Wirtualna Polska Holding S.A.
Annual Report 2012

Plain-text annual report

2012ANNUALREPORTA yeAr of deliverySUCCESS IS DOING WHAT’S RIGHT, EVEN WHEN IT’S NOT EASY. on the coveR - the pluto lnG plAnt (burrup peninsula, Western Australia) delivers safe and reliable production in 2012: It took many people and a significant amount of hard work to deliver Pluto LNG. However, when you are committed to safety, reliability and doing what’s right, the outcome is very rewarding. Delivering Pluto wasn’t easy and the road to first gas was not without its challenges. But at Woodside, we pride ourselves on turning challenges into new opportunities. The start-up of production at Pluto and delivery of the first cargo in 2012 were defining moments in Woodside’s history, reflecting our world-class capability and expertise. The ingenuity and capability demonstrated at Pluto has been rewarded with high reliability and on-going strong performance. In 2012 Pluto was also recognised at a state and national level, receiving the WA Engineering Excellence Award and the Sir William Hudson Award – Australia’s top engineering honour. About this RepoRt RepoRt objectives This 2012 Annual Report is a summary of Woodside’s operations, activities and financial position as at 31 December 2012. Woodside Petroleum Ltd (ABN 55 004 898 962) is the parent company of the Woodside group of companies. In this report, unless otherwise stated, references to ‘Woodside’ and ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to Woodside Petroleum Ltd and its controlled entities, as a whole. References to ‘the company’ refer to Woodside Petroleum Ltd unless otherwise stated. The text does not distinguish between the activities of the parent company and those of its controlled entities. References in this report to a ‘year’ is to the calendar and financial year ended 31 December 2012 unless otherwise stated. All dollar figures are expressed in US currency unless otherwise stated. Woodside is continuing efforts to reduce its environmental footprint associated with the production of the Annual Report. Printed copies of the Annual Report will only be posted to shareholders who have elected to receive a printed copy. The Annual Report is also printed on an environmentally responsible paper manufactured under ISO 14001 environmental management standards, using elemental chlorine-free pulps from sustainable, well managed forests. ii Woodside Petroleum Ltd. | 2012 Annual Report This report meets our compliance and governance requirements, and is designed to provide easy to read information on how Woodside performed in 2012 for our stakeholders, including shareholders, staff, customers and the community. We aim to build on awareness of our operations and demonstrate how we delivered on our mission and vision while ensuring that we maintain our values and commitment to sustainable development. ouR 2012 sustAinAble development RepoRt This report is a summary of Woodside’s sustainability approach, actions and performance for the 12 month period ending 31 December 2012. This report will be available in March 2013. We have partnered with Green Reports tm in an initiative that ensures communications minimise environmental impact and creates a more sustainable future for the community. scs-coc-004440 About Woodside Woodside is Australia’s largest independent oil and gas company, with a proud history of safe and reliable operations spanning decades. As the largest operator of oil and gas in Australia, Woodside produces around 900,000 barrels of oil equivalent each day from a portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies. We have been operating our landmark Australian project, the North West Shelf, for 28 years and it remains one of the world’s premier liquefied natural gas (LNG) facilities. With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia, helping to meet the demand for cleaner energy from our pipeline customers in Australia and LNG customers in the Asia Pacific region and beyond. Woodside also operates four oil floating production storage and offloading (FPSO) vessels in the Exmouth Basin, North West Shelf and Timor Sea. Woodside’s international assets include deepwater production facilities in the Gulf of Mexico plus acreage in the USA, Brazil, Peru, Republic of Korea and the Canary Islands. In 2012 we expanded our international presence through conditional agreements to take equity in the Leviathan gas field in offshore Israel and exploration acreage in offshore Myanmar. We strive for excellence in our safety and environmental performance and continue to strengthen our relationships with customers, co-venturers, governments and communities to ensure we are a partner of choice. We do what’s right, even when it’s not easy At Woodside, we take pride in our company’s history of great achievement. We are also proud of the way in which we embrace the opportunities of the future and strive for continuous improvement. This commitment to ongoing improvement underpins the Woodside Compass, which was established in 2012 as part of a company-wide review of our organisational effectiveness and workplace culture. The Woodside Compass sets out our values, guides us on our mission to deliver superior shareholder returns and directs us towards our vision of becoming a global leader in upstream oil and gas. our values Integrity Respect Working sustainably Working together Discipline Excellence our mission To deliver superior shareholder returns. our vision Our aim is to be a global leader in upstream oil and gas. our strategic direction In support of our mission, our strategy comprises three main elements: Maximising our core business; Leveraging our capabilities; and Growing our portfolio. Further information on the Woodside Compass is available on our website www.woodside.com.au Woodside’s capabilities cover the value chain from seismic through to sales. Marine seismic surveys are critical in identifying prospective geological strata lying beneath the ocean. In 2012, we completed our largest ever seismic survey in the Outer Canning Basin, offshore Western Australia. Read about this technology in our Exploration review on page 18. During 2012, Woodside drilled a total of six exploration wells in the Dampier sub-basin, Republic of Korea and Gulf of Mexico. Turn to our Exploration review on page 18 for further information. Prior to any development, Woodside undertakes community-wide consultation and extensive environmental studies. The Browse Joint Venture has commissioned the most comprehensive study to date of humpback whales off the Kimberley coast. See page 30 for more about the proposed Browse LNG Development. The North Rankin Redevelopment (NR2) Project continued to progress in 2012, with the successful installation of the North Rankin B topsides. The redevelopment will recover remaining low pressure gas from the North Rankin and Perseus gas fields. To read more about NR2, go to page 25. In 2012 Woodside achieved a number of key milestones in the delivery of the Pluto LNG Project. First gas entered the LNG processing train on 22 March, first production of LNG was achieved on 29 April and the first LNG cargo departed on 12 May. Find out more about Pluto LNG on page 26. In 2012, the North West Shelf (NWS) Project delivered its 3500th LNG cargo and the 3000th LNG cargo to Japan, and our LNG trading and shipping business continued to grow. In addition to the NWS fleet we now have an integrated fleet of three ships operating for Pluto LNG with a new vessel due in 2013. To read more about our shipping business, go to the LNG Marketing Report on page 15. For 28 years the NWS Project has been Western Australia’s largest producer of domestic gas. The Karratha Gas Plant facilities include two domestic gas trains that supply the majority of Western Australia’s total domestic gas production. See page 24 for more about the NWS Project. Woodside Petroleum Ltd. | About Woodside iii OUR AREAS OF ACTIVITY 2012 - A YEAR OF DELIVERY CONTENTS Dili 16 8 15 Darwin NORTHERN TERRITORY Broome 11 1 1 4 12 2 3 2 13 13 5 9 Karratha Exmouth WESTERN AUSTRALIA Perth 9 66 710 7 14 * North Rankin B platform is scheduled to start-up in 2013. ** Woodside signed a sale and purchase agreement with Santos on 21 December 2012 to sell the company’s 8.2% interest in the Santos operated Mutineer-Exeter oil project with effect from 1 July 2012. Canary Islands Beijing Republic of Korea Israel Seoul Tokyo Myanmar Dili Houston Gulf of Mexico Peru Brazil Woodside offices and representative offices International production and/or exploration Israel and Myanmar subject to conditions iv Woodside Petroleum Ltd. | 2012 Annual Report Woodside Petroleum Ltd. | 2012 Annual Report 1 RECORD PRODUCTION, SALES REVENUE AND PROFIT UNDERPINNED BY PLUTO LNG. RECORD ANNUAL USD DIVIDEND OF 130 CPS, FULLY FRANKED. SAFE AND SUCCESSFUL START- UP OF PLUTO LNG WITH FIRST CARGO TRANSPORTED IN MAY. EARLY VALUE FROM THE BROWSE GAS ASSET, ADDING $2 BILLION IN CASH TO OUR BALANCE SHEET THROUGH THE SALE OF A MINORITY PORTION OF OUR EQUITY. IMPROVEMENT IN SAFETY PERFORMANCE WITH OUR TOTAL RECORDABLE CASE FREQUENCY DECREASING FROM 4.78 TO 4.50 PER MILLION HOURS WORKED. THE 3500TH LNG CARGO AND THE 3000TH LNG CARGO TO JAPAN FROM THE NORTH WEST SHELF, WHICH CONTINUES TO PERFORM STRONGLY. A SUCCESSFUL INSTALLATION OF THE NORTH RANKIN B TOPSIDES, WITH THE ANTICIPATED START-UP OF THE NORTH RANKIN REDEVELOPMENT IN 2013. . . . D E R E V I L E POSITIVE RESULTS FROM OUR REVISED GROWTH STRATEGY BY CAPTURING NEW VALUE-ADDING OPPORTUNITIES. IN-PRINCIPLE MYANMAR WERE ENTERED INTO.D AGREEMENTS TO PARTICIPATE IN THE WORLD-CLASS LEVIATHAN GAS FIELD AND EXPLORATION OPPORTUNITIES IN ii iii iii iv 2 4 6 8 10 11 12 13 14 16 18 20 21 24 26 28 30 32 34 36 38 52 53 67 137 138 138 139 139 139 140 140 141 142 Overview About this report About Woodside Mission, vision, values and strategy Our areas of activity Performance summary Chairman’s report Chief Executive Officer’s report Chief Financial Officer’s report Our people Our health, safety and security Community engagement Environmental report LNG market report Reserves statement Exploration review Risk management Woodside Executives Business reviews North West Shelf Pluto LNG Australia Oil Browse LNG Sunrise LNG International Governance Board of Directors Corporate governance statement Directors’ report Remuneration report 2012 Financial report Financial report contents Shareholder information Shareholder statistics Share registry: enquiries Investor relations: enquiries Business directory Key announcements 2012 Events calendar 2013 Units, conversion factors Glossary Index 2012 summary charts 10 year comparative data summary 143 Information available online You can find out more about Woodside online at www.woodside.com.au In this report, we have indicated where additional information is available online like this . Our producing assets (operated)Approximate location1Angel platform (NWS)135 km north-west of Karratha2Goodwyn A platform (NWS)3North Rankin A and B platforms* (NWS)4Okha FPSO (NWS)5Karratha Gas Plant (NWS)28 km north-west of Karratha6Ngujima-Yin FPSO (Vincent oil)45 km north-west of Exmouth7Nganhurra FPSO (Enfield oil)40 km north-west of Exmouth8Northern Endeavour FPSO (Laminaria-Corallina oil)550 km north-west of Darwin9Pluto LNG Plant and platform (Pluto LNG)27 km north-west of Karratha 180 km north-west of KarrathaOur producing assets (non-operated)10Stybarrow Venture MV16 FPSO (Stybarrow oil)50 km north-west of Exmouth11MODEC Venture II FPSO (Mutineer-Exeter oil**)147 km north of KarrathaOur projects12North Rankin Redevelopment (NWS)135 km north-west of Karratha13Greater Western Flank Phase 1 (NWS)130 km north-west of KarrathaOur developments14Laverda oil50 km north-west of Exmouth15Browse LNG425 km north of Broome16Sunrise LNG150 km south-east of Timor-Leste and 450 km north-west of DarwinWoodside offices and representative offices OUR AREAS OF ACTIVITY 2012 - A YEAR OF DELIVERY CONTENTS Dili 16 8 Darwin NORTHERN TERRITORY 12 2 3 11 1 1 4 9 2 13 13 5 9 Karratha 66 710 7 14 Exmouth 15 Broome WESTERN AUSTRALIA Perth Canary Islands Beijing Republic of Korea Israel Seoul Tokyo Myanmar Dili Houston Gulf of Mexico Peru Brazil Woodside offices and representative offices International production and/or exploration Israel and Myanmar subject to conditions RECORD PRODUCTION, SALES REVENUE AND PROFIT UNDERPINNED BY PLUTO LNG. . . . RECORD ANNUAL USD DIVIDEND OF 130 CPS, FULLY FRANKED. EARLY VALUE FROM THE BROWSE GAS ASSET, ADDING $2 BILLION IN CASH TO OUR BALANCE SHEET THROUGH THE SALE OF A MINORITY PORTION OF OUR EQUITY. SAFE AND SUCCESSFUL START- UP OF PLUTO LNG WITH FIRST CARGO TRANSPORTED IN MAY. IMPROVEMENT IN SAFETY PERFORMANCE WITH OUR TOTAL RECORDABLE CASE FREQUENCY DECREASING FROM 4.78 TO 4.50 PER MILLION HOURS WORKED. D E R E V I L E MYANMAR WERE ENTERED INTO.D POSITIVE RESULTS FROM OUR REVISED GROWTH STRATEGY BY CAPTURING NEW VALUE-ADDING OPPORTUNITIES. IN-PRINCIPLE AGREEMENTS TO PARTICIPATE IN THE WORLD-CLASS LEVIATHAN GAS FIELD AND EXPLORATION OPPORTUNITIES IN THE 3500TH LNG CARGO AND THE 3000TH LNG CARGO TO JAPAN FROM THE NORTH WEST SHELF, WHICH CONTINUES TO PERFORM STRONGLY. A SUCCESSFUL INSTALLATION OF THE NORTH RANKIN B TOPSIDES, WITH THE ANTICIPATED START-UP OF THE NORTH RANKIN REDEVELOPMENT IN 2013. Overview About this report About Woodside Mission, vision, values and strategy Our areas of activity Performance summary Chairman’s report Chief Executive Officer’s report Chief Financial Officer’s report Our people Our health, safety and security Community engagement Environmental report LNG market report Reserves statement Exploration review Risk management Woodside Executives Business reviews North West Shelf Pluto LNG Australia Oil Browse LNG Sunrise LNG International Governance Board of Directors Corporate governance statement Directors’ report Remuneration report 2012 Financial report Financial report contents ii iii iii iv 2 4 6 8 10 11 12 13 14 16 18 20 21 24 26 28 30 32 34 36 38 52 53 67 Shareholder information 137 Shareholder statistics 138 Share registry: enquiries 138 Investor relations: enquiries 139 Business directory 139 Key announcements 2012 139 Events calendar 2013 140 Units, conversion factors 140 Glossary 141 Index 142 2012 summary charts 10 year comparative data summary 143 Information available online You can find out more about Woodside online at www.woodside.com.au In this report, we have indicated where additional information is available online like this . iv Woodside Petroleum Ltd. | 2012 Annual Report Woodside Petroleum Ltd. | 2012 Annual Report 1 peRfoRmAnce summARy 2012 was a year of record achievement underpinned by Pluto LNG start-up and ongoing reliability of the foundation business. With effect from 1 January 2010 Woodside adopted a US dollar functional currency. All figures in this report are in US dollars unless otherwise stated. Where appropriate, comparative financial information prior to 2010 in this Annual Report has been converted from Australian dollars to US dollars using the relevant historical exchange rate. Additional financial details can be found on page 8 and 67 of this report. production up 31% sales revenue up 30% Reported net profit after tax up 98% dividends per share (US cents per share) up 18% 3 . 1 8 9 . 0 8 9 . 4 8 7 . 2 7 6 . 4 6 ) e o b M M ( n o i t c u d o r P 3 2 2 , 6 5 4 0 , 5 7 8 4 , 3 2 0 8 , 4 3 9 1 , 4 x a t r e t f a t fi o r p t e N ) n o i l l i m $ S U ( e u n e v e R ) n o i l l i m $ S U ( 3 8 9 , 2 6 4 5 , 1 4 7 4 , 1 5 7 5 , 1 7 0 5 , 1 0 3 1 5 0 5 1 9 0 1 1 0 0 1 ) s t n e c S U ( e r a h s r e p d n e d v D i i 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 Record annual production was underpinned by the outstanding performance of Pluto LNG, together with ongoing reliability of the foundation business. Record annual sales revenue was largely a result of record production and, to a lesser extent, continuing strong commodity prices. Record reported net profit after tax was achieved primarily due to increased 2012 production volume and the sale of a minority portion of Woodside’s Browse equity. With the strong 2012 net profit after tax the Board has declared a record full-year USD dividend of 130 cps (interim dividend 65 cps, final dividend 65 cps). underlying net profit after tax* up 25% (excluding non-recurring items) operating cash flow up 55% Return on equity, 7.8 percentage points higher (including non-recurring items) net debt down 62% 1 6 0 , 2 5 5 6 , 1 8 1 4 , 1 3 2 8 , 1 2 5 0 , 1 ) n o i l l i m $ S U ( x a t r e t f a t fi o r p t e N ) n o i l l i m $ S U ( w o fl h s a c g n i t a r e p O 4 2 2 , 3 5 7 4 , 3 2 4 2 , 2 4 0 1 , 2 3 8 4 , 1 4 . 3 3 ) % ( y t i u q e n o n r u t e R 7 . 9 1 7 . 6 1 2 . 4 1 9 . 1 1 29.6 29.8 2 3 7 , 3 6 4 9 , 1 ) n o i l l i m $ S U ( t b e d t e N 1 6 0 , 5 26.3 28.6 2 5 9 , 3 11.2 8 1 9 , 1 ) ( % g n i r a e G 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 The increased 2012 production volume was the main driver for the record underlying net profit after tax. Record operating cash flow was largely driven by increased receipts due to Pluto LNG start-up. Return on equity of 19.7% increased primarily due to the partial equity sale of Browse. Underlying return on equity was 13.6% (excludes Browse equity sale to Japan Australia LNG (MIMI)). The drop in net debt to $1.9 billion was attributed mainly to the partial equity sale of Browse and additional cash flow from Pluto LNG. * Woodside’s Financial Report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS). The underlying (non-IFRS) profit is unaudited but is derived from audited accounts by removing the impact of non-recurring items from the reported (IFRS) audited profit. Woodside believes the non-IFRS profit reflects a more meaningful measure of the company’s underlying performance. Additional 2012 summary charts can be found on page 142 of this report. 2 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION   highlights for the year Pluto LNG safe and successful start-up, with superior performance and high reliability achieved. 31% increase in annual production to a record of 84.9 million barrels of oil equivalent (MMboe). 98% increase in reported net profit to a record $2,983 million. 55% increase in operating cash flow to a record $3,475 million. safety - tRcf improved by 6% Results for the year 1 30% increase in sales revenue to a record $6,223 million. 1 Operating revenue of $6,348 million includes $125 million for LNG processing services. 18% increase in final dividend to 65 cps. e t a r y c n e u q e r f e s a c e b a d r o c e r l l a t o T 5.98 4.95 4.50 4.78 3.82 d e k r o w s r u o h n o i l l i m r e p ) F C R T ( 08 09 10 11 12 The TRCF has improved over the last two years, assisted by an ongoing focus on safety programs such as the ‘Our Safety Culture’ campaign. For further information refer to our Health, Safety and Security section on page 11. 