Woodside finally comes clean

It’s finally here. Woodside has come clean on one of the worst-kept secrets on the ASX — that its headlining Pluto LNG project is running behind schedule and over-budget.

On Friday, Woodside announced a six-month delay and $900 million cost overrun for the first train of the Pluto gas export project.

First gas from Pluto is now expected to be shipped to customers in March 2012, with the revised costing coming in at $14.9 billion. This is 26 per cent over the original budget and 15 months late. Disappointing.

The timing of the announcement is hardly surprising, with new chief executive Peter Coleman only taking over the reins from Don Voelte on the May 30.

It’s not uncommon for new chief executives to clear the decks when they arrive and put their management stamp on the company.

What is more intriguing is that it was only in April when Mr Voelte said it would be difficult to recover a four-week delay to the construction timetable, which pushed the expected first gas shipment from August to September 2011.

The reality is that Mr Voelte was being overly optimistic with his forecasts, a stance that his tenure at Woodside will be remembered for, and Mr Coleman is probably erring on the side of caution with the “under-sell and over-deliver” approach.

Don’t be surprised if first gas is shipped from Pluto in January or February 2012, with the associated fanfare that comes with such a milestone.

Woodside is one of my favourite topics, especially the potentially transformational Pluto LNG project, so now the skeletons are out of the closet Woodside is starting to look like a different proposition.

Woodside closed at $39.91 on Monday, down 6 per cent from its pre-announcement price of $42.65.

In broker circles, both Citigroup and Morgan Stanley have kept hold and equal-weight recommendations on the stock, cutting their price targets to $43.28 and $41, respectively.

Macquarie also maintained a neutral rating on the stock, and although it has a price target of $47, it refuses to rule out a capital raising to fund Pluto cost over-runs.

According to most analysts, Mr Coleman is the right man to guide Woodside forward with his project delivery experience at ExxonMobil.

This experience will be called on almost immediately with Woodside approaching final investment decision on Pluto’s second train by the end of the year, and the final decision on the Browse LNG development by the end of 2012.

It’s a packed project pipeline for Woodside, and given Shell’s 24 per cent stake in Woodside is still for sale, we’ll be hearing a lot more from Mr Coleman in the next 12 months.

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