(The following statement was released by the rating agency) Fitch Ratings-Sydney-June 18: Fitch Ratings has affirmed Australia-based Woodside Petroleum Ltd's Long-Term Foreign-Currency Issuer Default Rating at 'BBB+' with a Stable Outlook. The foreign-currency senior unsecured rating of subsidiary, Woodside Finance Ltd., has also been affirmed at 'BBB+'. The affirmation reflects Fitch's view that the company's risk profile is well-placed for its rating. The company reportedlower leverage on improving cash flow and a2018 equity raising and its risk profile as well ascapital and financial policies help mitigate price volatility. However, lowdiversification and a smallsize limit the company to within the 'BBB' category. Key Rating Drivers Strong Operating Performance: Fitch forecasts Woodside's production to be at the lower end of management's guidance over 2019, however, the start-up of its offhore Australia Greater Enfield project will increase production to over 100 million barrels of oil equivalent (boe) by 2020. Woodside continued to improve its operational performance in 2018, with lower average unit production costs and higher volume fromthe continued ramp up of the Wheatstone liquefied natural gas (LNG) project. This waspartially offset by loweroil production due to a refit of its Ngujima-Yin floating production and storage offloading vessel for the Greater Enfield project. Projects Target (NYSE:TGT) Global Undersupply: Fitch believes Woodside's projects are well positioned to meet higherLNG demandgiven itsclose proximity to the Asian market. Woodside's Horizon II programme targets the LNG supply gap that it expectsto open in the early 2020s. While the LNG market is currently well supplied, as reflected in low spot prices, Fitch forecastscontinued strong growth in demand across Asia and Europe over the medium term. Comfortable Metrics, Medium-Term Pressure: Fitch expects Woodside's leverage to rise from 2021 as the final investment decision (FID) is reached on its Senegal, Scarborough and Pluto Train 2 projects and itsprogresses towards a FID on the Browse LNG project. The capital requirements for these programmes are likely to be substantial and willpressure leverage. However, measures taken by the company, including its 2018 equity raising, have provided headroom under its 'BBB+ rating' and Fitch expects leverage metrics wto staywithin tolerance levels for Woodside's current rating over the next two to three years. The Stable Outlook incorporates Fitch's view that Woodsideislikely to keep leverage sustainably within the rating threshold over the long term. The company hasalso indicated that itmay reduce its equity holdings in the Scarborough and Pluto projects, which would lower its share of total project capex, although this scenario is not included in Fitch's base case. There are also otherlevers available to the company, such as a lowerdividend pay-out or further equity raising, which would help contain leverage. Once completed, Woodside's projects will boost itsannual production, improving cash flow and organic deleveraging capacity. LNG Oil-Linked Revenue: Higher oil prices over 2018 positively contributed to revenue in light of the oil-price linkages typically incorporated under Asian LNG contracts. Fitch expects lower oil prices over the medium-termto pressureWoodside's average realised prices, although realised 1Q19 prices were around 10% higher yoy reflecting the low oil prices in the prior comparative period. Revenue increased in 2018 due to higher total production along with a 23% rise in the realised average price to USD54/boe. Oil-Prices Volatility Poses Risk:Woodside's rating reflects its ability to adjust to lower prices over the long-term along with its financial flexibility, including a widedividend target of 50%-80% of net profit. However, some capex flexibility will be reduced once the FID is reached on the upcoming projects. Fitch's rating case includes a price deck forecast of USD65.0/barrel over 2019, fallingto USD57.5/barrel by 2022. Oil price volatility could, however, provide either downor upside risk to Fitch's base case. Derivation Summary Woodside's rating is supported by its large share of LNG oil-linked revenue with some price protection, which provides some stability in financial performance compared with other independent 'BBB' category upstream peers, such as Devon Energy Corporation (NYSE:DVN) (BBB+/Rating Watch Negative) and Apache Corporation (NYSE:APA) (BBB/Positive), which have greater exposure to oil-price volatility. Cost cutting measures taken over the previous few years allow Woodside to maintain stable leverage during periods of lower oil prices, while remaining well positioned to benefit from higher LNG demand across Asia in the medium term. However, Woodside's production and reserve profile, with limited diversification, is below the 'BBB+' upstream peer average, limiting its rating despite anadequate reserve life. Key Assumptions - 2019 production volume at the lower end of the company's guidance of 88 million - 94 million boe - Production volumes increasing by about 100 million boe by 2020, reflecting the contribution from Wheatstone LNG and the Greater Enfield oil project, then remaining stable over the medium term - Oil price deck ofUSD65.0/barrelin 2019, USD62.5/barrelin 2020, USD60.0/barrelin 2021 and USD57.5/barrelin 2022 - Cash flow capex and exploration expenditure for 2019 of about USD1.6 billion, increasing to about USD2.0 billion in 2020 and materially higher from 2022 following the FIDs on Scarborough, Browse and Pluto - Dividend pay-out ratio of 80% in 2019 and 2020, fallingto 70% from 2021 RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action Fitch considers an upgrade unlikely over the medium term, due to significant uncommitted growth capex in the pipeline. The companies rated by Fitch in the 'A' rating categoryare generally larger and more diversified with a more conservative financial profile to counter exposure to commodity-price volatility. Developments that May, Individually or Collectively, Lead to Negative Rating Action - Forecast adjusted net leverage rising above 2.5x and forecast funds from operation fixed-charge coverage falling below 5.0x, both for a sustained period. Fitch will reassess the negative sensitivities once the upcoming growth projects are completed, which shouldstrengthen Woodside's business profile. Liquidity and Debt Structure Adequate Liquidity: Woodside had USD3.9 billion of cash and undrawn facilities at end-2018 (2017: USD2.9 billion). The company remains well-funded to meet existing commitments. Liquidity remains substantial and Woodside has ready access to debt markets and bank funding. Woodside's debt maturity profile remains comfortable, with an average term to maturity of about fiveyears andnegligible maturities in 2019. Woodside Petroleum Ltd; Long Term Issuer Default Rating; Affirmed; BBB+; RO:Sta Woodside Finance Ltd. ----senior unsecured; Long Term Rating; Affirmed; BBB+ Contacts: Primary Rating Analyst James Hollamby, Associate Director +61 2 8256 0347 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst Leo Park, Associate Director +61 2 8256 0323 Committee Chairperson Ying Wang, Managing Director +86 21 6898 7980
Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com; Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 19 Feb 2019) https://www.fitchratings.com/site/re/10062582 Corporates Notching and Recovery Ratings Criteria (pub. 23 Mar 2018) https://www.fitchratings.com/site/re/10024585 Country-Specific Treatment of Recovery Ratings Criteria (pub. 18 Jan 2019) https://www.fitchratings.com/site/re/10058988 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10078414 Solicitation Status https://www.fitchratings.com/site/pr/10078414#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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