2012 2011 % Change Reported net profit after tax ($ million) 2,983 1,507 Sales revenue ($ million) 6,223 4,802 Cash flow from operating activities ($ million) 3,475 2,242 Earnings per share Total recordable case frequency 5 year total shareholder return2 10 year total shareholder return2 Production Proved reserves (cents) (TRCF) (TSR, %) (TSR, %) (MMboe) 366 4.50 (0.3) 21.7 84.9 190 4.78 4.6 20.9 64.6 (MMboe) 1,231 1,292 Proved plus Probable reserves (MMboe) 1,544 1,610 97.9 29.6 55.0 92.6 5.9 n.m.3 3.8 31.4 (4.7) (4.1) Contingent resources (MMboe) 1,745 2,137 (18.3) 2 Source: Bloomberg, TSR is the compounded annual return over the specified period. 3 n.m. - not meaningful indexed ten year performance s e i r a n d r O i l l A d n a e c i r p l i o t n e r B 600 brent oil price Woodside (Wpl) AsX All ordinaries index 4 5 6 3 2 1 l s e u a v 2 0 0 2 o t d e x e d n i 100 0 31/12/2002 ) $ A l ( y n o e c i r p e r a h s L P W 70 60 50 40 12 8 7 11 13 9 10 30 20 10 0 31/12/2012 Over the past ten years Woodside has outperformed the ASX All Ordinaries Index (values are indexed to base 100 from 31 December 2002). 1 September 2004 NWS Train 4 start-up. 2 April 2005 Pluto gas discovery. 3 July 2007 Pluto FID. 4 Global financial crisis impact. 5 September - October 2008 NWS Train 5, Angel start-up. 6 March 2009 recovery in commodity prices. 7 June 2011 Pluto Train 1 delay. 8 February 2012 global uncertainty in the oil market and subsequent over correction. 9 April 2012 Pluto LNG production. 10 Re-emergence of European debt crisis. 11 September 2012 sale of Browse equity completed. 12 October and December 2012 in-principle agreement to farm-in two blocks; offshore Myanmar PSC. 13 December 2012 in-principle agreement to acquire 30% participating interest in petroleum licenses covering the Leviathan gas field, offshore Israel. Woodside Petroleum Ltd. | performance summary 3 chAiRmAn’s RepoRt In order to deliver superior shareholder returns, we are committed to optimising our producing assets and commercialising value-adding growth opportunities. Record financial results At a time when there is still much uncertainty in global markets, Woodside experienced a significant uplift in its financial performance in 2012, largely due to the successful start-up of Pluto – Australia’s third producing LNG plant. The 2012 reported net profit after tax was a record at $2,983 million. Underlying net profit after tax rose to $2,061 million, a 25% increase on the 2011 figure. Woodside declared a final 2012 dividend of 65 cents per share, following the interim dividend of 65 cents per share. The 2012 annual dividend totalled 130 cents per share – the highest achieved in the company’s history. During the year the Board announced a dividend policy in which the company will aim to maintain a minimum payout ratio of 50% of underlying net profit after tax. operational performance – from strength to strength In April 2012 Woodside celebrated a major milestone in the company’s history with the safe start-up of the Pluto LNG Plant. Production reliability from the plant since start-up has exceeded all expectations, resulting in a step-change to the company’s production levels. The strong performance of Pluto is testament to Woodside’s LNG capabilities, with the company having built and run six of the seven operating LNG trains in Australia. which will access five trillion cubic feet of undeveloped gas. As part of this project, the massive North Rankin B offshore platform and topsides were installed alongside the North Rankin A platform. The size of the topsides made installation technically challenging, but the team successfully achieved an installation record in open water, both in height and weight. Hook-up and commissioning activities are underway for a planned start- up in 2013. The next phase of development at the NWS, the Greater Western Flank Project, also made progress during 2012 with the completion of Phase 1 drilling activities. strategic direction to meet global demand Despite some slowing of economic growth in China during the year, demand for LNG from the Asia Pacific region is forecast to grow by more than 90 million tonnes per annum between 2012 and 2020. This is equivalent to the output of about 20 new LNG trains. Australian LNG projects are expected to satisfy much of this demand, if we are able to remain competitive. Japan is still forecast to be the world’s largest LNG importer by 2025, with demand from other traditional importers remaining solid. Strong demand growth is also forecast to come from India and ASEAN economies, some of whom will transition from LNG exporters to new importers in the decade ahead. Woodside also continues to optimise production from existing assets, with projects such as the North West Shelf’s (NWS) North Rankin Redevelopment Against this backdrop, Woodside has adopted a strategy of optimising its producing assets and commercialising its growth opportunities. michael chaney Ao Chairman 4 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONIn 2012 the company realised early value from Browse by selling a minority portion of its equity in the development to Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) for $2 billion. The sale clearly demonstrated the value of this world- class resource and ongoing demand for premium LNG. The proposed development of Browse LNG near James Price Point remains under evaluation, with a final investment decision to be considered in the first half of 2013. During the year we continued engagement with the Timor-Leste and Australian Governments on the Sunrise LNG Development. A series of technical workshops commenced to help build mutual understanding on the development; further engagement will occur in 2013. Woodside’s strategy to leverage our core capabilities for global upstream growth began to take shape in 2012 with expected new country entries in Myanmar and Israel. The company reached an in-principle agreement to acquire a participating interest in the petroleum licences containing the Leviathan gas field in Israel. The field is one of the largest recent gas discoveries worldwide and provides the opportunity for Woodside to play a key role in the potential development of a liquefied natural gas industry in that country. Offers were also accepted for Woodside to acquire an interest in Production Sharing Contracts for two blocks in the Rakhine deepwater basin, located off the western coast of Myanmar. Once finalised, the transactions will enable Woodside to participate in exploration activities in this frontier basin. maintaining our competitive edge Australia is experiencing rapid growth in the oil and gas industry with more than $190 billion worth of developments underway across the country. This growth is occurring within an increasingly competitive global gas market, with new energy sources emerging, including in North America and East Africa. While we do not anticipate new global supply to fundamentally alter the market dynamics in the Asia Pacific, it is clear we are operating in a changing global environment. Therefore remaining competitive will be vital to Australia’s future as an LNG supplier. While costs and development activity in the Australian oil and gas industry have skyrocketed in recent years, labour and capital productivity have remained stagnant. Australia was ranked 20th in the World Economic Forum’s 2012 productivity league table. To put that into perspective, the Business Council of Australia has calculated that productivity on Australian resource projects is 30-35% lower than on comparable projects in the USA. The real impact of poor productivity has been masked by high levels of investment and record terms of trade. But, as the resources investment boom reaches its peak, the productivity gap will be exposed. To close this gap, we must address policy challenges around workforce mobility and flexibility and streamline regulation, particularly between State and Commonwealth approvals processes. We must also ensure efficient project management and embrace new technologies where appropriate, to optimise development outcomes. board of directors changes After ten years of service on Woodside’s Board of Directors, Dr Pierre Jungels retired in December 2012 and Mr Erich Fraunschiel will retire in February 2013. Both directors have made a substantial contribution to the Board’s deliberations over the last decade – Dr Jungels with his wealth of experience in the international oil and gas industry and Mr Fraunschiel with his wide business experience and great financial acumen. The Board thanks them for their efforts. Dr Sarah Ryan joined the Board in December as a non-executive director. In December Woodside also announced the appointment of Mr Frank Cooper to the board as a non-executive director effective 1 February 2013. We welcome both Dr Ryan and Mr Cooper to the Board. Woodside’s strong performance in 2012 is a testament to the strength of our people, led by Chief Executive Officer Peter Coleman. On behalf of the Board of Directors I thank them all for their ongoing efforts on behalf of the company. michael chaney Ao 20 February 2013 Woodside Petroleum Ltd. | Chairman’s Report 5 chief eXecutive officeR’s RepoRt Outstanding performance of the Pluto LNG Plant since start-up, together with the ongoing reliability of the foundation business, delivered a step-change in production and revenue in 2012. 2012 Key peRfoRmAnce hiGhliGhts Record annual production and sales revenue. futuRe objectives Improve health and safety outcomes, towards our goal of achieving global top quartile performance by 2017. Safe start-up of Pluto LNG and better than expected production ramp-up. Progress the North Rankin Redevelopment and Greater Western Flank Phase 1 Projects. Major projects to maximise value of our NWS assets progressed to budget and schedule. Consider a final investment decision (FID) on the Browse LNG Development. Continue work to progress Greater Enfield Realisation of early value from our Area oil opportunities. Browse assets through sale of a minority portion of Woodside’s equity in the proposed Browse LNG Development. Conditional acceptance of Woodside’s offer to purchase a 30% participating interest in permits covering the Leviathan gas field. Conditional acceptance of Woodside’s offers to purchase equity in two production sharing contracts offshore Myanmar. Progress front-end engineering and design work to develop the Xena gas field. Continue to build momentum on the Sunrise LNG Development. Finalise agreements to progress the Leviathan Development and Myanmar offshore exploration, in keeping with our drive to grow Woodside’s resource base. Maximise performance of our core business and continue disciplined evaluation of new value-add opportunities. peter coleman Chief Executive Officer and Managing Director production profile total shareholder Return (tsR) performance against peers our strategic direction 0 7. 3 9 . 3 4 4 . 1 3 3 . 1 4 9 . 5 2 7 . 8 3 1 . 6 2 8 . 8 5 6 0 . 1 4 3 . 0 4 ) e o b M M ( n o i t c u d o r P 08 09 10 11 12 Liquid (Oil plus Condensate) Gas (LNG, LPG and Pipeline gas) 30 ) % ( n r u t e r l r e d o h e r a h s l a t o t r a e y 0 1 -5 The successful Pluto ramp-up has contributed to a significant step forward in Woodside’s production capabilities. 6 Woodside Petroleum Ltd. | 2012 Annual Report ten year compound annual return l p W Grow portfolio leverage capabilities maximise core e u a V l Time The excellent ten year TSR reflects the long- term sustainability of our business relative to our peer group which includes: Anadarko, Apache, BG, CNOOC, Inpex, Marathon, Murphy, Pioneer, Repsol, Santos and Talisman. Source: Bloomberg. TSR is the compounded annual return over the specified period. Woodside aims to be a leader in upstream oil and gas by optimising our producing assets and commercialising our growth projects. We will also leverage our world- class capabilities to capture new growth opportunities. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION Looking back on our achievements over the past year, we can describe 2012 as a year of delivery for Woodside against our revised strategic direction. We strengthened our core business, delivering the first cargoes from Pluto LNG that contributed to record annual production and sales revenue. We delivered early value from our premium Browse assets, adding $2 billion in cash to our balance sheet through sale of a minority portion of our equity. And we leveraged Woodside’s world- class capabilities and disciplined approach by capturing potential growth opportunities in Israel and Myanmar. These achievements, and many more during 2012, occurred alongside a significant program of cultural change that we are confident will set Woodside up for long-term success. our compass for the future In 2012, following a company-wide review of Woodside’s organisational effectiveness and workplace culture, we developed the Woodside Compass. The Compass guides us on our journey towards becoming a global leader in upstream oil and gas, by linking Woodside’s core values, vision, mission and strategic direction. It makes clear that our long-term success depends not only on the oil and gas we produce, but on doing what’s right. To improve organisational effectiveness we streamlined reporting arrangements at senior levels and established the role of a Chief Operations Officer. A new Corporate Strategy and Planning Division and Technology Division were also created to support our revised strategic direction. A focus on world-class safety performance Woodside achieved an improvement in health and safety outcomes measured in terms of total recordable case frequency, but we must continue to strive for further improvements in this area in 2013. When measured against global benchmarks, our health and safety performance falls short of expectations. To address this, in 2013 we will begin implementing measures to achieve global top quartile health and safety performance by 2017. A step-change in production The safe start-up and better than expected ramp-up of Pluto LNG in 2012 cemented Woodside’s status as Australia’s leading LNG operator. Once again we achieved strong operational results at the North West Shelf Project, with delivery of the 3500th LNG cargo testament to the capacity of this world-class asset. Consistent high reliability from Pluto during the year, combined with the ongoing strong performance of our foundation business, resulted in production reaching 84.9 MMboe for 2012. This was an increase of 31% on 2011 production and a new record for our company. A strong balance sheet to fund growth While our foundation oil and gas assets continued to deliver strong cash flows in 2012, Pluto generated $1.43 billion in revenue in the eight months since its first cargo. This took our total 2012 sales revenue to a record figure of $6.22 billion (30% increase on 2011), and an underlying net profit of $2.06 billion (25% increase on 2011). This robust cash flow, combined with the sale of a minority portion of Woodside’s equity in the Browse LNG Development, strengthened our balance sheet in preparation for new growth opportunities while also returning value to shareholders through increased dividends. Growing our Australian portfolio 2012 was an important year for the proposed Browse LNG Development, with Shell increasing its equity and Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) purchasing a minority portion of Woodside’s equity. BHP Billiton Petroleum also announced its intention to sell its Browse equity share to PetroChina International Investment (Australia) Pty Ltd. A disciplined evaluation to determine Browse LNG project costs and economics is nearing completion, with a FID to be considered in 1H 2013. Woodside also progressed two oil developments during 2012. We began front-end engineering and design work for the Cimatti Development and continued evaluation of our Laverda field. Woodside continued to broaden our dialogue with the Timor-Leste Government and other stakeholders on the proposed Sunrise LNG Development. capturing new value-creating opportunities Beyond Australia, Woodside announced two significant country entries with international partners during 2012. Our conditional farm-ins to two blocks in offshore Myanmar during 2012 provide Woodside with entry into the prospective Rakhine Basin, where we can bring our deepwater capabilities into play and build new partnerships in a promising oil and gas province. We reached an agreement in-principle to take a 30% participating interest in permits covering the Leviathan gas field offshore Israel, one of the biggest recent gas discoveries worldwide. The transaction, which remains subject to conditions including execution of fully termed agreements, completion of due diligence and necessary approvals, positions Woodside to benefit from Israel’s strongly growing domestic gas market, and play a key role in the potential future development of an LNG industry in Israel. Finalising the Leviathan agreement will provide an immediate boost to Woodside’s contingent resource base. In addition, an increase to our developed reserves will occur with the start-up of the North Rankin Redevelopment Project. Growing sustainably In line with our aspiration to be a partner of choice, during the year we continued to engage closely with the communities where we operate. This included meeting the majority of our Reconciliation Action Plan 2012 commitments. Our people continued to show their personal dedication to the community with our employee volunteering rates well above most of our peers. During the year we launched our three- year gender diversity strategy. Pleasingly, we are already making headway in this area, improving our gender balance in our 2013 graduate intake and our senior management succession planning. Our values-led, disciplined approach, combined with our world-class portfolio and capabilities, will enable Woodside to continue delivering superior shareholder returns into 2013 and beyond. peter coleman 20 February 2013 Woodside Petroleum Ltd. | chief executive officer’s Report 7 chief finAnciAl officeR’s RepoRt Woodside delivered record financial performance in 2012, underpinned by the start-up of Pluto and continuing strong pricing. Our balance sheet is well positioned to support our future growth. Woodside delivered a record financial performance in 2012, reporting a net profit of $2.98 billion, or $2.06 billion on an underlying basis. underlying npAt versus reported npAt 1 $ million underlying profit npAt (before non-recurring items) Non-recurring items after tax Pluto delay mitigation cost Neptune impairment reversal Browse equity sale Tax paid on sale of subsidiary 2012 2,061 2011 1,655 (27) (165) - 974 (25) 17 - - Reported profit 2,983 1,507 1 Woodside’s Financial Report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS). The underlying (non-IFRS) profit is unaudited but is derived from audited accounts by removing the impact of non-recurring items from the reported (IFRS) audited profit. Woodside believes the non- IFRS profit reflects a more meaningful measure of the company’s underlying performance. With the start-up of Pluto LNG in 2012 and continued strong pricing, Woodside recorded its highest ever annual sales revenue of $6.22 billion. Our 2012 financial results also benefited from a full year of production from the NWS oil facilities and improved production from the Vincent oil field, following infill development in 2011 and early 2012. This helped to offset field decline in our oil assets. In 2012 we booked a $974 million gain on the sale of a minority share of our Browse equity. The impact of Pluto LNG and the Browse equity sell down on the 2012 profit result is shown in the following tables. pluto 2012 financial contribution lawrie tremaine Executive Vice President and Chief Financial Officer 2012 Key peRfoRmAnce hiGhliGhts Record annual sales revenue of $6.22 billion and underlying profit of $2.06 billion. Pluto start-up resulting in revenue of $1.43 billion and gross profit of $642 million. Browse partial equity sale proceeds of $2.06 billion and after tax profit impact of $974 million. Free cash flow positive: $3.63 billion compared to negative $1.29 billion in 2011. Re-established stable credit ratings. Production Revenue Cost of sales Gross profit (MMboe) ($ million) ($ million) ($ million) 23.97 1,427 (785) 642 Record full-year dividend to shareholders and establishment of a Dividend Policy. futuRe objectives Value enhancement through effective investment decisions. Optimise capital management to support growth. Disciplined cost management. 