Browse could require a radical solution and it not James Price Point

PETER Coleman’s first four months as chief executive of Woodside Petroleum have been a low-key affair but last week Slugcatcher thinks he saw the start of a keenly-awaited cull, with people first to go and with projects likely to follow.

The management shake-up has seen one-time contenders for the top job at Australia’s leading independent oil and gas producer make their way to the exit, hopefully on their way to fresh careers with other oil companies.

The widely-reported departures of international business chief Jeff Soine last week and Kevin Gallagher earlier this year were not a surprise. When you hold your hand up for the chief executive’s job and miss out, there’s not much point in hanging around.

Other changes among the ranks of senior personnel at Woodside have occurred since Coleman replaced Don Voelte on May 30 and more will occur as the new man stamps his mark on Woodside.

Interesting as it is to watch the people shuffle, there are two other factors by which Coleman will be judged – the Woodside share price and his ability to successfully develop new projects.

On the stock market, the short-term verdict on Coleman is not flattering.

On project development, the outlook is for as much change as in the ranks of senior management.

Investors, perhaps hoping for more thunder and lightning from the new boss, or a takeover bid from BHP Billiton, have treated Woodside harshly since Coleman took control.

Since he picked up the reins on May 30 the company’s share price has dropped from $45.97 to a close last Friday at $35.08, a fall of 23.7%.

Declining commodity prices can be blamed for some of the share price slide, but that does not explain why Woodside has been hit harder than most other oil and gas stocks.

Santos, which has a similar business profile to Woodside, has seen its share price decline by 17% since May 30. Oil Search is down by 14.8%. Origin by 13.8%, BHP Billiton by 15.3% – and the oil price is down by around 20%.

So, whichever test is applied Woodside has under-performed the oil price and the share prices of its peers.

It would be unfair to place much of the blame for Woodside’s 23.7% price fall on Coleman but he must cop some because his ultra-low profile has contributed to a feeling in the market that change is brewing – and markets do not like the uncertainty which precedes a period of change.

The people cull is one aspect to what’s happening, but the change the market is watching for most carefully is what Coleman does with the three big project problems he has inherited. It wants to know:

· How he will expand the Pluto LNG project without first ensuring that there are sufficient gas reserves to justify the investment

· How he will proceed with the Sunrise LNG project while the government of East Timor continues to demand a landfall processing site, and

· How he will to proceed with the enormously expensive Browse Basin LNG project, which the government of Western Australia seems to want more than Woodside itself.

Decisions on the three projects will not be easy and will not be made quickly or at the same time.

But it seems to an outside observer that Woodside and its new boss simply have too much on their plate for what is essentially a small oil and gas business by global standards.

The long-term nature of LNG, both in terms of construction and operation, means that even the oil majors such as Shell and ExxonMobil plan each step very carefully, because the risk of something going wrong is high, either in a development sense or marketing sense.

The question for Woodside goes like this: “If undertaking one big LNG development is a major challenge then how do you handle three at once?”

The simple answer is you don’t, because you can’t.

That means cull time nears for Woodside’s over-full LNG project book, either by going slow, or by bringing in a major new partner to take control of one, or more, of the planned developments.

If The Slug was in a betting mood he would put some money on Coleman opting to focus on fixing Pluto by acquiring third-party gas from a rival such as Hess Corporation, going slow on Sunrise, and looking for a smarter way to develop Browse.

Pluto and Sunrise will be the easiest problems to fix. Browse could require a radical solution, such as revisiting plans for a long pipeline to the existing North West Shelf production centre, a decision which will be as politically delicate as dealing with East Timor.

Perhaps the only safe thing to say about Woodside under its new boss is that nothing will happen quickly. That’s not how Coleman was taught during his time at the ExxonMobil, where cost control and careful planning are valued above all other qualities.