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Woodside Returns Cash After Abandoning $45 Billion LNG Plan

April 23 (Bloomberg) -- Woodside Petroleum Ltd., Australia’s second-largest oil producer, will return about $520 million to investors in dividends after dropping plans to build a liquefied natural gas project estimated to cost $45 billion.

Woodside climbed 9.7 percent, its biggest increase since November 2008, to A$37.96 at the close in Sydney after deciding to pay a special dividend of 63 cents a share and to boost the dividend payout ratio. Australia’s benchmark S&P/ASX 200 Index gained 1 percent.

The oil producer said earlier this month it would consider accelerating the return of capital after scrapping the proposal to build the Browse project on shore in Western Australia in favor of studying cheaper options. Woodside also signaled a delay to the next stage of its A$15 billion ($15.3 billion) Pluto LNG project, ending talks with companies to obtain gas supplies needed for expansion, the company said April 18.

“Following deferral of the Browse LNG project, Woodside has made the right decision in returning cash to shareholders,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a note. Raising the dividend reduces the risk of Woodside pursuing acquisitions that might hurt shareholder returns, Beveridge said.

Woodside, whose biggest shareholder is Royal Dutch Shell Plc, is expanding in countries including Israel and Myanmar as Australia’s LNG industry struggles with rising costs.

The Australian energy producer will “continue to pursue growth opportunities where we believe they will create value,” the Perth-based company said today in a statement.

‘Exit Point’

An improvement in Woodside’s share price due to the dividend policy may give Shell an opportunity to sell its stake in the Australian company, Mark Wiseman, a Sydney-based analyst at Goldman Sachs Australia Pty, wrote today in a note.

“We believe Shell is still likely to be considering an exit point from Woodside shares at the right price,” he said.

Shell, which owns 23 percent of Woodside valued at A$7.2 billion, said last year that the stake didn’t fit with its long-term plans. Shell sold 10 percent of the company at A$42.23 a share in November 2010.

Woodside will target a dividend payout ratio of 80 percent of underlying profit after tax and expects to maintain that level for several years, Woodside said in the statement. The special dividend will be paid May 29, it said.

Highest Dividend

The company’s board made the dividend decisions “given the lead times involved with the growth projects and forecast reductions in the company’s debt levels,” it said today.

In boosting the payout ratio from 51 percent, Woodside now has the highest dividend among regional explorers and producers covered by Bernstein, Beveridge said.

Woodside’s sales and production have risen since the initial phase of the Pluto venture started a year ago. The company’s first-quarter sales climbed 21 percent to $1.45 billion, while production rose 55 percent to 21.9 million barrels of oil equivalent, according to a statement last week.

A new onshore Browse development would have cost about $45 billion, JPMorgan Chase & Co. said in an April 12 report. Woodside said it’s studying alternatives including a floating LNG platform.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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