8 Woodside Petroleum Ltd. | 2012 Annual Report browse partial equity sale ($ million) Sale proceeds Cost base Income tax PRRT deferred tax write back net profit after tax 2,060 (1,303) (186) 403 974 strong commodity price, but a change to product mix With the introduction of Pluto LNG volumes in 2012 and natural field decline of our oil assets, we have seen a 1% reduction in the average realised price for the combined products. Although product specific realised prices have increased from 2011, the higher gas concentration in the product mix has lowered the overall average price. Average realised price table Pipeline natural gas NWS LNG Pluto LNG Condensate LPG 2012 2011 variance $/boe 26.69 $/boe 26.96 2 $/boe (0.27) 77.85 67.46 10.39 54.90 104.47 113.28 - 98.913 76.55 3 - 5.56 36.73 (0.27) (0.85) Oil Average realised prices 74.26 113.52 113.80 75.11 2 NWS pipeline natural gas revenue includes the revenue from a negotiated confidential settlement between the NWS Domestic Gas Joint Venture and Alinta Sales Pty Ltd following the conclusion of the restructure of Alinta Energy Limited. 3 Includes Ohanet Risk Sharing Contract sales. effective capital management We invested $1.76 billion in our business activities in 2012, down from $3.83 billion in 2011. The 2012 spend comprises $1.50 billion in capital expenditure and $0.26 billion in exploration. This lower investment expenditure together with the cash flow now being generated by Pluto LNG, has enabled us to report a positive free cash flow this year, after several years of negative free cash flow due to the investment at Pluto. Consequently we have significantly reduced net debt at the end of 2012 from $5.06 billion to $1.92 billion. The strengthening of the company’s financial profile contributed to the affirmation of our credit ratings (S&P: BBB+; Moody’s: Baa1) and a change in outlook to stable. free cash flow ) n o i l l i m $ ( w o fl h s a c e e r F 3,636 4,000 3,000 2,000 1,000 0 (1,000) (668) (2,000) (3,000) (4,000) (3,225) (837) (1,291) 08 09 10 11 12 OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION bridge chart of Woodside’s 2012 reported net profit after tax (npAt) unit production costs 1,331 (29) (961) 733 265 (111) (477) 540 (59) 2,983 244 1,507 Revenue ) n o i l l i m $ S U ( t fi o r p d e t r o p e R 1 1 0 2 T A P N i * t c a p m X F / e c i r P i t c a p m e m u o V l e u n e v e r r e h t O l s e a s f o t s o C r e h t O s e s n e p x e e m o c n i r e h t O t s o c e c n a n fi t e N * * T R R P x a t e m o c n I 2 1 0 2 T A P N t s e r e t n i y t i r o n M i Woodside’s 2012 NPAT was higher than 2011 due to additional revenue associated from Pluto LNG and non recurring items including the partial equity sale of Browse, included in ‘other income’. * Price/ FX includes oil price, foreign exchange rates and hedging. ** Petroleum Resource Rent Tax. We ended the year with available funds of $4.12 billion ($2.42 billion cash and $1.70 billion undrawn debt) which supports our future growth opportunities. Re-evalution of our funding position will occur in 2013, pending investment decisions on major projects. Our ability to access long-term facilities provides Woodside with the capacity to develop the best value opportunities in our portfolio - at the right time and at a competitive cost of funding. Active portfolio management Woodside has continued to actively manage its asset portfolio. Late in 2012 Woodside agreed to divest its Mutineer- Exeter asset. In-principle agreements have also been achieved to farm-in to petroleum licences in offshore Israel and two Production Sharing Contracts in Myanmar. All of these agreements are expected to be finalised in 2013. profit drivers (2012 versus 2011) The following summarises the main drivers of the 2012 profit result and is represented in the above bridge chart. Revenue volumes – increased largely due to Pluto start-up ($1,427 million), a full year of NWS oil production ($230 million) and higher production at Vincent ($129 million). This was partially offset by field decline in oil assets. sales price – increase was mainly attributable to NWS LNG ($223 million). cost of sales – increased by $961 million. The increase was largely driven by Pluto ($778 million) and higher production at NWS oil ($127 million) and at Vincent ($77 million). other income – increased by $733 million. This was largely attributable to the Browse partial equity sale of $757 million1. other expenses – decreased by $265 million. The decrease was largely the result of the impact of lower exploration and evaluation expense ($195 million) and lower Pluto mitigation and pre-start-up costs ($218 million); partially offset by higher impairment charges ($160 million related to Laminaria- Corallina, Pluto onshore expansion and the Panoramix wells). net finance costs – increased by $111 million as a result of Pluto start-up whereby previously capitalised borrowing costs are now expensed. income tax – increased by $477 million largely due to higher net profit before tax ($232 million) along with Browse partial equity sale ($186 million). petroleum Resource Rent tax – decreased by $540 million largely due to the partial equity sale of Browse ($403 million). unit production costs rise (Australian dollars)2 Total gas production costs increased by A$158 million to A$343 million in 2012 largely due to the introduction of Pluto LNG. On a unit basis, gas unit production costs increased from A$4.02/boe to A$5.03/boe due to higher start-up costs at the Pluto LNG facilities. Total oil production costs increased by A$44 million to A$327 million. On a unit basis, oil unit production costs increased from A$16.88/boe to A$19.52/boe. The increase is primarily due to Vincent FPSO and related transition costs, and the impact of lower production due mainly to ) e o b / $ A ( s t s o c n o i t c u d o r p t i n U 19.52 16.88 14.01 11.46 3.35 3.37 4.02 5.03 4.19 11 12 10 09 Oil (A$/boe) Total gas (A$/boe) Gas (excluding Pluto (A$/boe) Despite the increasing unit production costs, our oil assets delivered a combined EBIT of $948 million. We continue to look at bringing forward value on these assets through infill drilling or divestment. field decline at the Greater Enfield Area oil assets. dividend policy In August, the Board approved a Dividend Policy. Consistent with recent practice, Woodside will aim to maintain a minimum dividend payment payout ratio of 50% of net profit (excluding non-recurring items) expressed in US dollars. In determining the appropriate dividend payment, Woodside will consider, among other things, its development profile, available cash flow and funding requirements. The full Dividend Policy can be found on our website. sensitivities For 2013, a $1 movement in the Brent oil price is expected to impact NPAT by $22 million and a $0.01 decrease in the AUD:USD exchange rate is expected to increase NPAT by $7 million. outlook Investment expenditure for 2013 is expected to be $2.6 billion, which is higher than previous guidance due to anticipated additional expenditures associated with the Leviathan and Myanmar opportunities. The expected investment expenditure amount comprises $2.1 billion capital plus $0.5 billion of exploration expenditure. This estimate does not yet include forecast project expenditure that would result from a final investment decision for the proposed Browse LNG Development. 1 Derived from sales proceeds of $2,060 less cost base of $1,303; pre-tax. 2 Unit production costs have been reported in Australian dollars as the majority of expenditure is incurred in this currency. See glossary on page 140 for the unit production cost definition. lawrie tremaine 20 February 2013 Woodside Petroleum Ltd. | chief financial officer’s Report 9 ouR people Woodside understands that delivery of superior shareholder returns is dependent upon our ability to attract and retain an engaged, diverse and high performing workforce. Above: Graduates take part in the annual ‘Grad Day’ activities. Woodside’s Graduate Development Program is a key component of the company’s strategy to build long-term capability. It is designed and implemented to attract and retain the best possible candidates. 2012 Key peRfoRmAnce hiGhliGhts Three-year Gender Diversity Strategy rolled out. Strong diversity focus with 50% of our 2013 graduate intake being female. Progressed towards becoming a values- led organisation through the roll-out of Our Values and Behaviours Guide and the introduction of values into key people processes. Converted 70% Indigenous pathways participants to full time jobs. futuRe objectives Continue to embed Our Values and Behaviours into key people processes to support cultural change. Review and implement a revised leadership and management competency framework to enable continued development of capability. Implement a three-year Indigenous employment strategy to support our Reconciliation Action Plan (RAP). Put in place a development program for high talent women and create a job design toolkit to support and increase flexible working. number of employees and voluntary turnover # 9.4 8.5 indigenous employment Contractors* Pathways** Employees - Permanent/Fixed 6.8 5.2 5.4 4 2 1 , 3 9 1 2 , 3 0 5 6 , 3 6 5 8 , 3 7 9 9 , 3 s e e y o p m e l l a t o T 08 09 10 11 12 ) ( % o i t a r r e v o n r u t y r a t n u o V l 5 7 4 6 2 4 9 8 9 4 8 5 s e e y o p m e l l a t o T 3 8 3 2 6 3 2 3 08 09 10 11 12 building capability Woodside has maintained its focus on building the right level of capability in order to ensure we can resource for the long- term. We continued to invest in our future capacity through apprentice, trainee and graduate programs. A total of 127 trainees and apprentices participated in technical skills development through the Woodside Training Academy in 2012, with 117 active at year-end. There were 53 graduates new to Woodside, with a total of 135 graduates on the three-year graduate program. Woodside achieved excellent outcomes in 2012 with 91% of all trainees and apprentices converting to permanent employment at the conclusion of their traineeship or apprenticeship. In 2012, we continued to develop our leadership capability by offering development programs aimed at improving employee engagement. Our Leadership Development curriculum programs were attended by 864 company leaders. A further 710 leaders attended workshops on Our Values and Behaviours, accountabilities and decision effectiveness. developing a diverse workforce Woodside progressed well against its RAP commitments. We achieved the employment of 92 Indigenous people by the end of 2012, with our target number of 96 to be achieved in early 2013. The cumulative conversion rate since 2009 of 70% of pathway participants transitioning to employment was also a positive result. For further information on our Diversity Policy and RAP commitments visit our website. Woodside implemented a three-year Gender Diversity Strategy in 2012 which focuses on leadership, process and practice, education, government and community engagement to improve our ability to attract and retain skilled people. #In 2012, reporting of voluntary turnover is based on global employee turnover rather than Australian employee voluntary turnover, resulting in minor changes to the ratios reported in prior years. Woodside’s global voluntary turnover rate increased from 6.8% in 2011 to 8.5% in 2012, attributed in part to the ongoing industry demand for talent. 10 Woodside Petroleum Ltd. | our people * No Indigenous contractors were employed in 2012 as a result of start-up at Pluto LNG. **Indigenous pathways numbers include total number of participants who completed a pathway during the year. In 2012, the number of Indigenous employees (permanent / fixed) increased by 9.5% compared to 2011. The Indigenous Pathway participants increased by 17.2%. outlook Recognising that the industry demand for skilled talent remains competitive, Woodside will continue to focus on internal development and training of our people to ensure we have an engaged and capable workforce. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION ouR heAlth, sAfety And secuRity We will achieve our aspiration of ‘no-one gets hurt, no incidents’ by implementing our operating standards, reinforcing positive safety behaviours and continuous improvement. 2012 Key peRfoRmAnce hiGhliGhts Achieved a 6% improvement in the Total Recordable Case Frequency compared to 2011. As part of commitment to ‘Our Safety Culture’ initiative, workshops were held across Woodside, with 6,000 participant packs distributed to employees and key contractors. Assurance process implemented across Woodside to ensure compliance with our revised health and safety operating standards. Commenced implementation of a control program to address fraud and corruption risks, in accordance with the UK Anti-Bribery Act. futuRe objectives Achieve global top quartile health and safety performance by 2017. Implement targeted health and wellbeing interventions. Embed the Woodside process safety framework and performance metrics Execute an enhanced health and safety service delivery model. total recordable injury rate OGP Top Quartile Woodside 6 5 4 3 2 1 e t a r y r u n j i l e b a d r o c e r l a t o T d e k r o w s r u o h n o i l l i m r e p 0 07 09 11 13 15 17 Total recordable injury rate (injuries only) for Woodside benchmarked against top quartile performance of the International Association of Oil and Gas Producers (OGP). Woodside is targeting significant improvement to achieve top quartile performance by 2017. Health and safety is fundamental to Woodside’s licence to operate. We require everyone to contribute to building and sustaining a strong safety culture that delivers a healthy, safe and productive work environment. Woodside’s ‘Our Safety Culture’ framework, along with the Woodside Management System, defines our approach to ensuring the health and safety of our employees and contractors, and the integrity of our facilities. We have in place six Strategic Imperatives to help us achieve our aspiration of ‘no-one gets hurt, no incidents’. The Imperatives drive our yearly action plans and ensure our activities are appropriately targeted. Information on these imperatives can be found on page 30 of the 2012 Sustainable Development Report. 2012 performance The number of recordable injuries and illnesses decreased from 140 in 2011 to 86. The total recordable case frequency (TRCF) dropped to 4.50 in 2012, compared to 4.78 in 2011, representing a 6% improvement. The number of high potential incidents decreased to 30, compared to 35 in the prior corresponding period. There were no work-related fatalities in 2012. strengthening our safety culture In 2012, we launched a company- wide safety culture survey to provide an opportunity for our employees and key contractors to assess strengths and identify areas for development. The survey results are being used to strengthen ‘Our Safety Culture’ behaviours and to guide health and safety plans across the company. Further, to ensure compliance with operating standards and procedures, a company-wide assurance process was implemented. A total of five assurance reviews were conducted, with a compliance score of over 70% recorded. protecting people and facilities In 2012 Woodside safely progressed the North Rankin Redevelopment and safely delivered the Pluto LNG facilities. In 2012, Woodside completed a company- wide fraud and corruption risk assessment and commenced implementation of a wide ranging control plan, which will prepare staff for the challenges that may arise as we broaden our portfolio. We completed four company-wide crisis exercises, and 18 facility level two exercises, to test and develop our emergency management capabilities. In addition, major accident prevention and response capabilities remains a priority. As part of our Corporate Oil Spill Response Plan we participated in a number of oil spill response exercises during 2012. outlook Woodside’s health and safety performs well when benchmarked against our Australian peers, however when compared against global benchmarks there is room for significant improvement. In 2013, we will begin implementing measures to achieve global top quartile health and safety performance by 2017. In addition we will continue to work with key partners including state, federal and foreign governments to safely secure our operations in Australia and internationally. In line with our international expansion plans we will maintain our focus on progressing our international security, emergency management and anti-fraud and corruption processes. Further information on Our People and our Health, Safety and Security is available on pages 28 to 33 of the 2012 Sustainable Development Report. Woodside Petroleum Ltd. | our health, safety and security 11 community enGAGement The long-term relationships we have with the communities in which we operate are fundamental to maintaining our licence to operate. regional, state and national level, as well as investing in supporting communities internationally, with a particular emphasis on building capability and capacity. It is Woodside’s commitment that each of our operating locations has local community engagement and development programs. We recognise we are part of the community; we make commitments for the long- term and therefore look after each other and our communities. An example of this commitment is the Woodside operated-Sunrise Joint Venture and its focus on supporting youth development and education, by building the capability and capacity of the next generation of Timorese. Our major national partners are Surf Life Saving Australia and Conservation Volunteers. These partners are delivering programs that support the health and wellbeing of coastal communities around Australia. In addition we initiated a new collaborative program with the Royal