(The following was released by the rating agency) MELBOURNE (Standard & Poor‘s) May 1, 2012--Standard & Poor’s Ratings Services said today that Woodside Petroleum Ltd.’s (BBB+/Negative) announcement that it proposes to sell its minority equity share in the Browse liquefied natural gas (LNG) development has no immediate rating impact. The sale is subject to joint-venture pre-emption rights, and expected proceeds are US$2 billion. If successful, it would reduce Woodside’s share in Browse to about 31.3% from 46%.
In our opinion, the sale to an offtaker will not only alleviate Woodside’s own funding burden for Browse, but will also provide buyers with some project insight and align shareholder interests at all levels of the Browse LNG project. In addition, this initiative indicates Woodside is likely to adopt a more conservative funding approach if it were to proceed with the Browse project, compared with the Pluto foundation development, in which Woodside’s equity share is 90%. Nonetheless, we recognize that Browse would have a larger scale and higher total capital expenditure than the Pluto foundation project.
The company recently announced the first production of LNG from the latter project. We will continue to monitor the commissioning progress of the Pluto project, and will reassess the rating outlook within a 12-month period. The outlook could return to stable if:
-- Pluto demonstrates an operational track record. This would include Woodside returning to positive free operating cash flow generation once Pluto is commissioned, and maintaining funds from operations (FFO) to debt (adjusted to include asset-retirement obligations and operating leases) at more than 35%; and
-- Woodside adopts a disciplined funding approach for its next large-scale capital project.