emergency Response Management
Over 50 emergency response exercises were conducted during 2001 resulting in a high level of learning and, where necessary, changes to practices were identified and implemented. A number of training programs for emergency teams were also conducted during the year which included the participation of overseas training providers to enhance the quality of the programs. A comprehensive project to define all the competency standards required for each role within the Woodside emergency response management system was completed and a set of corporate standards for emergency management for all levels within the Company is now available. This is a major milestone and will be complemented by the establishment of an Emergency Management Competency Assurance System in 2002 to provide assurance of the competence of people in emergency management roles in Woodside and to support future training programs.
Managing the Environment
The Company remains committed to achieving excellent results in environmental protection and continuing to improve its environmental performance.
Environmental Performance: Indicators
Although more environmental incidents were reported in 2001, these do not necessarily reflect an increased number of incidents. Woodside believes this was attributable to increased participation by employees and contractors in the reporting of environmental incidents and increased Company activity levels. The majority of environmental incidents reported were minor oil spills (e.g. contained) and did not result in any external discharge.
In addition, one-third of all environmental incident reports submitted in 2001 were hazard reports. Hazards are an early identification of the potential for an environmental problem to occur.
Environmental Performance: Flaring
Small amounts of gas are flared from Woodside-operated facilities during normal operations for safety and operational reasons. This includes continuous low-rate flaring associated with pilot and purge systems and occasional periods of elevated flaring during process upsets. Gas may also be flared from new facilities when gas export or re-injection equipment is being commissioned.
Elevated flaring levels were experienced during the commissioning of the Ocean Legend production facility in mid-2001. Flaring levels have since been minimised following the commissioning of the gas re-injection equipment.
Woodside measures and reviews the quantities of gas flared as a proportion of total production and continues to seek opportunities for cost-effective initiatives to reduce the volume of flared gas.
Environmental Performance: Produced Formation Water
Produced and condensed water associated with oil and gas reservoirs must be separated from products and treated to comply with regulatory limits prior to being discharged to sea. The monthly average concentration of oil in produced formation water from the Cossack Pioneer floating, production, storage and offloading facility (FPSO) and the Northern Endeavour FPSO were all below the regulatory limit of 30 milligrams per litre during 2001.
Despite a number of short-term exceedences during the year, the North Rankin-A offshore production platform’s oil-in-water performance has improved considerably since the installation of a centrifuge system to further separate produced formation water prior to being discharged. Similarly, the Goodwyn-A platform experienced occasional short-term exceedences during the year, however monthly averages remained below the regulatory limit. The Western Australian Department of Mineral and Petroleum Resources has been kept fully informed on regulatory exceedences and the Company’s remedial works.
The concentration of oil-in-water from the onshore gas plant’s effluent stream has continued to be well below the plant’s limit of 10 milligrams per litre.
Woodside’s focus on improving waste management practices has continued through 2001 with the roll-out of a waste disposal database, updated waste disposal procedures and ongoing training and awareness programs. The identification of opportunities for improved waste segregation and recycling has also continued with the assistance of specialist waste processing companies and the utilisation of their facilities.
Environmental Management, Monitoring and Research
Woodside has comprehensive environmental monitoring programs in place to assess potential impacts on proposed site locations as well as ongoing programs to monitor the effect of operations on the surrounding environment.
North West Shelf - Western Australia
The ChEMMS program monitors the health of key environmental components - mangroves, corals, sediments, oysters and other rocky shore species in Mermaid Sound adjacent to the onshore gas plant on the Burrup Peninsula. No major variations from general long-term trends were detected in the 2001 program and the marine environment in Mermaid Sound remains healthy.
During the year, a study was conducted adjacent to the Ocean Legend production facility to determine the health condition of resident fish prior to the commencement of produced formation water disposal. A follow-up study to determine if there is any impact on the health of fish is planned. Woodside is also continuing to support the Department of Environmental Protection’s Pilbara Airshed Study by providing both funding and data from a meteorological monitoring station on the Burrup Peninsula.
Timor Sea - Northern Territory
Seabed monitoring was conducted in the vicinity of the Northern Endeavour FPSO to determine heavy metal and petroleum hydrocarbon contamination from the discharge of produced formation water. Initial results indicate no significant concentrations of contaminants.
North West Cape - Western Australia
Woodside is continuing with exploration, appraisal and development activities in Permit WA-271-P, located offshore from Exmouth in Western Australia. The Company is preparing an Environmental Impact Statement under the Environment Protection Biodiversity Conservation Act 1999.