Flying Doctor Service, the Lions Cancer Institute and Royalties for Regions to deliver the first free skin cancer screening service for people living and working in the Kimberley region of Western Australia. our performance Woodside is a member of the London Benchmarking Group (LBG) and uses its methodology to track, measure, benchmark and report on our social investment performance. Woodside has a social investment target of 0.5% profit before tax by 2015. Our direct voluntary social investment contribution* in 2012 was A$9.5 million. This equates to 0.34% of a three-year averaged PBT (2010-2012). During 2012 we commissioned a corporate social investment review to determine whether key outcomes of our 2009-2012 social investment strategy had been achieved. the impact and outcomes achieved by community partners and their programs. For further information on Woodside’s major social investment contributions and our Sustainable Communities Policy visit our website. The Woodside-operated North West Shelf (NWS) Project also commissioned a separate review of its social investment programs in the Pilbara region of Western Australia. Consistent with Woodside’s corporate social investment review, this NWS review also found stakeholders perceived social investment programs in the Pilbara to be highly regarded by the community. Key opportunities for improvement are to continue to consult with the community, to promote the social investment strategy and to investigate the effective long-term measurement of social investment program outcomes. employee volunteering and engagement Our contribution to communities through social investment is complemented by our employee engagement and corporate volunteering program. The program is run in collaboration with Volunteering WA which offers participation in social programs and Conservation Volunteers which offers participation in environmental programs. Our corporate volunteering program provides employees with the opportunity to contribute 12 hours of paid volunteering leave each year, to support community- based organisations. outlook In 2013, as our social investment strategy evolves, we expect to direct more investment towards one particular area of social need. In addition, we will refine our community engagement processes and policies to ensure they support the company’s licence to operate. The review outcomes were positive and opportunities for improvement were identified. An area of focus will be to improve communications regarding Further information on our Community Engagement is available on pages 14 to 27 of the 2012 Sustainable Development Report. Above: Learning about science with the Scitech Aboriginal Education program. Woodside is a proud supporter of Scitech’s Aboriginal Education Program. In 2012 the program won the Leading Edge Award for Visitor Experience at the Association of Science and Technology Centres, for its delivery of science outreach to Western Australia’s most remote communities. 2012 Key peRfoRmAnce hiGhliGhts We directly contributed A$9.5 million worth of social investment* to the communities in which we operate. Our staff contributed 5,800 volunteering hours, valued at A$0.96 million. Our voluntary social investment contribution in 2012 equated to 0.34% of a three-year averaged profit before tax (2010 to 2012). futuRe objectives Meet our target of contributing 0.5% profit before tax by 2015 to community programs, in order to ensure communities benefit from our activities. our approach Woodside’s strategic and integrated approach to corporate social investment is guided by our Sustainable Communities Policy. Our social investment strategy is based on a three tiered funding model with a theme of contributing to health and well-being on a personal, community and environmental level. Our focus is to contribute to communities at a * Includes cash value, in-kind and voluntary hours (Woodside share). 12 Woodside Petroleum Ltd. | community engagement OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONenviRonmentAl RepoRt Our success depends on our ability to understand our current and future operating environments, the potential impacts of our activities and how we best manage and mitigate such impacts. 2012 Key peRfoRmAnce hiGhliGhts No reportable or recordable environmental incidents from Pluto LNG commissioning and start-up activities. Environmental approvals received with minimal impact to activity schedule during the commencement of the new offshore regulatory regime. futuRe objectives Complete energy efficiency assessments at the Nganhurra floating production storage and offloading (FPSO) vessel, the Northern Endeavour FPSO and Goodwyn A Platform. Maintain a low level of environmental incidents. flare gas and intensity (excludes commissioning) 9.5 9.6 9.3 0 1 3 3 4 3 7 2 3 0 5 1 6 2 1 6 1 1 8.0 7.5 6 4 72 1 2 9 7 5 6 08 09 10 11 12 Flared gas intensity (tonne/kilotonnes hydrocarbon production) Total gas flared for operated ventures (kilotonnes) Woodside portion of flaring (kilotonnes) Flared gas intensity is measured as tonnes of gas flared per kilotonne of hydrocarbon produced (t/kt). The reduction in intensity continued in 2012 largely as a result of increased reliability and the implementation of flaring reduction measures. environmental incidents 1 2 8 66 4 11 12 10 09 08 Six environmental incidents occurred in 2012. Since 2008 there has been a significant decline in the number of incidents. our approach Woodside’s approach to environmental management is outlined in our Environment Policy and the mandatory environmental operating standards that apply to all facilities. The standards set compulsory environmental performance requirements through the life-cycle of our projects and operations. Information on Woodside’s Environment Policy can be found on our website. excellent environmental performance Woodside partners with leading research and education institutes to generate information that is critical to support decision making and ongoing monitoring of our operations. Woodside received the 2012 APPEA Environment Award, in recognition of Woodside’s collaborative research partnerships with the Australian Institute of Marine Science and the Western Australian Museum. The research has improved scientific and industry knowledge and improved the broader community’s understandings of biodiversity and ecological function in Western Australia’s tropical marine areas. Woodside did not receive any environmental fines or penalties in relation to environmental incidents in 2012. Six incidents were reported to regulators, in accordance with legal requirements. Of these, four resulted in no measurable environmental impact. The other two resulted in a loss of 120 litres and 200 litres of hydraulic oil in separate incidents on two offshore facilities. As a result of flaring reduction initiatives, Woodside continued to reduce the flaring intensity of operational facilities, achieving a flaring rate of 7.5 t/kt (excludes flaring during commissioning). This is a decrease of flaring intensity of 6.5% on 2011 and 22% since 2008. Woodside’s rate of flaring for all facilities, including those in commissioning, was 22.9 t/kt. These rates are due to commissioning flaring at both the Okha FPSO and Pluto LNG facilities. During the commissioning of new facilities, it is often necessary to flare higher rates of gas in order to maintain safety and integrity. Once fully operational, it is expected that these facilities will operate at significantly lower flaring rates, due to mitigation measures incorporated into the design of the facility. introduction of a carbon price Effective 1 July 2012, Woodside became liable for its carbon emissions under the Australian Government’s Clean Energy Legislation. For the full year 2012, a net expense of $17 million was recognised which reflects the cost of year-to-date emissions, net of all 2012/13 carbon emission units granted by the Clean Energy Regulator. browse In November 2012, the Browse LNG Precinct near James Price Point, received environmental approval from the Western Australian Minister for Environment. In granting approval for the Precinct, the Minister set a number of strict conditions in order for any development to proceed. Further to this, the Browse LNG Development was declared a derived proposal by the Western Australian Minister for Environment in December 2012. The final environmental decision on the Precinct will be made by the Commonwealth Environment Minister. Woodside will then seek further environmental approval from the State and Commonwealth to construct and operate LNG processing facilities within the Precinct. Woodside carried out additional environmental studies in 2012, to further understand the terrestrial and marine environment in the Browse region. outlook In 2013, we are focused on maintaining a low level of environmental incidents, as well as looking to significantly reduce our rates of flaring, as facilities currently undergoing commissioning transition to normal operations. Woodside Petroleum Ltd. | environmental Report 13 lnG mARKet RepoRt Woodside executives, including Chief Executive Officer Peter Coleman (second from left) and Senior Vice President Commercial and President Marketing Reinhardt Matisons (second from right), meet with Mr Yoichi Mukae, Managing Director- Office of Fossil Fuel (far left) and other executives from Kansai Electric. balanced supply/demand position until this is completed. Start-up delays may extend the period of supply tightness and underscore the value of Woodside’s uncommitted production from the North West Shelf (NWS) Project and Pluto LNG. Australia is home to seven of the 13 projects globally under construction and is destined to become the world’s largest supplier before the end of the decade. 2025 the next wave of supply will include some new lnG exporting regions, but these will face challenges Towards the end of the decade additional new supply is required to meet growth in demand and replace the decline in some legacy projects. Globally there are many proposed projects, both brownfield expansions and greenfield, that are competing to secure new long- term sales beginning around 2020. During 2012, a final investment decision (FID) was taken on the first US LNG export project supported by domestic shale gas deposits. There are many other North American export projects currently proposed, but most are speculative at this stage. The proposals in the US are mainly based on brownfield re-development of existing re-gasification terminals. Canadian LNG projects are more aligned to typical greenfield developments in Australia in terms of cost structure and risk profiles. The general view is that US Global lnG supply and demand 500 a p t m 0 2011 Operational projects Projects under construction Possible developments WoodMackenzie demand (Nov 2012) CERA demand: Global redesign (Oct 2012 FACTS demand (Oct 2012) minimal new global lnG supply until 2016 Post-Fukushima the Asia Pacific market tightened and significant volumes of Atlantic supply are being diverted to Asian markets to meet demand. As a consequence spot LNG prices remain relatively high. There is very little new supply due on-line before the middle of the decade, and uncommitted volumes from operating projects in this period will be highly prized. From 2016 to 2019 approximately 90 mtpa of new LNG capacity currently under construction is expected to be phased into the market. The market is not expected to move back towards a more outlook for growth in global lnG demand remains strong Global demand for LNG to 2025 is anticipated to continue to grow at an average of 4% to 5% a year, equating to an increase of about 200 mtpa (million tonnes per annum).* This is underpinned by an increasing role for gas in the primary energy mix, together with a growing list of countries that will import LNG. A recent trend in forecasts of LNG demand is the potential for greater use of LNG in transport, in particular long- distance trucking and ship bunkering. The largest regional LNG market is Asia Pacific, representing approximately two-thirds of global trade, based around the core markets of Japan, Korea and Taiwan. Growth will be driven by the key markets of China and India, with a range of emerging import countries playing an increasingly important role. New LNG importing countries include Thailand, Indonesia and Malaysia, with Singapore to follow in 2013. A key uncertainty remains the outlook for Japanese demand. Following a rapid increase in the wake of the 2011 Fukushima nuclear incident, demand steadied in 2012. The recently elected Liberal Democratic Party Government has a more positive view on nuclear energy and supports restarting idled reactors once their safety has been confirmed. However, the future primary energy mix role of nuclear power generation for the country remains unclear. We will continue to monitor policy developments in 2013. *Various consultants, including WoodMackenzie, FACTS Global Energy and Poten & Partners. 14 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONexports of LNG are expected to make up less than 10% of global supply by 2025, compared to approximately 25% from Australia and 20% from Qatar. East Africa is also emerging as a new supply region following recent large offshore gas discoveries, but will likely face a range of greenfield development risks and other country specific challenges. long-term lnG pricing in Asia pacific is robust The outcomes of recent price negotiations in Asia Pacific for existing supplies indicate that the long-term oil-linked price is relatively stable with average pricing indexed to 85-90% of oil price movements. Woodside anticipates prices will remain predominantly oil-linked at close to the current level to support investment in new greenfield supply projects. US brownfield projects have given rise to some alternative pricing mechanisms, with some sales linked to the Henry Hub natural gas benchmark plus a terminal capacity charge and transportation costs. It is expected that Asian buyers will initially limit the amount of US supply in their portfolios, with its volatile alternative price index and exposure to different contractual risks. The influence on Asian pricing will ultimately depend on the proportion of Asian sales captured by US LNG and the extent to which US supplies become and remain the marginal supply choice for the region. Woodside has strong price protection for its long-term lnG sales Woodside’s Sale and Purchase agreements (SPAs) typically provide for periodic price discussions over the term of the contract. The impact of price reviews and Price Out of Range negotiations is to recalibrate contract pricing to reflect market trends. Woodside staggers the timing of price reviews within its current portfolio of more than 18 long- term SPAs to the extent possible. Between 2011 and 2014 the majority of Woodside’s equity volumes will be subject to some form of price renegotiation, which is expected to generate incremental value due to the tightness of the market and the benchmark contracts that will be used to calibrate prices during this period. Woodside’s equity lnG has doubled with the start-up of pluto A key milestone was reached when Pluto LNG loaded its inaugural cargo in May. Better than forecast LNG production at Pluto also enabled higher than planned deliveries to key long-term customers and resulted in further sales of additional LNG cargoes into a high demand spot market. In 2012 Woodside delivered 39 cargoes from Pluto, compared to a total of 247 cargoes from the NWS Project. Pricing discussions are underway for Pluto, targeting similar market price outcomes as other relevant Australian benchmarks for deliveries of long-term volumes into Japan. NWS LNG continues to be highly valued in the market, with the extension of a long-term contract and a strong outcome for a recent price review with Japanese customers. These have set a solid platform for new sales following the sanction of the Greater Western Flank Phase 1 offshore development. Woodside actively marketing browse lnG Woodside is actively engaged with a broad base of premium customers in Asia to secure Browse foundation sales to be in a position to consider a FID in 2013. Sales into Japan and North Asia are underwritten through a joint marketing effort with Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI), following the combined off-take and equity transfer deal announced in May. This effectively places approximately 3.3 mtpa of Browse volumes into the premium Asian market, with joint marketing affording us market priority. In other regions, Woodside is also progressing its own equity sales and these are at various stages of maturity to support a FID. new developments will deliver an extended range of markets and customers Woodside’s planned participation in the Leviathan field in the Eastern Mediterranean and its entry into Myanmar could lead to new LNG and domestic gas market opportunities. Woodside is preparing for timely engagement with relevant markets to underpin these proposed new supply projects. We will leverage our long- term experience in both pipeline gas and LNG marketing, together with our customer relationships to introduce the new supply to the relevant markets and secure foundation customers. Woodside to expand its lnG trading and shipping business Central to our success is Woodside’s LNG shipping position. Woodside manages an integrated fleet of three ships on behalf of Pluto and has utilised these ships for project deliveries and optimisation with other suppliers, end users and traders. Pluto took a major investment decision in 2012 to expand its fleet to include a dedicated long-term fourth ship via a time charter (commencing mid 2013). This will allow further fleet integration and materially reduce operating costs. The vessel will support term and spot sales from Pluto, including any potential trading opportunities. focused on consolidation, optimisation and new opportunities As the major Australian supplier, Woodside’s key strengths are its reputation for reliability, long-term relationships with key buyers, proximity to premium Asian markets, and the stable political and fiscal regime in which it operates. We monitor the changing market and will remain competitive in securing long-term and short-term sales opportunities. Woodside’s marketing efforts in 2013 will be focused on the consolidation and optimisation of LNG sales from operating assets and also on generating revenue from other shipping and trading activities. Woodside’s recent developments represent an opportunity to expand into new markets and to extend the existing broad base of premium Asian customers. Woodside is ready to leverage its strong marketing position and capability to support its Australian and international growth plans. Woodside Petroleum Ltd. | lnG market Report 15 ReseRves stAtement The developed portion of Proved plus Probable reserves increased by 132% in 2012 due to the start-up of Pluto LNG. 2012 Key points Developed Proved plus Probable reserves increased 430.3 MMboe largely due to achieving first production from Pluto