THE wallets of shareholders could be the big winners if, as expected, Colin Barnett's re-election sets in motion the series of events that ultimately will see Woodside Petroleum and its partners walk away from the proposed $US45 billion ($43.9bn) James Price Point LNG plant.
Don't be surprised if, now that he's been safely re-elected, the positive rhetoric from the West Australian Premier towards the controversial proposal begins to ease.
Barnett has been an increasingly lone voice in his advocacy for James Price Point. But as his protestations have become louder they have reinforced the perception the plan is an increasingly challenged proposition. Rising costs, a strong Australian dollar and increased uncertainty around both the long-term direction of liquefied natural gas markets and the future of LNG pricing mechanisms are likely to ensure the more than 40-year wait to exploit the huge but remote Browse gas reserves continues for at least a while longer.
The political impact of the partners scrapping James Price Point today is far less damaging for Mr Barnett than it would have been on Friday, given how strongly he has advocated for it and how damaging such a move could have been to his campaign.
The Browse partners, for their part, did the right thing during the past few months and kept their mouths shut when quizzed about their intentions.
Rather than being bad news for Woodside, scrapping James Price Point could present an opportunity to become the pre-eminent dividend-payer among Australian oil and gas stocks.
And it could give the company the chance to finally resolve the Royal Dutch Shell overhang that has been a burden since Shell made its original partial sell-down, back in late 2010.
The near-doubling in net profit to just shy of $US3bn, announced by Woodside at its recent full-year results, reinforced the rude profitability in which the company now finds itself.
That cash flow gives Woodside a fantastic opportunity to differentiate itself from its peers in the Australian-listed oil and gas sector, and the chance to establish itself as a company offering substantial and sustainable returns.
Its stakes in the North West Shelf LNG project and its Pluto LNG project -- completed early last year after years of schedule headaches and painful cost-blowouts -- are now generating serious volumes of cash.
Deutsche Bank analyst John Hirjee estimates that Woodside could throw $US2.5bn at capital management this year, and get moving on returning the more than $US3bn in franking credits it has amassed during the capex frenzy of the past few years.
Investors today are less willing to back stocks driven by long-dated, high-capex growth opportunities and are increasingly orientated towards yield.
An enthusiastic embrace of capital management by Woodside at a time when peers such as Santos, Oil Search and Origin are all feeling the pain of cost-blowouts and delays at their LNG developments would certainly distinguish Woodside among local oil and gas stocks.
On Mr Hirjee's calculations, Woodside -- assuming it dumps James Price Point -- could manage a special dividend this year of $US3.04 a share. When interim and final dividends are added, Woodside could offer a total yield of about 11.9 per cent -- an eye-catching figure in any industry, but especially so in a resources sector with a history of low dividend yield.
Woodside's rapidly expanding cash pile, low capex needs and bulging franking credits position could help it make real inroads into reducing Royal Dutch Shell's overhanging position on the company's share register, through a partial buyback.
Shell sold a 10 per cent position in Woodside in late 2010, leading to plenty of speculation since then about its intentions for its remaining 23.6 per cent.
Since that first sell-down, the value of Shell's remaining stake has fallen from about $US8.1bn to about $US6.5bn.
Mr Hirjee believes that Shell, despite being a foreign company, would be entitled to franking credits, given that it has substantial operations in Australia that pay tax.
He believes Woodside could execute a buyback for some of Shell's stake, with the buyback being 50 per cent a deemed dividend (opening up the potential for franking credits) and 50 per cent a return of capital.
The Deutsche Bank analysis works on an assumed buyback price of $35 a share, but franking credits help improve the notional value of the buyback to more like $42.50 -- higher than the $42.23 at which Shell completed its original sell-down.
Such a plan would require Shell's willingness to participate, and, given its moves in recent months to up its interest in Browse and its behind-the-scenes efforts to push for a floating LNG solution for the project, it may not be willing to cede its influence over the project by decreasing its Woodside stake.
But the key point is that Woodside certainly has plenty of options in a post-James Price Point future. Abandoning James Price Point would not be an end for the company but a beginning, particularly from a capital-management perspective.
James Price Point's biggest champion, Barnett, won't be happy with that decision.
But at least he'll be able to console himself from the comfort of the Premier's chair.
Cheers, Stevo.
WPL Price at posting:
$37.14 Sentiment: Buy Disclosure: Held
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