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What Woodside Petroleum has learnt from Enron

The news that Woodside Petroleum (ASX: WPL) has established a new third-party LNG trading platform to be run out of Singapore will undoubtedly give many investors queasy flashbacks to the 2001 Enron scandal. The announcement was made to investors in the company’s third quarter report last week.

As a quick recap. Enron was a multibillion-dollar energy and commodities trading company that offered (among other things) ‘EnronOnline’ – a trading platform for natural gas and petrochemicals. In 2001 the company collapsed under the weight of massive debt that had been hidden through fraud and dodgy accounting practices. It was one of the largest bankruptcies in history and wiped out many investors.

According to The Australian, Woodside will use its new platform to conduct a form of arbitrage, taking advantage of industry spot-pricing to buy LNG cargoes from third parties outside of Australia and sell them at a higher price to other buyers.

It is reported the trading arm will focus on the Far East, Middle East and South America and should contribute to profitability.

Although the trading platform seems to be a similar concept to Enron’s, that is where any resemblance to the failed giant stops. Woodside has a strong portfolio of successful oil and gas producing assets that provide the back-bone to earnings.

These earnings were down slightly for the third quarter to 30 September. Woodside reported a drop in sales of 15.7% to US$20.9 million barrels of oil equivalent on 17.4% less production. The drop was attributed to an unplanned outage from the company’s Pluto LNG plant as well as planned maintenance for the Vincent floating production and storage vessel, and the timing of LNG shipments.

Woodside is not the only energy producer to have dropped production in Q3. Santos (ASX: STO) also announced a lower production figure, but made up some ground thanks to the lower Aussie dollar to deliver a record sales revenue.

Foolish takeaway

For decades now Woodside has grown and thrived from its success identifying and producing natural gas and oil. The company’s venture into trading the commodities is arguably within its set of competencies, which should see it succeed, even if it does draw parallels to the infamous Enron Scandal.

Woodside also pays a great 4% dividend, but for The Motley Fool’s favourite income idea for 2013-2014 grab our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.

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Motley Fool contributor Regan Pearson does not own shares in any company mentioned.

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