LNG. Net Contingent Resource in the Greater Browse region decreased by 427.8 MMboe largely due to a positive revision at Calliance (+40.8 MMboe) and the sale of a minority portion of equity in the proposed Browse LNG Development (-468.8 MMboe). Net Contingent Resource in the Greater Pluto Region increased 36.1 MMboe due to discovery of the Ragnar gas field. Woodside’s reserves(1) overview Proved(2) Developed Proved(3) Proved plus Probable(4) Developed Proved plus Probable Contingent resources(5) Key metrics 2012 reserves replacement ratio(6) Organic 2012 reserves replacement ratio(7) Three year reserves replacement ratio Three year organic reserves replacement ratio Reserves life(8) Annual production(9) Net acquisitions and divestments MMboe MMboe MMboe MMboe MMboe 2012 2011 Change% 1,230.6 1,292.4 (4.8) 533.5 248.1 115.1 1,543.6 1,610.2 755.6 325.3 1,745.2 2,136.5 (4.1) 132.3 (18.3) % % % % Years MMboe MMboe proved 30 30 71 88 14 88.4 0.0 oil MMbbl 51.4 12.7 0.0 0.0 proved plus probable 25 25 52 82 17 88.4 0.0 total MMboe(14) 1,292.4 22.9 3.7 0.0 (16.8) (88.4) dry gas(10) condensate(11) Bcf(12) 6,406 MMbbl(13) 117.2 59 18 0 (358) 6,125 (0.2) 0.5 0.0 (8.8) 108.8 47.3 1,230.6 proved reserves annual reconciliation by product* Reserves at 31 December 2011 Revision of previous estimates(15) Extensions and discoveries(16) Acquisitions and divestments Annual production Reserves at 31 december 2012 best estimate contingent resources annual reconciliation by product* Contingent resources at 31 December 2011 Transfer to reserves Revision of previous estimates Extensions and discoveries Acquisitions and divestments contingent resources at 31 december 2012 proved reserves summary by region* project Greater Pluto(17) North West Shelf(18) Greater Exmouth(19) United States of America(20) Other Australia(21) Reserves dry gas Bcf 9,788 condensate MMbbl 288.6 oil MMbbl 130.7 total MMboe 2,136.5 (7) 82 285 (2,312) 7,836 (0.2) 3.6 2.5 (63.2) 231.2 (3.7) 5.7 6.5 (5.1) 23.7 59.0 (0.0) (468.8) 139.3 1,745.2 dry gas Bcf 3,641 2,480 0 4 0 condensate MMbbl 54.2 oil MMbbl 0.0 54.6 0.0 0.0 0.0 19.8 21.7 3.9 1.8 total MMboe 692.9 509.6 21.7 4.5 1.8 6,125 108.8 47.3 1,230.6 proved plus probable reserves summary by region* project Greater Pluto North West Shelf Greater Exmouth United States of America Other Australia Reserves dry gas Bcf 4,856 2,644 0 5 0 condensate MMbbl 70.8 oil MMbbl 0.0 60.1 0.0 0.0 0.0 31.4 53.2 6.7 4.6 total MMboe 922.7 555.4 53.2 7.7 4.6 7,505 130.9 95.9 1,543.6 proved reserves* s e v r e s e r d e v o r P d e p o e v e D l ) e o b M M ( ) e o b M M ( s e v r e s e r d e v o r P 8 2 3 , 1 6 9 2 , 1 8 0 3 , 1 2 9 2 , 1 1 3 2 , 1 533 377 331 264 248 08 09 10 11 12 Developed Proved reserves increased 285.4 MMboe by year-end, largely due to the successful start-up of Pluto LNG. proved plus probable reserves* l s e v r e s e R e b a b o r P s u p d e v o r P l ) e o b M M ( s e v r e s e r e b a b o r P l l s u p d e v o r P d e p o e v e D l 3 0 7 , 1 1 5 6 , 1 0 8 6 , 1 0 1 6 , 1 4 4 5 , 1 ) e o b M M ( 756 495 444 354 325 08 09 10 11 12 Due to Pluto LNG start-up, developed Proved plus Probable reserves increased 430.3 MMboe. *Small differences are due to rounding to first decimal place. 16 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION developed and undeveloped (proved plus probable reserves) Developed Greater Pluto undeveloped NWS undeveloped Other undeveloped % 49.0 27.3 22.6 1.1 As projects are brought into production, additional value is derived for the company. At year-end 2012, 49% of the Proved plus Probable reserves were categorised as developed, up from 20% in 2011. best estimate contingent resources summary by region* project Greater Browse(22) Greater Sunrise(23) Greater Pluto North West Shelf Greater Exmouth United States of America Other Australia Other International(24) total dry gas Bcf 4,987 1,717 851 99 93 2 66 22 condensate MMbbl 136.4 75.6 13.2 3.0 0.5 0.0 0.5 2.1 oil MMbbl 0.0 0.0 0.0 21.4 103.1 1.8 8.4 4.5 total MMboe 1,011.4 376.7 162.5 41.7 119.9 2.1 20.4 10.5 7,836 231.2 139.3 1,745.2 *Small differences are due to rounding to first decimal place. The Reserves Statement has been compiled by Mr Ian F. Sylvester, Woodside’s Chief Reservoir Engineer who is a full-time employee of the company. Mr Sylvester’s qualifications include a Master of Engineering (Petroleum Engineering) from Imperial College, University of London, England, and more than 20 years of relevant experience. Mr Sylvester has consented in writing to the inclusion of this information in this report. Governance and Assurance Woodside, as an Australian company listed on the Australian Securities Exchange, reports its petroleum resource estimates using definitions and guidelines consistent with the 2007 Society of Petroleum Engineers (SPE)/World Petroleum Council (WPC)/American Association of Petroleum Geologists (AAPG)/Society of Petroleum Evaluation Engineers (SPEE) Petroleum Resources Management System (PRMS). In accordance with the PRMS guidelines, Woodside uses crude oil price forecasts and, where applicable, individual project production sales contract terms or other financial products for the purpose of reserves estimation. Unless otherwise stated, all petroleum resource estimates are quoted as net Woodside share at standard oilfield conditions of 14.696 psi (101.325 kPa) and 60 degrees Fahrenheit (15.56 deg Celsius). Woodside has several processes to provide assurance for reserves reporting, including the Woodside Reserves Policy, the Petroleum Resources Management Operating Standard, staff training and minimum competency levels and external reserves audits. On average, more than 95% of Woodside’s Proved Reserves have been externally verified by independent review over the past four years. notes to the reserves statement 1 2 3 4 5 ‘Reserves’ are estimated quantities of petroleum that have been demonstrated to be producible from known accumulations in which the company has a material interest from a given date forward, at commercial rates, under presently anticipated production methods, operating conditions, prices and costs. Woodside reports reserves net of the upstream (offshore) gas required for production, processing and transportation to a reference point defined as the inlet to the downstream (onshore) processing facility. Downstream fuel and flare represents 11.9% of total Proved reserves, and 11.8% of total Proved plus Probable reserves. ‘Proved reserves’ are those reserves which analysis of geological and engineering data suggests, to a high degree of certainty (90% confidence), are recoverable. There is relatively little risk associated with these reserves. ‘Developed reserves’ are those reserves that are producible through currently existing completions and installed facilities for treatment, compression, transportation and delivery, using existing operating methods and standards. ‘Probable reserves’ are those reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. There is at least a 50% probability that the quantities actually recovered will exceed the sum of estimated Proved plus Probable reserves. ‘Contingent resources’ are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Woodside reports contingent resources net of the upstream (offshore) fuel and non-hydrocarbons not present in sales products. Contingent resource estimates may not always mature to reserves and do not necessarily represent future reserves bookings. All contingent resource volumes are reported at the ‘Best Estimate’ (P50) confidence level. 6 7 8 9 10 11 12 13 14 The ‘reserves replacement ratio’ is the reserves change during the year, before the deduction of production, divided by production during the year. The ‘three-year reserves replacement ratio’ is the reserves change over three years, before the deduction of production for that period, divided by production during the same period. The ‘organic annual reserves replacement ratio’ is the reserves change during the year, before the deduction of production and adjustment for acquisition and divestments, divided by production during the year. The ‘reserves life’ is the total reserves (developed and undeveloped) divided by production during the year. ‘Annual production’ is the volume of dry gas, condensate and oil (see Notes 10 and 11) produced during the year and converted to ’MMboe’ (see Note 12) for the specific purpose of reserves reconciliation and the calculation of reserves replacement ratios. The ‘Reserves Statement’ annual production differs from production volumes reported in the company’s annual and quarterly reports due to differences in the sales product definitions, reserves reported gross of downstream fuel and flare and the ‘MMboe’ conversion factors applied. ’Dry gas’ is defined as ‘C4 minus’ petroleum components including non-hydrocarbons. These volumes include LPG (propane and butane) resources. Dry gas reserves include ‘C4 minus’ hydrocarbon components and non-hydrocarbon volumes that are present in sales product. ‘Condensate’ is defined as ‘C5 plus’ petroleum components. ‘Bcf’ means Billions (109) of cubic feet of gas at standard oilfield conditions of 14.696 psi (101.325 kPa) and 60 degrees Fahrenheit (15.56 degrees Celsius). ‘MMbbl’ means millions (106) of barrels of oil and condensate at standard oilfield conditions of 14.696 psi (101.325 kPa) and 60 degrees Fahrenheit (15.56 degrees Celsius). ‘MMboe’ means millions (106) of barrels of oil equivalent. Consistent with international practice, dry gas volumes are converted to oil equivalent volumes via a constant conversion factor, which for Woodside is 5.7 Bcf of dry gas per 1 MMboe. Volumes of oil and condensate are converted from MMbbl to MMboe on a 1:1 ratio. 15 16 ‘Revision of previous estimates’ are changes in previous estimates of reserves or contingent resources, either up or down, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors. ‘Extensions and discoveries’ represent additions to reserves or contingent resources that result from increased areal extensions of previously discovered fields, discovery of reserves in new fields or new reservoirs in old fields. 17 The ‘Greater Pluto’ region comprises the Greater Pluto Central, Inner, Ragnar and Claudius Hubs. 18 The ‘North West Shelf’ (NWS) includes all oil and gas fields within the North West Shelf Project Area. As the NWS consists of a portfolio of fields, probabilistic aggregation is more appropriate than arithmetic summation as inter-field dependencies reflecting different reservoir characteristics between fields are incorporated. Probabilistic aggregation of individual fields in the NWS accounts for 12% of NWS Proved dry gas reserves and 16% of NWS Proved condensate reserves. 19 The ‘Greater Exmouth’ region comprises Vincent, Enfield, Cimatti, Stybarrow-Eskdale and Greater Laverda fields 20 Woodside’s resources in the United States of America include the Neptune and PowerPlay fields. 21 22 ‘Other Australia’ includes the Mutineer-Exeter, Laminaria-Corallina and Argus fields. ‘Greater Browse’ comprises the Brecknock, Calliance and Torosa fields. Woodside completed the sale of a minority portion of the company’s equity in the proposed Browse LNG Development to Japan Australia LNG Pty Ltd. Net resources are subject to future unitisation outcomes. 23 ‘Greater Sunrise’ comprises the Sunrise and Troubadour fields. 24 ‘Other International’ includes fields in Brazil. Woodside Petroleum Ltd. | Reserves statement 17 eXploRAtion RevieW In 2012, we pursued new international growth opportunities that align with our strategy and capabilities. These provide greater diversity and broader balance to our portfolio, positioning the company to deliver long-term value growth for shareholders. 2012 Key peRfoRmAnce hiGhliGhts Strengthened our portfolio with new permit entries in Australia and preliminary agreements for permit entries in Myanmar and Israel. Acquired Woodside’s largest ever seismic survey in the Outer Canning Basin, offshore Western Australia. Gas discovered at Ragnar-1A. futuRe objectives In 2013 Woodside plans to drill up to eight wells offshore Australia and acquire seismic data in Australia, Myanmar and potentially Peru. Test the prospectivity of the under- explored Outer Canning Basin. Progress drilling in offshore Israel. Strengthen and mature our exploration portfolio. exploration results In 2012, Woodside drilled six exploration wells, resulting in a gas discovery at Ragnar-1A in WA-430-P in the Carnarvon Basin. Three dry holes were drilled in Australia (Vucko-1, Banambu Deep-1 and Ananke-1), one in the Republic of Korea (Jujak-1) and one in the Gulf of Mexico (Innsbruck-1). Exploration risk was managed by farming out equity in three Australian permits prior to drilling. This included farming out 35% equity in WA- 433-P to Sasol Petroleum, 40% equity in WA-389-P to BHP Billiton Petroleum, and 16.67% equity in WA-269-P to Japan Australia LNG. Exploration expenditure was lower in 2012 due to these farm- out decisions and a planned slowdown in exploration drilling during a time of portfolio replenishment. portfolio renewal The 2012 exploration drilling results were disappointing, and reflect the need for Woodside to continue to rebuild and refocus its exploration portfolio. Consistent with this goal, in 2012 we acquired three new exploration permits in Australia and over 15,000km2 of new three dimensional (3D) seismic data, including Woodside’s largest ever seismic survey, to prepare for future exploration campaigns. This included the acquisition of the 11,530 km2 Curt 3D seismic survey in the Outer Canning area, where risks are high but prospect sizes are large. In addition, we substantially increased our international new ventures team, conducted regional studies and pursued new acreage. In line with our revised exploration strategy to re-balance our portfolio, we have shifted our emphasis from mature basins with a predominant focus on Australia, to a balance between mature, emerging and frontier basins in Australia and also internationally. In Myanmar, subject to final agreements and approvals, we will add two new exploration permits in the offshore Rakhine Basin. We are looking forward to working with our experienced local partners to mature this acreage by acquiring 3D seismic data in 2013. Woodside has significant acreage in prospective exploration areas Woodside permits Woodside permits Woodside fields Woodside fields WEL owned/participant WEL owned/participant 2012 acquired permits 2012 acquired permits Gas Gas Oil Oil AC/P48 Argus WA-275-P Torosa Brecknock Calliance WA-432-P WA-429-P WA-449-P WA-397-P WA-396-P 0 100 200 kilometres Horizontal Datum: GDA 1994 WA-447-P WA-466-P WA-462-P WA-464-P WA-415-P WA-416-P WA-417-P James Price Point Derby Broome Banambu Deep-1 WA-389-P WA-347-P WA-348-P WA-404-P WA-465-P WA-467-P WA-473-P WA-434-P Ananke-1 WA-269-P Pluto NWS WA-472-P WA-451-P Port Hedland Vucko-1 WA-433-P Ragnar-1 WA-430-P WA-478-P Karratha Vincent / Enfield Laverda Exmouth 18 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION2012 exploration expenditure by category 2012 exploration expenditure by country Drilling Seismic Studies and other % 37 29 34 Drilling expenditure was reduced from the previous year due to fewer wells and cost savings from farm-outs. Expenditure on studies and data purchases was increased, associated with rebuilding the exploration portfolio. % Australia 57 USA 13 International excluding USA 30 Australia remained the focus for exploration expenditure, but there was an increased emphasis on international ventures. Australian outlook In 2013, Woodside will resume its Australian exploration drilling with up to eight wells planned in Australia, subject to rig availability. Two to three wells target oil prospects in the Greater Exmouth Area; three are in support of our existing gas assets, and two wells are in pursuit of a new LNG hub in the Outer Canning Basin. Over 10,000 km2 of 3D seismic acquisition is planned in the Beagle Sub-Basin and in the North West Shelf Joint Venture area, which will allow for the maturation of drilling candidates for subsequent years. international outlook In the deepwater Gulf of Mexico, Woodside will continue to mature our exploration portfolio and, subject to joint venture participation, expects to participate in drilling operations in 2013. Conditional on final agreements and approvals, we plan to acquire 3D seismic in Myanmar in 2013 over exploration permits A-6 and AD-7, with options to drill exploration wells in subsequent exploration periods. The in-principle agreement to acquire a 30% participating interest in the Leviathan field, offshore Israel, also provides the opportunity for Woodside to participate in an exploration well in 2014. In Peru, Woodside has a 20%, non-operated interest in onshore block 108, which is currently under force majeure conditions. Once the force majeure conditions cease, the Joint Venture plans to acquire up to 800 km of 2D seismic. In the Canary Islands, Woodside holds a 30% interest in blocks 1-9 operated by Repsol. Full rights to the permit activity have been reinstated following the issue of a Royal Decree on 16 March 2012; however, the Royal Decree is currently the subject of legal proceedings initiated by third party interest groups. In Israel as part of the Leviathan purchase agreement, which is also subject to final approvals, we have the opportunity to participate in an offshore exploration well, targeting a deep oil play. Woodside will continue to use appropriate technology as we pursue opportunities that align with our strategy and capabilities. Woodside anticipates exploration expenditure will increase to around $480 million in 2013, up from $260 million in 2012. 