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Woodside profit doubles

Oil and gas producer, Woodside Petroleum (ASX: WPL) has almost doubled its full year net profit to US$2.98 billion, up from US$1.51 billion in 2011.

The majority of the increase came on the back of the successful start-up of Pluto LNG, and higher contributions from the Vincent and North West Shelf oil facilities. Underlying profit was up 25% compared to the previous year, after taking out proceeds of US$974m on the sale of equity in its planned Browse LNG project.

Production volumes reached a record 84.9 million barrels of oil equivalent (MMboe), up 31% over the previous year, and Woodside increased its annual dividend by 18% to US$1.30. Operating cash flow was strong at US$3.5 billion, with around US$2.4 billion of that going straight into the company’s bank account. Total debt also fell from US$5.1bn to US$4.3bn in the previous year.

While LNG plant setup costs can be astronomical, the benefits can be seen in the results Woodside has achieved this year, after its Pluto LNG plant went into production. Woodside is aiming to produce between 88 and 95 MMboe in 2013, with 41% of the total coming from Pluto.

The company is not standing still though, and will invest a further US$2.6 billion in 2013, the majority of which is capital expenditure mainly due to anticipated additional costs associated with its Leviathan and Myanmar projects. That doesn’t include any expenditure for the proposed Browse LNG development, for which the company estimates to have a final investment decision by mid-2013.

Browse is expected to cost around $40 billion, although costs may run higher, as we have seen with several other LNG projects in Australia.

Chevron’s US$43 billion Gorgon project is now expected to cost $52 billion, $9 billion more than originally anticipated. Increasing labour costs, falling productivity and the strong Australian dollar are all being blamed for the cost rise. Santos Limited’s (ASX: STO) Gladstone LNG and the PNG LNG project, involving Oil Search (ASX: OSH) and Santos have also experienced cost blow-outs in recent months. Origin Energy (ASX: ORG) has also conceded that its Australia Pacific LNG project has been hit by the high Australian dollar.

Foolish takeaway

Woodside’s diversification into Israel’s Leviathan LNG field and exploration sites around Myanmar gives the company some backup to its planned Browse and Sunrise LNG projects, should they fail to go ahead in the short-term.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woodside and Origin.

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