In support of this requirement extensive field and laboratory environmental assessment studies were conducted during 2001, including:
A comprehensive seabed survey conducted by the Australian Institute of Marine Science to gather samples of seabed biota from various depths (50-850 metres) to assess biodiversity and abundance;
Aerial surveys for whales, whale sharks and other mega-fauna were conducted jointly by the Centre for Whale Research and the University of Western Australia;
A zooplankton survey was conducted by CSIRO Hobart;
Whale shark satellite tagging studies were carried out by the CSIRO Hobart;
An oil spill modelling verification study was carried out by Global Environmental Modelling Systems which included releasing two satellite tracking buoys from the proposed development location, and tracking their movements to confirm the accuracy of the oil spill model; and
Weathering, dispersion and ecotoxicity studies were conducted on the Vincent and Enfield crude oils.
Otway Basin - Victoria
Early in the year environmental approvals under the Environment Protection and Biodiversity Conservation Act were granted for the drilling of the Thylacine-1 and Geographe-1 gas exploration wells in the offshore Otway Basin. The timing of these wells overlapped the end of the seasonal blue whale feeding aggregation and the main condition of approval was a requirement to undertake a blue whale research project that included aerial surveys and noise monitoring in the vicinity of the well locations.
A total of 17 aerial surveys were flown over Permits VIC/P43 and T/30P permit from mid-April to early June 2001. Two acoustic logger arrays were deployed on the seabed in the vicinity of the Thylacine-1 well site and left in place during the drilling of both Thylacine-1 and Geographe-1 to provide data on underwater noise from both natural and exploration activities. The results of this research program will be released to government and other interested parties early in 2002.
Great Australian Bight - South Australia
In early May 2001, Woodside completed the acquisition of 2-D seismic data in Permits EPP28, 29, and 30 in the Great Australian Bight. A dedicated marine fauna monitoring program was conducted during the seismic survey to record sightings of marine mammals and seabirds in the vicinity of the vessel as a condition of the environmental approval for the survey.
Mauritania - West Africa
During 2001, Woodside continued to work closely with the Mauritanian Ministry of Fisheries and Maritime Economy to develop marine pollution legislation to protect marine waters under national jurisdiction from discharges and spills from shipping, fishing vessels and the oil and gas industry. This collaboration involved a visit to Mauritania in April, by environmental, legal and operational personnel from Woodside to assist in the finalisation of a Marine Environment Code.
During the year, Woodside representatives met with staff from the Banc d’Arguin National Park management authority and agreed to provide a small, self-contained meteorological station for deployment in the Banc d’Arguin National Park in early 2002.
As part of the ongoing stakeholder involvement process for Mauritania, Woodside has continued to develop relationships with the key international conservation groups that provide funding and support to the Banc d’Arguin National Park. Discussions with the Fondation Internationale du Banc d’Arguin, World Wide Fund for Nature and the World Conservation Union have covered a variety of issues, including:
Oil spill risks in the southern part of the Park from proposed drilling activities in Block-6;
Concerns regarding the long-term unsustainable nature of fisheries in Mauritanian waters; and
The lack of adequate protection for fish stocks inside the Park.
Woodside is considering how it can work with these organisations and the Mauritanian Government to help address these issues.
Environmental Project Approvals
The Sunrise Gas project in the Timor Sea is in the concept selection phase and an Environmental Impact Statement for the upstream development of the Sunrise Gas Field was submitted for review in late 2001. The Statement is broad enough in terms of scope to accommodate both onshore LNG and floating LNG market scenarios.
By year-end, the North West Shelf Venture’s trunkline systems expansion project had commenced letting tenders prior to the start-up of on-the-ground project activities. Considerable effort was also being directed to establishing the management framework to ensure a smooth translation of project commitments to the execution stage and in gaining a Works Approval from the Department of Environmental Protection, Water and Catchment Protection for the construction of the onshore trunkline terminal.
The LNG expansion project is in the execution phase and as per the Echo-Yodel development, all necessary environmental approvals were in place by the end of 2001. The focus going forward will be on ensuring compliance with environmental management commitments.
Following the success of the Otway Basin drilling campaign in Permits VIC/P43 and T/30P, the focus is now on assessing the technical and commercial feasibility of developing the Thylacine and Geographe gas discoveries.
Discussions with Environment Australia, Mineral Resources Tasmania, Department of Infrastructure and Department of Natural Resources and Environment in Victoria have commenced in order to progress the environmental approvals process, assessment level options and timelines for the proposed development of the two fields.
Through its sponsorship and donations program and employee involvement, Woodside continues to be a leading force in a range of community-based activities, with particular emphasis on adding energy to making a difference to the future of society.
This effort was recognised externally in 2001 with Woodside receiving the ‘Golden Gecko’ award for its partnership with the Western Australian Museum in the Dampier Archipelago Marine Research Project and a ‘State Art Award’ for its partnership with Black Swan Theatre Company.
Making a Difference for Young Australians
Woodside aims to assist young people within the communities in which it operates. This involves establishing partnerships with a diverse group of organisations that provide opportunities for young people in a wide range of areas including cultural pursuits, science, technology, education, sport and environmental endeavours.