2012 exploration drilling results Six exploration wells were drilled during 2012, with a 190 m gross gas column encountered at Ragnar-1A, located approximately 33 km north west of Laverda. WA-430-p, Ragnar hub Woodside 70% (operator) Ragnar-1A was finalised during early 2012 with the well encountering gas within the objective Triassic Mungaroo Formation. The follow-up Gumbo prospect is planned to be drilled in WA-430-P in early 2013. WA-433-p, Ragnar hub Woodside 45% (operator) Vucko-1 was drilled to test a Triassic fault block north-west of the Ragnar discovery; however, no hydrocarbons were encountered. WA-389-p, Greater pluto Woodside 25% (operator) Banambu Deep-1 was drilled to test an incised channel system within the Mungaroo Formation; however, no hydrocarbons were encountered. WA-269-p, Greater pluto, inner hub Woodside 50% (operator) Ananke-1 was drilled to test an Oxfordian stratigraphic trap; however, the well was unsuccessful. block 8/6-1n, ulleung basin, Republic of Korea Woodside 50% (operator) Jujak-1 was drilled as the first deepwater well in the frontier Ulleung Basin. The well explored a Miocene fan complex within a four way dip closure. The well found excellent reservoir at the objective section, but no hydrocarbons were encountered. mississippi canyon block 993, Gulf of mexico Woodside 15% (non-operator) Innsbruck-1 tested an oil prospect to the south of the Gunflint discovery in the deepwater Gulf of Mexico. No commercial hydrocarbons were encountered. Woodside Petroleum Ltd. | exploration Review 19 AC/P48 Argus WA-275-P Torosa Brecknock Calliance WA-432-P WA-429-P WA-449-P WA-397-P WA-396-P WA-447-P WA-466-P WA-462-P WA-464-P WA-415-P WA-416-P WA-417-P James Price Point Derby Broome Banambu Deep-1 WA-389-P WA-347-P WA-348-P WA-404-P WA-465-P WA-467-P WA-473-P WA-434-P Ananke-1 WA-269-P Pluto NWS WA-472-P WA-451-P Port Hedland Karratha WA-478-P Vucko-1 WA-433-P Ragnar-1 WA-430-P Vincent / Enfield Laverda Exmouth RisK mAnAGement We recognise that risk is inherent to our business and are committed to managing all risk in a proactive and effective manner. Active risk management Woodside’s risk management system Woodside operates a standardised enterprise-wide system which provides an over-arching and consistent process for the recognition and management of material risk. Woodside’s risk management process is aligned to ISO 31000, the international standard for risk management. Woodside’s Risk Management Policy outlines the principles which underpin our approach to risk. Our risk management operating standard is part of the Woodside management system and sets out clearly defined criteria to evaluate and report on material risk. We systematically assess the consequence of risks in areas such as: health and safety; environmental; financial; legal and compliance; reputation and brand; and social and cultural impacts. In the Woodside context, we routinely consider our oil and gas exploration, development and operational risks and continually seek to improve our risk management framework to more effectively manage these industry-wide risks. We also consider incidents and issues in the global energy industry to ensure that Woodside is responding appropriately to similar risks. Our most significant material risks, and how they are being managed, are summarised in the corporate risk profile. Operational and project risks are continuously reviewed and summarised in the corporate register for twice yearly review by the executive management team and the A&RC. These reviews consider the effectiveness of the actions taken by Woodside to manage risk. During 2012, an extensive review of Woodside’s risk categories was completed. The success of our risk management system relies on our employees, at all levels, proactively identifying, managing, reviewing and reporting on risk. For information regarding Woodside’s identification and response to key sustainability risks and issues refer to pages 9, 12 and 13 of the 2012 Sustainable Development Report. Woodside’s approach to risk is focused on enhancing opportunities, reducing threats and sustaining our competitive advantage. Central to this is the consistent application of our process for the recognition and management of risks across Woodside’s business. Key roles and responsibilities The Board Audit and Risk Committee (A&RC) has oversight of the Risk Management Policy and is responsible for ensuring that management has developed and implemented a sound risk management system. Management at all levels has responsibility for managing risk in their area of control. Support is provided to management by the Risk and Insurance function to ensure Woodside’s risk management operating standard is consistently and effectively applied throughout the business. Risk professionals are embedded within the business units, functions and major projects to support management in the consistent application of the risk management process. The risk team maintains Woodside’s corporate risk profile and regularly reports to the A&RC on the effectiveness of the management of Woodside’s material risk. Further information on Woodside’s risk management roles and responsibilities can be found in the Corporate Governance Statement on pages 47 and 48. the risk management process n o i t a t l u s n o c d n a n o i t a c i n u m m o c establish the context Risk assessment Risk identification Risk analysis Risk evaluation Risk treatment t r o p e r d n a w e i v e r , r o t i n o m The Woodside risk management process is outlined above. Effective communication and consultation is essential to ensuring appropriate identification, analysis, evaluation and treatment of risk. 20 Woodside Petroleum Ltd. | Risk Management OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION Woodside eXecutives a d g b e h c f i a) peter coleman chief executive officer and managing director BEng (Civil and Computing), MBA Peter has 28 years experience in the global oil and gas industry, and was appointed Chief Executive Officer and Managing Director of Woodside upon joining the company in May 2011. Peter began his career at Esso Australia (later to become part of the ExxonMobil group) following graduation from Monash University, and stayed with ExxonMobil until joining Woodside. b) Robert cole executive director and executive vice president, corporate and commercial BSc LLB (Hons) Robert joined Woodside in 2006 as General Counsel after a 21 year career with law firm Mallesons Stephen Jaques. Robert was appointed to the Woodside Board in the role of Executive Director in early 2012. In this role, Robert is responsible for an array of corporate and commercial functions including legal and company secretariat, audit, commercial, corporate affairs, security and emergency management, health and safety, human resources and environment and heritage. c) lawrie tremaine executive vice president and chief financial officer BBus, FCPA Lawrie has more than 20 years finance leadership experience in the resource and minerals processing industry. He joined Woodside in December 2006 and transitioned into his current role as Executive Vice President and Chief Financial Officer in January 2011. In this role Lawrie is responsible for a range of functions including finance, investor relations, risk management, information technology and supply chain. d) vince santostefano chief operations officer BEng (Civil) Vince has more than 33 years experience in the oil and gas sector working across a range of disciplines including drilling, operations and structural/civil design. In his role as Executive Vice President Development, Robert is responsible for the delivery of onshore and offshore capital projects, in addition to drilling, subsea and reservoir management operations. g) dr michael hession senior vice president, browse BSc, MBA, PhD Michael is Senior Vice President of the proposed Browse LNG Development, a position he has held since 2009. Michael is responsible for the safe and successful delivery of the Browse LNG Development, which Woodside operates on behalf of the Browse Joint Venture. Vince joined Woodside in 1999 and has worked in variety of roles, including Project Manager, Director of the Australian Business Unit and Executive Vice President Production. h) dr Greg Roder executive vice president corporate strategy and planning BSc (Hons), PhD, MBL In his current role as Chief Operations Officer, Vince oversees the producing Business Units and the Production Function covering the operations of all Woodside’s producing facilities. Greg has over 25 years experience in energy resources, infrastructure investment, funds management, equity capital markets and operational asset management. e) dr peter moore executive vice president exploration BSc (Hons 1), PhD, MBA Peter joined Woodside in 1998 as the Geological Manager. He has since held a range of roles, including Head of Evaluation and Exploration Manager Gulf of Mexico. Peter was appointed to the role of Executive Vice President Exploration in March 2009, which sees him responsible for all of Woodside’s exploration efforts worldwide. f) dr Robert edwardes executive vice president development BSc (Eng), PhD Robert has 35 years of resources industry experience spanning the full breadth of operations and projects, including HSE and operations integrity, production technology, development planning and delivery of major capital projects. His role of Executive Vice President Corporate Strategy and Planning sees Greg responsible for setting and coordinating Woodside’s growth path in line with the agreed strategic themes the company is pursuing. i) feisal Ahmed executive vice president technology BSc Mechanical Engineering Feisal has more than 36 years global oil and gas experience in exploration, development, production, gas marketing and new business development, including 25 years with ExxonMobil. In his role as Executive Vice President Technology, he is responsible for the development of distinctive technologies to facilitate new growth opportunities and enhancement of technical capabilities across the company. His prior roles were Executive Vice President Development and Senior Vice President Middle East and Africa. Woodside Petroleum Ltd. | Woodside executives 21 THE NORTH RANKIN REDEVELOPMENT in April 2012, the north Rankin Redevelopment (nR2) project successfully installed the north Rankin b topsides on the platform’s substructure. the 260 m long heerema H-851 barge, the largest oil and gas industry transport barge in the world, was used to transport and install the topsides. the topsides, weighing more than 24,000 tonnes and positioned 100 m from the north Rankin A production facility, were installed using the float-over method. significant challenges were overcome by the nR2 team to safely deliver this result. Accomplishing this milestone was not easy. it required detailed analysis, disciplined planning, extensive risk analysis, rigorous attention to detail and above all – teamwork. 22 Woodside Petroleum Ltd. | 2012 Annual Report vwaWE BELIEVE INNOVATION MEANS TURNING CHALLENGES INTO NEW OPPORTUNITIESOVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION The successful use of the float-over method at North Rankin B to install the 24,000 tonne topsides, set an installation record for both height and weight in open water. pages 24 to 35 provide an overview of Woodside’s business units. Woodside Petroleum Ltd. 23 NORTH WEST SHELF The Karratha Gas Plant is one of the most advanced integrated gas production systems in the world. The facility includes five LNG processing trains, two domestic gas trains, six condensate stabilisation units, three LPG fractionation units as well as storage and loading facilities for LNG, LPG and condensate. futuRe objectives Safe start-up of NRB platform. LNG Train 2 refurbishment. Acquire new seismic data to refresh exploration portfolio. nWs key metrics (Woodside share) Sales revenue ($ million) 3,300 2,989 2012 2011 Net gas production Net liquids production Proved plus Probable reserves (MMboe) 36.7 37.8 (MMbbl) 10.8 8.9 (MMboe) 555.4 581.2 the execution of significant development milestones including the safe installation of the north Rankin b (nRb) topsides demonstrates Woodside’s capability as a leading operator and is paving the way for the north West shelf (nWs) project to deliver strong performance for decades to come. north West shelf project Interest NWS Venture Domestic Gas JV 16.67% 50.00%* Incremental Pipeline JV 16.67%* China LNG JV CWLH (crude oil) 12.50% 33.33% Operator Woodside Facilities North Rankin A platform Goodwyn A platform Angel platform Okha FPSO Karratha Gas Plant Offshore facilities ~135 km north-west of Karratha, WA 80 - 130 metres LNG, pipeline gas, condensate, crude oil and LPG Location Water depth Products First production 1984 (pipeline gas) *During 2012 Woodside’s average share of pipeline gas production was approximately 45%. Woodside’s exact share of domestic gas production depends on the quantities and aggregate rate of production. 24 Woodside Petroleum Ltd. | 2012 Annual Report 2012 Key peRfoRmAnce hiGhliGhts Delivery of the 3500th LNG cargo and 3000th LNG cargo to Japan. Record revenue and profit for the project. Safe installation of the 24,000 tonne NRB topsides. nWs contribution to Woodside's total production (mmboe) NWS gas and condensate NWS oil Woodside other % 52 4 44 During 2012 the NWS operations continued to provide the majority of Woodside’s production. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONIn 2012, the NWS Project achieved two major cargo milestones. In August, the 3500th LNG cargo was loaded from the Karratha Gas Plant (KGP) and in November the 3000th LNG cargo was delivered to Japan. These milestones reinforce the long standing relationships the NWS Project has with its customers in the Asia Pacific region. These achievements demonstrate our reputation as a major LNG exporter, where safety, reliability and strong performance are fundamentals. As operator, Woodside has been instrumental in establishing and maintaining that reputation, and today we are developing a new generation of projects on the back of that success. Since 2008 the NWS Project has committed more than A$9 billion in reserves and infrastructure development, including the North Rankin Redevelopment, North West Shelf Oil Redevelopment and more recently the Greater Western Flank Phase 1 Project. Woodside continues to enhance the value of the NWS Project through our strategic objectives of operational excellence, and seeking opportunities to extend the NWS business. operational excellence Strong performance from the KGP and offshore facilities has led to record revenue and profit. The NWS Project continues to underpin Woodside’s financial performance, delivering a record profit of $1.6 billion (2011 $1.4 billion) and contributing approximately 53% of Woodside’s sales revenue during the year. In 2012, Woodside’s share of production from the NWS Project was 47.5 million barrels of oil equivalent (boe). We are focused on capacity utilisation to maximise performance from reservoir to market and are continuing to implement our Reliability Improvement Plan. The annual May shutdown was one of the largest at KGP with more than 1,500 people on site. The shutdown was successfully completed without a recordable safety incident. The scope of work included routine and integrity maintenance and aligned the LNG Train 4 shutdown with the refurbishment of the Trunkline Onshore Terminal 1. Woodside delivered 247 cargoes of LNG in 2012, of which 18 were sold on the spot market. Woodside’s share of total LNG sales volumes for 2012 is 2.41 million tonnes. Pipeline gas production continued to meet customer demand in 2012 with 100% reliable delivery of 13.78 MMboe to customers in Western Australia. The Okha Floating Production Storage Offloading (FPSO) vessel completed its first full year of production in 2012, with a focus on safely completing project commissioning and closing out the NWS Oil Redevelopment Project. Commissioning of the gas export systems in addition to flareless operation was achieved. The Okha FPSO produced 10.3 MMbbl compared to a planned volume of 9.1 MMbbl (100% share). extending the nWs business nRb topsides set installation record The North Rankin Redevelopment Project is a major undertaking on a global scale and one of the most complex developments Woodside has undertaken. At year-end the Project’s overall progress was 98% and it remains on budget and is scheduled for start-up in 2013. In February the piling of the NRB jacket was completed and the production and pedestrian bridges connecting North Rankin A and North Rankin B platforms were installed. The 24,000 tonne topsides were placed on the jacket in April 2012 and set an installation record, for both height and weight in open water. Following the installation of the topsides, hook up and commissioning activities commenced. The NRB permanent living quarters were finished in May 2012. The North Rankin Redevelopment Project will recover low pressure gas from the North Rankin and Perseus gas fields and is expected to cost approximately A$5 billion (A$840 million Woodside share). Greater Western flank (GWf) phase 1 progresses During 2012, the GWF Phase 1 Project awarded major contracts and continued fabrication work. At year-end overall progress was 41%. Progress on engineering, fabrication and delivery activities is in line with scheduled project start-up in early 2016. The Ocean America drill rig completed the GH reservoir drilling activities in December 2012 and well heads were installed. The GWF Phase 1 Project represents the next major development for the NWS Project. It will develop the Goodwyn GH and Tidepole fields, via a subsea tie-back to the existing Goodwyn A Platform. The total investment for the GWF Phase 1 Project is approximately A$2.5 billion (A$425 million Woodside share). further tie-backs and exploration planned We are advancing the development of Persephone field on the Eastern Flank of the NWS acreage as a potential tie-back to North Rankin and are looking at subsequent Greater Western Flank phases. The NWS Project will continue exploration in 2013, acquiring seismic data to provide future drilling opportunities. Additionally, Woodside plans to drill the Goodwyn North exploration well during 2013. outlook Maintaining safe and reliable production has been Woodside’s focus for the past 28 years and remains key to sustaining our exceptional return on invested capital. We will continue to strive for operational excellence and invest in our infrastructure in order to maintain our world class assets. Major refurbishment will continue at the KGP with refurbishment of LNG Train 2 (deferred from 2012) and the Domestic Gas Plant. The KGP will also execute significant projects on fractionation unit 2 and complete an upgrade of our quality measurement equipment. The NWS Project will aim to maximise production and return on invested capital within these constraints. A number of shutdowns will be required in 2013 to integrate the NRB platform into the NWS system. We will continue to develop reserves and maintain supply deliverability from the NWS to extend the life of the project. Woodside Petroleum Ltd. | north West shelf 25 PLUTO LNG Woodside representatives with the West Australian Minister for Environment, Circle of Elders representatives, Murujuga Aboriginal Corporation (MAC) representatives and the Pilot Ranger team. The MAC, sponsored by Pluto LNG, has implemented a Pilot Ranger Project to care for the Burrup Peninsula. The Rangers are working co-operatively with the departments of Environment and Conservation and Indigenous Affairs to share their long-term vision for managing the area. pluto key metrics (Woodside share) 2012 2011 ($ million) 1,427 (MMboe) 22.0 (MMbbl) 1.9 - - - (MMboe) 922.7 950.2 Operating revenue Net gas production Net liquids production Proved plus Probable reserves pluto lnG utilisation 2012 100 e g a t n e c r e P 0 May Jun Jul Aug Sep Oct Nov Dec 2012 Actual utilisation Target utilisation Target utilisation for the Pluto LNG Train was based on the start-up performance of North West Shelf LNG trains 4 and 5. Actual utilisation exceeded the target for each month in 2012, as shown in the graph. pluto lnG Interest* WA-34-L WA-350-P WA-404-P 90% 90% 100% Operator Location Woodside Pluto and Xena fields, 190 km north-west of Karratha, WA Water depth 400 - 1,000 metres Greater Pluto Proved + Probable Reserves^ 4,856 Bcf dry gas, 70.8 MMbbl condensate * As a result of organisational changes, permits have been reassigned to the Exploration business unit. ^ Woodside share. pluto lnG contribution to Woodside's total production (mmboe) Pluto LNG Pluto condensate Rest of business % 26 2 72 During 2012 Pluto LNG contributed 24 MMboe to full-year production. first production from pluto lnG marked the beginning of a new era for Woodside enabling the company to continue to build on its previous experience and enhance its specialist capabilities. 2012 peRfoRmAnce hiGhliGhts Safe and successful start-up of Pluto LNG. Better than forecast ramp-up, contributing 24 MMboe to full year production. 39 LNG cargoes delivered and sold to customers. Strong performance underpinning Woodside’s full year revenue and cash flow. futuRe objectives Add fourth vessel to the Pluto LNG fleet. Finalise ancillary site project work and commissioning activities. Focus on steady state production and continued reliability. Progress development of Xena gas field. Target improved LNG train performance. 26 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONsafe start-up and production in 2012 During the first half of 2012, Pluto LNG safely achieved start-up, commenced LNG and condensate production and loaded its first LNG cargo. Commissioning was substantially completed in 2012 with some activities remaining in 2013. Achieving these milestones, particularly first production, marked the beginning of a new era for Woodside enabling the company to continue to build on its previous experience and enhance its specialist capabilities. Under the A$34 million Pluto LNG Conservation Agreement with the Australian Government, Woodside currently supports three projects. One of these projects is the Pilot Ranger Project, which currently employs eight local Indigenous people to manage country. To date Woodside has invested over A$7 million of Conservation Agreement funding in local community projects, tracking well on overall spend for the ten year period of the agreement. Additionally, Woodside is the only resource company in the Pilbara that has an office in Roebourne, with permanent employees working closely with the local community. strong production performance Superior performance and high reliability in the ramp-up phase of Pluto LNG contributed to two upward revisions of 2012 production guidance. In 2012 Pluto contributed 24 MMboe to full year production. A total of 2.15 million tonnes of LNG was delivered in the second half of 2012 (100% project). This production performance resulted in 39 cargoes of LNG being delivered to customers. Of those 39 cargoes delivered during 2012, seven cargoes were sold at prices higher than the normal contracted pricing formula. financial contribution The Woodside share of LNG revenue resulting from the strong production performance from Pluto LNG was $1,164 million for 2012. Revenue from condensate sales also contributed $138 million to Woodside’s revenue. Further information on Woodside’s engagement with the Indigenous community, including the Pluto LNG Conservation Agreement, is available on pages 24 and 25 of the 2012 Sustainable Development Report. pluto lnG expansion opportunities In 2012 exploration continued in the Ragnar Hub, located south-west of the Pluto field. The Ragnar-1 well (WA-430-P) successfully intersected gas over a gross interval of 190 metres. Vucko-1, Banambu Deep-1 and Ananke-1 (WA-389-P and WA-269-P) were drilled and were unsuccessful. Woodside completed a 25% farm-down in WA-433-P to Sasol. Woodside maintained a high equity position (45%) in addition to holding operatorship of the permit. The equity holding in WA-433-P is now Woodside 45%, Sasol 35% and Mitsui 20%. Woodside decided to pause its drilling program to allow for evaluation of well results and to rebuild the exploration portfolio. Woodside continues to pursue Pluto LNG expansion opportunities. safety culture delivers positive results outlook There were no significant personal injuries during the Pluto LNG start-up campaign, reflecting Woodside’s strong safety culture. Woodside will continue to identify opportunities to enhance production levels and efficiency. During start-up, focus remained on integrity and process safety. A proactive monitoring program was undertaken by the engineering, operations and maintenance teams, allowing for early identification and resolution of commissioning issues. The first significant planned maintenance shutdown is scheduled for the first half of 2013 as part of normal operation cycles. The planned shutdown also presents an opportunity to efficiently resolve any outstanding commissioning activities. In 2013, a fourth LNG tanker will be added to the Pluto LNG fleet, allowing for greater capacity to meet customer needs and to take advantage of the demand outlook in the LNG spot market. Basis of Design work for the Xena gas field was completed in 2012 and planning is underway to enter front-end engineering and design in 2013. Approximately 19.24 million hours were worked in 2012 compared with 29.26 million hours in 2011, representing a reduction in activity levels of 34% as a result of construction reaching completion in early 2012. continued support for indigenous Western Australians Developing Pluto LNG on the Burrup Peninsula presented Woodside with a unique opportunity, not only to build a world-class LNG facility, but also to adopt a new approach to cultural heritage management and Indigenous participation and engagement. The goals and targets established for construction of Pluto LNG covered Indigenous training, employment and conservation and were purposefully set to create new benchmarks of achievement for the company in community contribution. Woodside achieved these targets and, with the start-up of Pluto LNG, remains committed to building Indigenous participation outcomes. Woodside Petroleum Ltd. | pluto lnG 27 AUSTRALIA OIL Oil from Enfield is produced through five subsea wells connected to the floating production storage and offloading vessel, the Nganhurra. The vessel has a maximum storage capacity of about 900,000 barrels of oil. in 2012 we achieved significant production milestones across our oil assets and continued to advance growth opportunities. 2012 peRfoRmAnce hiGhliGhts Record monthly production achieved for Vincent field in May 2012. futuRe objectives Successfully complete dry dock works for Ngujima-Yin FPSO to enhance asset reliability. Significant production milestones in August 2012 with the combined oil production from the Enfield and Vincent fields exceeding 100 MMbbls (100%). Total Laminaria - Corallina production has exceeded 200 MMbbls (100%) since start-up. Successful Vincent Phase III infill well. Completed purchase and transition of Ngujima-Yin floating production storage and offloading (FPSO) facility from Maersk to Woodside. Continue work to progress Greater Enfield Area oil opportunities. Determine concept selection for Laverda. Progress Vincent Phase IV and Phase V infill well opportunities. Develop and endorse Laminaria- Corallina ‘end of field life’ strategy. Drill the Minarelli (operated) and Rydal (non-operated) exploration wells. Australia (non-nWs) contribution to Woodside’s total production (mmboe) Australia oil (non-nWs) key metrics (Woodside share) Sales revenue ($ million) 1,545 1,677 2012 2011 Net gas production Net liquids production Proved plus Probable reserves (MMboe) 0.0 0.0 (MMbbl) 12.5 15.0 (MMboe) 57.8 70.2 Enfield Laminaria-Corrallina Stybarrow Mutineer–Exeter Vincent Woodside other % 3 2 3 <1 7 85 28 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONSince start-up in 2006, Enfield has produced 68.9 MMbbls of oil with 2012 production 4.6 MMbbls (2.8 MMbbls Woodside share). laminaria - corallina oil field Interest The Enfield Development currently includes eight oil-production wells, eight water-injection wells and two gas-injection wells tied back to the Nganhurra FPSO. Operator Facilities Location In 2012 the Australian oil assets provided a significant financial contribution to Woodside’s revenue through the ability to attract a price premium for our products. Australia Oil generated $1,545 million in sales revenue at an average realised price greater than $120/bbl. Woodside achieved premiums to the Brent oil price benchmark for its heavy sweet crudes from the Greater Enfield area. These premiums are due to strong regional demand for diesel. While unit operating costs increased, we continued to focus on the reliability and integrity of our assets to maximise value. vincent oil field Interest Operator Facilities Location Water depth Products First production WA-28-L Woodside Ngujima-Yin FPSO 45 km off the North West Cape, WA 350-400 metres Crude oil August 2008 Vincent has produced 37.1 MMbbls of oil since start-up in 2008, with 2012 production of 10.1 MMbbls (6.0 MMbbls Woodside share). The Vincent field performed well in 2012, with Vincent Phase III wells completed. In particular, the new VNB-H7 infill well has shown good deliverability. In May 2012 the Vincent oil field achieved the highest monthly volume of 1.38 MMbbls (0.83 MMbbls Woodside share) since production began in 2008. The joint purchase of the Ngujima-Yin FPSO with our co-venturer Mitsui E&P Australia Pty Ltd occurred in late 2011. The final handover from Maersk to Woodside was completed on 30 September 2012. 60% enfield oil field Interest Operator Facilities Location WA-28-L Woodside Nganhurra FPSO ~40 km off the North West Cape, WA 400 - 500 metres Water depth Products Crude oil First production July 2006 60% Facilities Location During 2012, as a growth opportunity for Enfield, basis of design activities were completed for the Cimatti oil field and front-end engineering design studies commenced. stybarrow oil field Interest Operator WA-32-L BHP Billiton 50% Stybarrow Venture FPSO ~50 km off the North West Cape, WA 825 metres Crude oil Water depth Products First production November 2007 Stybarrow has produced 55.1 MMbbls of oil since start-up in 2007. Production in 2012 was 4.5 MMbbls (2.2 MMbbls Woodside share). Facility reliability and availability remained strong through 2012. In 2013 we will continue to assess high value exploration tie-back opportunities. mutineer oil field Interest Operator Facilities Location 8.20% WA-26-L; WA-27-L Santos MODEC Venture II FPSO ~147 km north of Karratha, WA ~165 metres Crude oil Water depth Products First production March 2005 Mutineer-Exeter has produced 57.5 MMbbls of oil since start-up in 2005, and produced 1.8 MMbbls in 2012 (0.1 MMbbls Woodside share). Woodside signed a sale and purchase agreement with Santos on 21 December 2012 to sell our entire 8.2% interest in the Santos operated Mutineer Exeter oil project with effect from 1 July 2012. Subject to the satisfaction or waiver of certain conditions, the agreement is expected to be completed in early 2013. Laminaria Corallina AC/L5 Woodside 59.90%* 66.67% Northern Endeavour FPSO Timor Sea, 550 km north-west of Darwin ~340 metres Crude oil 1999 Water depth Products First production *Interests on a post-unitisation basis, i.e. after agreeing to pool Woodside’s interest with other field owners and to exploit the field as a single venture. The Northern Endeavour FPSO achieved a significant milestone with total oil production exceeding 200 MMbbls from the Laminaria-Corallina fields since starting production in 1999. Production in 2012 was 2.2 MMbbls (1.4 MMbbls Woodside share). In 2013 we will optimise operating costs based on planning for end of field life. laverda development Interest Operator Location WA-36-R Woodside ~50 km off the North West Cape, WA Water depth ~800 metres 60% Following successful appraisal, the Laverda development team has focused on field development, engineering and environmental studies in 2012 to underpin a concept selection decision. outlook Woodside will continue to improve the understanding of its oil reservoirs to look for infill opportunities to extend the life and value of its oil assets. In addition, we will evaluate tie-backs to existing facilities and, in-line with our strategy, advance value-adding growth opportunities. Ongoing integrity and reliability improvements are planned for the Ngujima-Yin FPSO while off-station during 1H 2013. Oil production in 2013 will be impacted by field decline and the Ngujima-Yin FPSO being off-station. Woodside Petroleum Ltd. | Australia oil 29 BROWSE LNG Woodside has engaged senior Traditional Owners to complete detailed anthropological and archaeological surveys of the proposed Browse LNG Precinct. Traditional Owners are providing us with ongoing support by monitoring our approved site activities, to ensure we follow the correct cultural directions. the completion of a high quality front-end engineering and design (feed) along with the receipt and ongoing disciplined evaluation of tender bids has browse on track to consider a final investment decision in 1h 2013. 2012 peRfoRmAnce hiGhliGhts FEED studies completed. Tender bids for upstream and downstream infrastructure received and under evaluation. futuRe objectives Complete preparations to be in a position to consider a final investment decision (FID) in 1H 2013. Finalise project environmental and heritage approvals. State environmental approvals secured. Complete marketing activities for Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) purchased a minority portion of Woodside’s equity in Browse LNG Development for $2 billion. LNG offtake. browse Interest* Operator Location 34% 34% 17% 17% 60% TR/5; R2; WA-30-R WA-31-R; WA-32-R WA-28-R; WA-29-R WA-275-P AC/RL8 Woodside Offshore 425 km north of Broome, WA Water depth 400 - 800 metres Contingent Resources^ * As a result of organisational changes, permits 4,987 Bcf dry gas, 136.4 MMbbl condensate have been reassigned to the Exploration business unit. ^ Woodside share. Net resources are subject to unitisation outcomes. location of Woodside’s permits in the browse area Darwin Argus AC/RL8 Torosa WA-30-R R 2 TR/5 WA-32-R WA-29-R WA-275-P WA-275-P Brecknock Calliance WA-31-R WA-28-R WA-28-R Woodside permits WEL owned/participant Woodside fields Gas James Price Point Derby Broome Wyndham Kununurra 30 Woodside Petroleum Ltd. | 2012 Annual Report Port Hedland Karratha OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION developing a world-class resource Woodside is the operator of the Browse Joint Venture, which is seeking to commercialise the Brecknock, Calliance and Torosa fields in the Browse basin, located approximately 425 km north of Broome in Western Australia. The three fields collectively hold a world-class gas resource of approximately 15.5 Tcf and 417 million barrels of condensate (100% project). Under the proposed development, gas and liquids from the fields will be extracted using offshore facilities then brought to an onshore facility for processing at the Western Australian Government’s proposed multi-user Browse LNG Precinct, near James Price Point, about 60 km north of Broome. The planned onshore production and export facilities include three processing trains capable of processing 12 million tonnes of liquefied natural gas per annum, with a potential expansion capacity of up to 25 mtpa. In April 2012, variations to the Browse Basin retention leases were approved, which included extending the timetable for readiness for a FID to the 1H 2013. FEED studies were completed in 2012. Fully costed technical proposals from upstream FEED contractors were received during the first half of 2012 while downstream bids were obtained in 2H 2012. The contract assurance and commercial evaluation phase commenced in late 2012 and is expected to be completed in 1H 2013. Woodside successfully completed the 2012 program of geotechnical and environmental studies at the Browse LNG Precinct at James Price Point. Some additional studies are planned for 2013 to further inform work undertaken during FEED. Offshore, a seismic survey of the Torosa field was successfully completed in Q4 2012. Several changes to the equity arrangements within the Browse Joint Venture occurred in 2012. Woodside sold a minority portion of its equity in Browse LNG Development to Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) which delivered early value, adding $2 billion in cash to our balance sheet. Chevron sold its equity share in Browse to Shell Development Australia and BHP Billiton Petroleum announced its intention to sell its equity share to PetroChina International Investment (Australia) Pty Ltd. These equity changes are a positive endorsement of the value of the resource. Woodside’s minority equity sale to MIMI in Q3 includes a sales and purchase agreement with MIMI for 1.5 million tonnes of LNG a year for 15 years from the Browse LNG Development, as well as a joint marketing agreement under which Woodside and MIMI will jointly market comingled LNG volumes to Japanese customers. Both parties were actively engaged with potential customers in Q4. securing primary approvals The Western Australian Environmental Protection Authority (EPA) recommended conditional approval of the State Government’s proposed LNG Precinct in July 2012. The Western Australian Environment Minister subsequently approved the Precinct and set the final environmental conditions for it to proceed. The Precinct requires approval from the Commonwealth Environment Minister, which is expected in 1H 2013. In December 2012, the EPA and the WA Environment Minister approved Woodside’s proposal to build and operate a LNG processing facility and associated infrastructure within the Precinct. The public review of the Browse LNG Development’s Draft Upstream Environmental Impact Statement (EIS) was completed and final information is expected to be submitted to regulators for approval in Q1 2013. Heritage approvals are progressing and Woodside is working closely with senior Traditional Owners to identify and carefully manage Aboriginal culture and heritage at the site of the proposed Browse LNG Precinct. World-class environmental research In 2012, Woodside continued its program of environmental studies in the vicinity of the Browse LNG Precinct and offshore to better understand the surrounding environment and ensure any potential impacts from the proposed development can be mitigated. As part of its environmental assessment of the marine environment, the Browse Joint Venture commissioned the most comprehensive study to date of humpback whales off the Kimberley coast. Between 2009 and 2012, various research methods have been employed to improve our understanding of this species including line transect vessel surveys, vessel-based behavioural surveys, photo identification, aerial transect surveys, sea noise loggers and satellite tagging. This world-class program – one of Australia’s largest investments in whale research – provides Woodside and its Joint Venture participants a robust understanding of whale distribution, abundance and behaviour in the North West of WA. Woodside is committed to ensuring any potential impacts on the environment arising from the development of an LNG precinct on the Dampier Peninsula can be minimised and managed effectively. For further information on the economic, social and environmental impacts of the proposed Browse LNG Development refer to pages 26 and 27 of the 2012 Sustainable Development Report. our commitment to indigenous people Under the Native Title Agreement between Woodside, the Western Australian Government and the Goolarabooloo Jabirr Jabirr claim group, Woodside will aim to meet a target whereby at least 300 Indigenous people are to be employed during construction of the onshore facilities with at least 15% of the workforce being Indigenous during normal operations. Throughout the year, more than 100 Indigenous people were involved in training and up-skilling programs and pathways or employed directly on Browse by Woodside and its contractors. Most of those involved were from the Kimberley and included people engaged as Traditional Owner environmental/heritage monitors. A number of Indigenous businesses in the Kimberley also provided products and services to the development. Since 2011, the humpback whale aerial survey program has incorporated an Indigenous training component which provides marine mammal observer training for Traditional Owners. Woodside was pleased that in 2012, one of these trainees was the first Indigenous person to take up a primary observer role in the annual aerial surveys. outlook LNG marketing activities will continue in 1H 2013 in line with Woodside’s joint marketing agreement with MIMI. Woodside’s primary focus for 2013 will be on completing the work necessary to be in a position to consider a FID for the development. The Browse Joint Venture aims to complete the substantial commercial and technical evaluation and assurance process for the Browse LNG Development in 1H 2013 in line with the Browse Basin retention lease conditions, which are founded on locating the development’s processing facilities at the State Government’s proposed LNG Precinct at James Price Point. Woodside Petroleum Ltd. | browse lnG 31 SUNRISE LNG Ba Futuru students wearing their traditional dress. Woodside has committed to supporting Ba Futuru (meaning ‘for the future’) which provides education and training programs in Timor-Leste. Image courtesy of James Collins. Woodside and the sunrise joint venture are actively engaging with both the timor-leste and Australian governments to achieve an aligned development outcome for Greater sunrise. 