During 2001, Woodside committed over A$1.5 million to support organisations focused on making a difference for young people. Existing partnerships were strengthened and new partnerships were formed with the Asthma Swim Program, Western Australian Symphony Orchestra’s Youth Education and Outreach Program, and Mission Australia.
Some of the highlights of 2001 included:
Sponsoring the Western Australian Symphony Orchestra’s classical concerts in Western Australian prisons and detention centres;
The participation of over 100 children in Perth and Karratha in the production of a giant AWESOME tableaux and robots with artist-in-residence, Ms Paula Hart;
The participation of five young people (at-risk) in an Earthwatch Fellowship;
The creation of new community partnerships in Karratha;
The re-launch of the Asthma Swim Program in Darwin, Perth and Karratha;
The provision of financial assistance to the TVW7 Institute for Child Health Research to establish the first Suicide Research and Information Centre in Western Australia; and
Participation in the Western Australian Surf Life Saving Association’s new programs for Volunteers.
Each of Woodside’s partnerships is managed by a group of employee “champions”, who contribute their expertise, passion and leadership to ensure these partnerships are mutually beneficial for both Woodside and the community.
In the International Year of the Volunteer, Woodside also embarked on a program of corporate volunteering by project teams and individuals. Examples include the Echo-Yodel Team’s monthly film nights for the ‘Make a Wish Foundation’, the Australian Oil marketing and commercial team organising a community event for Kids Camp. Other teams have been involved in backyard blitzes for various hostels or working in Princess Margaret Hospital’s starlight room.
In the Pilbara
In Karratha, Woodside and the North West Shelf Venture participants have continued to support a range of community activities and events. One of the major community events in 2001 was the North-West Games, which attracted several thousand sports people from throughout the region. A large number of children from Karratha and surrounding towns participated in the Too Hot Youth Festival in September and Woodside has since established a long-term partnership with the festival organisers. The Company also continued to sponsor junior cricket in the west-Pilbara through the Western Australian Cricket Association, the Pilbara Tourism Association and the Aboriginal Art Award at the Cossack Art Awards.
New partnerships were also formed during the year with local groups including the Karratha Autumn Club and Pilbara Wildlife Carers’ Association. These partnerships include a combination of financial and in-kind support, including volunteer work by Woodside employees. Through the support provided by the Company and United Way, Youth Focus was able to bring together youth service providers in the Pilbara to look at new opportunities to make a difference for young people in the region. Drama workshops for young people were conducted by a Black Swan Theatre Company Director in Roebourne and Karratha under the Pilbara Stories Project during the year and a relationship was established with the Karratha Youth Theatre to continue this work.
In the Gascoyne
The North West Cape is rapidly becoming Australia’s newest hydrocarbon province and the Company continued to work closely with the communities in Exmouth, Coral Bay and Carnarvon during 2001 to ensure that community concerns and expectations were addressed. As part of this process, community reference groups have been established to discuss issues in detail and regular monthly updates are advertised and circulated to over 300 stakeholders.
Woodside is a key sponsor and participant in Exmouth’s AQUAFEST, a community festival celebrating industry and community activities in the region. In addition, the Company has been working closely with Exmouth District High School to support a visit by the Scitech Road Show, the Young Achievers Business Enterprise Program, the provision of computers to the school, school information packs and a competition to name any new hydrocarbon discoveries in the area.
In the Northern Territory
Woodside has had a growing presence in Darwin over the last six years with the development of the Laminaria and Corallina oil fields, the Sunrise Gas Project and more recently, studies to support the commercialisation of the Blacktip gas discovery.
2001 community activities included sponsorship of the Asthma Swim NT Program, support of the Youth Volunteer Awards and Tough Love.
Relationships with Indigenous Communities
All performance indicators were met in 2001 in relation to Woodside’s involvement in the Roebourne-based education program, Gumula Miruwarni (coming together to learn) and the Pilbara-region-based employment and training initiative, Warrgamugardi Yirdyabura (Pathways to Employment). Both programs are helping to provide opportunities for local indigenous people. The Warrgamugardi Yirdyabura Program will expand in 2002 to meet the anticipated growth in demand for indigenous employees from developments such as the fourth LNG train project which has already implemented a plan that aims to increase the level of indigenous employment.
During 2001, the Company established a partnership with the Office of Aboriginal Economic Development to identify indigenous business opportunities at the onshore gas plant and the fourth LNG train project. Woodside also produced an Aboriginal cultural awareness induction video during 2001 which is being utilised in site inductions. The video “Footprints Across Time” provides an overview of Aboriginal traditions and culture and the impact of European settlement on this way of life. The Company also plans to commence cultural awareness training for all its employees and major contractors during 2002.