2012 peRfoRmAnce hiGhliGhts Productive technical workshops with the Timor-Leste Government. Active participation in a trilateral workshop with representatives from the Timor-Leste and Australian governments. futuRe objectives Deliver an aligned outcome for the development of Greater Sunrise. Continue to build on our positive stakeholder relationships with the Australian and Timor-Leste governments and the broader community. Delivered positive social development Deliver increased social development outcomes in Timor-Leste. outcomes in Timor-Leste. sunrise Interest Operator Location 33.44% (unitised) PSC JPDA 03-19; PSC JPDA 03-20; NT/RL2; NT/RL4 Woodside Offshore 150 km south-east of Timor-Leste and 450 km north-west of Darwin, Australia Water depth Less than 100 metres to greater than 600 metres 1,717 Bcf dry gas, 75.6 MMbbl condensate Contingent Resources* *Woodside share. location of Woodside’s permits in the Greater sunrise area Dili Sunrise NT/RL 2 Troubadour JPDA 03-20 JPDA 03-19 JPDA Darwin Woodside permits WEL owned/participant Argus Woodside fields Gas Torosa Brecknock 100 Calliance kilometres 0 200 Horizontal Datum: GDA 1994 32 Woodside Petroleum Ltd. | 2012 Annual Report Wyndham Kununurra James Price Point Derby Broome OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONThe Sunrise and Troubadour gas and condensate fields, collectively known as the Greater Sunrise fields, are located approximately 150 km south-east of Timor-Leste and 450 km north-west of Darwin, Northern Territory. The fields were discovered in 1974 and hold a total contingent resource of 5.13 Tcf of dry gas and 225.9 million barrels of condensate. These volumes were independently certified in 2010 and would add significantly to Woodside’s reserves should a positive final investment decision be achieved. According to the International Unitisation Agreement, signed by Australia and Timor-Leste, approximately 20% of the Greater Sunrise fields are attributed to the Joint Petroleum Development Area which is jointly administered by the governments of Australia and Timor-Leste, with the remaining 80% attributed to Australia. The Sunrise Joint Venture undertook a detailed technical and commercial evaluation of three concepts, namely Floating LNG, a brownfield expansion of Darwin LNG and a greenfield gas plant located in Timor-Leste. Discussions are currently underway between Timor-Leste, Australia and the Sunrise Joint Venture to agree on a development concept for Greater Sunrise. momentum in 2012 Following positive meetings with key Timor-Leste Government stakeholders in late 2011, Woodside’s CEO Peter Coleman met with the Timor-Leste Prime Minister Xanana Gusmao in Darwin in February 2012, to continue discussions and start working towards an aligned development outcome. At the request of the Timor-Leste Government, the Sunrise Joint Venture provided a range of technical data to the Timor-Leste and Australia governments with regards to Greater Sunrise. Following the provision of technical data, further discussions were held in Timor-Leste in September and were followed by two joint technical workshops, the first in October in Timor-Leste and the second in November in Perth. In December, the Sunrise Joint Venture participated in a workshop organised by the Australian and Timor-Leste Sunrise Commissioners regarding the Greater Sunrise development. The workshop allowed all parties to discuss a range of commercial, technical, legal and political matters related to the development. Further discussions with both governments have been agreed and will occur in early 2013. community development Woodside is committed to continuing our program of meaningful social investment via long-term partnerships with the communities of Timor-Leste. Woodside and the Sunrise Joint Venture’s social investment and sponsorship program focuses on: Developing capability. Supporting health and wellbeing. Connecting, engaging and building relationships with communities. The Sunrise Joint Venture places strong emphasis on supporting initiatives which help local organisations to develop skills and resources to deliver services that in turn develop capabilities and contribute to the health and wellbeing of communities. Recent examples of social investment and sponsorship initiatives supported by Woodside and the Sunrise Joint Venture include: Instituto Catolico Para Formacao Professores (ICFP) Baucau Teachers College: the progression of Timorese ICFP tutors through the Australian Catholic University’s Master of Education program. Ba Futuru (‘For the Future’): a Timor-Leste Non Government Organisation, for the construction of a Childhood Development Centre and training initiative. Hiam Health: a Timor-Leste Non Government Organisation, to support and help develop their existing Family and Community Nutrition Garden’s initiative. Timor-Leste’s Rotary’s Youth Leadership Award 2012: sponsorship of event and presentation by Woodside’s staff. 2012 Dili Marathon: Sponsorship of the National Marathon Team. 1st International Congress of Geology in Timor-Leste: sponsorship of event. At an appropriate time Woodside together with the Sunrise Joint Venture will work with the Timor-Leste Government and other industry partners to identify specific local content opportunities that help to create sustainable economic growth. Further information on Community Engagement in Timor-Leste is available on page 17 of the 2012 Sustainable Development Report. timor-leste professional development program In 2012, Woodside launched the Timor-Leste Professional Development Program. The pilot program commenced on 26 November and enables its five participants, who are currently studying at Australian-based universities, to gain valuable technical, business and career development skills over 12 weeks of vacation employment with Woodside. The program demonstrates Woodside’s commitment to professional development and capability building in the communities in which we operate and hold business interests. outlook In 2013, Woodside looks to expand its level of engagement and work collaboratively with both the Timor-Leste and Australian governments. This will build a better understanding of the issues of importance to all parties and move towards a shared vision of the Greater Sunrise development. Woodside believes there remains an opportunity to agree on a development which satisfies the requirements of all parties. The key to reaching this goal is regular, open and constructive dialogue between the parties. Woodside plans to continue to build relationships and our understanding of issues concerning the communities of Timor- Leste and further expand our program of meaningful social development. Woodside Petroleum Ltd. | sunrise lnG 33 Dili Sunrise NT/RL 2 Troubadour JPDA 03-20 JPDA 03-19 JPDA Darwin Wyndham Kununurra Argus Torosa Brecknock Calliance James Price Point Derby Broome INTERNATIONAL in 2012 we secured new international growth opportunities that align with our strategy and capabilities. 2012 peRfoRmAnce hiGhliGhts Reached an in-principle agreement to acquire a 30% participating interest in licences covering the Leviathan gas field, offshore Israel. Obtained in-principle agreements to farm-in to exploration blocks, offshore Myanmar (AD-7 and A-6). Increased production at Neptune via recompletion. The semi-submersible drill rig, the Maersk Developer, mobilises to a drill location in the Gulf of Mexico. The Maersk Developer was used to drill the Innsbruck well in which Woodside participated during 2012 (refer to page 19). Woodside continues to explore and expand its international portfolio. futuRe objectives Mature and drill high-graded Gulf of Mexico (GoM) exploration portfolio. Secure final approval for Leviathan transaction and progress development. Secure final approval for farm-ins offshore Myanmar, begin seismic programs. Drill the Panoramix-3 appraisal well in Brazil. Continue to assess new value-creating opportunities. Gulf of mexico Gulf of mexico key metrics (Woodside share) international key metrics, excluding Gulf of mexico (Woodside share) 2012 2011 2012* 2011 Sales revenue ($ million) 76 Net production (MMboe) 0.8 93 1.1 Sales revenue ($ million) Net production (MMboe) 0.0 0.0 Proved plus Probable reserves (MMboe) 7.7 8.5 Proved plus Probable reserves (MMboe) 0.0 43 1.8 0.0 *The Ohanet Risk Sharing Contract expired on 27 October 2011. Consequently there was no production from this region in 2012. Gulf of Mexico production Woodside other % 1 99 During 2012 GoM operations contributed 0.8 MMboe to Woodside’s production from gas, condensate and oil volumes. 34 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONneptune oil field broadening the portfolio AT 573-575; 617; 618 WI 20% NRI 17.5% israel Woodside 30% (non-operator)* Interest Operator Location BHP Billiton Atwater Valley, 220 km offshore Louisiana, USA ~ 2,000 metres Oil and gas Water depth Products First production July 2008 WI - Working interest , NRI - Net revenue interest Neptune is a multi-well subsea development tied back to a stand-alone tension leg platform. The Neptune field produced first oil in 2008. A successful recompletion and bottom hole pressure reduction campaign has reduced the effects of natural field decline. The near-term development plan for Neptune includes the drilling of one appraisal well. power play oil field Interest GB 302 WI 20% NRI 16.3% Operator Location Anadarko Garden Banks, 200 km offshore Louisiana, USA 700 metres Water depth Oil and gas Products First production June 2008 WI - Working interest , NRI - Net revenue interest Power Play began production in 2008 as a subsea tieback to the deepwater Baldpate facility. During 2012, the current producing zone at the Power Play well continued to outperform expectations. Development work at Power Play confirmed flow rates of a higher zone. The near-term development plan for Power Play includes movement to the higher rate zone once the current producing zone is depleted, or suitable conditions exist. outlook In 2013, the operator plans to drill one appraisal well at Neptune as well as focus on reducing the effects of natural field decline for its GoM properties. Woodside anticipates participating in exploratory drilling operations in the deepwater GoM in 2013, subject to joint venture participation. In December 2012 Woodside reached an in-principle agreement to acquire a 30% participating interest in each of the 349/Rachel and 350/Amit petroleum licences which contain the Leviathan gas field offshore Israel. Leviathan is one of the largest recent gas discoveries worldwide, estimated to contain approximately 17 Tcf of recoverable natural gas. The agreement positions Woodside to grow its portfolio in the emerging Eastern Mediterranean Basin, and play a key role in the potential development of Israel’s LNG industry. Under the agreement Woodside will be the operator of any LNG development of the field, while Noble Energy will remain upstream operator. Noble Energy targets initial production to the domestic gas market in 2016. A pre-front-end engineering and design assessment for an LNG project is underway. The agreement is subject to various conditions and will allow Woodside to participate in further exploration opportunities in the Leviathan licences. myanmar AD-7 Woodside 40% (non-operator)* A-6 Woodside 50% (non-operator)* In late 2012 Woodside obtained in- principle agreements to farm-in to two Production Sharing Contracts (PSCs) for blocks AD-7 and A-6 in the Rakhine Basin, located in the western offshore area of the Republic of the Union of Myanmar. The Rakhine Basin is a prospective frontier exploration area that aligns with Woodside’s strong deepwater capabilities. Woodside’s offer to take a 40% participating interest in the PSC covering block AD-7 was accepted by Daewoo International Corporation (Daewoo) in October 2012. Daewoo remains as operator of the PSC. The agreement provides the opportunity for Woodside and Daewoo to undertake a 3D seismic acquisition program in 2013. The transaction also provides the option to drill an exploration well in a subsequent exploration period. In December 2012, MPRL E&P Pte Ltd (MPRL) accepted Woodside’s offer to take a 50% participating interest in the PSC covering block A-6. MPRL will remain operator of Block A-6 for the current term of the exploration period. The proposal provides the opportunity for Woodside and MRPL to undertake a 3D seismic survey program in the block and also provides an option for future drilling. The proposed agreement also provides Woodside and MPRL with the opportunity to participate jointly in future deepwater bid rounds. other brazil Woodside holds a 12.5% interest in one concession agreement covering 314 km2 in the Santos Basin of Brazil. Woodside continues to evaluate the Panoramix oil field. The Joint Venture is preparing to drill the Panoramix-3 appraisal well in 2013 and is considering a Vampira drill stem test. canary islands Woodside holds a 30% interest in blocks 1-9 operated by Repsol. Full rights to the permit activity have been reinstated following the issue of a Royal Decree on 16 March 2012; however, the Royal Decree is currently the subject of legal proceedings initiated by third party interest groups. peru Woodside has a 20%, non-operated interest in onshore block 108, which is currently under force majeure conditions. Once force majeure conditions cease, the Joint Venture plans to acquire 800 km of 2D seismic. Republic of Korea Jujak-1 was drilled as the first deepwater well in the frontier Ulleung Basin. The well explored a Miocene fan complex within a four way dip closure. The well found excellent reservoir at the objective section, but no hydrocarbons were encountered. * Subject to conditions including execution of fully-termed agreements, completion of due diligence, and necessary government and other approvals. Woodside Petroleum Ltd. | international 35 boARd of diRectoRs a b c d e a) michael A chaney, Ao Chairman - BSc, MBA, Hon LLD (UWA), FAICD Director since November 2005, Chairman since July 2007 Independent: Yes Age: 62 Residence: Perth, Australia experience 22 years with Wesfarmers Limited, including Managing Director and CEO from 1992 to 2005. Three years with investment bank Australian Industry Development Corporation (1980 to 1983) and eight years as a petroleum geologist working on the North West Shelf and in the USA and Indonesia. Previously a non-executive director of BHP Billiton Limited (1995 to 2005) and BHP Billiton Plc (2001 to 2005). committee membership Chair of the Nominations Committee. Attends other Board committee meetings. current directorships Chair: National Australia Bank Limited (director since 2004) and Gresham Partners Holdings Limited (director since 1985). Chancellor: The University of Western Australia (since 2006). Director: The Centre for Independent Studies Ltd (since 2000). Member: JP Morgan International Council. b) peter j coleman CEO and Managing Director - BEng, MBA Director since May 2011 Independent: No Age: 52 Residence: Perth, Australia experience 28 years experience with the ExxonMobil group in the global oil and gas business, culminating as Vice President Development Company, with responsibility for leading development and project work in the Asia Pacific. committee membership Attends Board committee meetings. 36 Woodside Petroleum Ltd. | 2012 Annual Report current directorships Member: The University of Western Australia Business School Board (since 2011) and the Executive Committee of the Australia Japan Business Co-operation Council (since 2011). Commissioner: West Australian Football Commission (since 2012). c) Robert j cole Executive Director and Executive Vice President, Corporate and Commercial - BSc, LLB (Hons) Director since February 2012 Independent: No Age: 50 Residence: Perth, Australia experience Joined Woodside as General Counsel in April 2006. Executive Vice President Corporate Centre and General Counsel (2008 to 2010). Executive Vice President Commercial and General Counsel (2010 to 2012), until he was appointed to his current role of Executive Director. Prior to joining Woodside, Mr Cole had more than 21 years experience in corporate, energy and resources law, including three years as partner in charge of the Perth office of Mallesons Stephen Jaques. committee membership Attends Board committee meetings. current directorships Vice Chair: Australian Petroleum Production and Exploration Association (since 2011). Director: Committee for Perth (since 2011). d) melinda A cilento BA, BEc (Hons), MEc Director since December 2008 Independent: Yes Age: 47 Residence: Melbourne, Australia experience Significant public and private sector experience in economic analysis, policy development and advice. Deputy Chief Executive (2006 to 2010) and Chief Economist (2002 to 2010) of the Business Council of Australia. Previously worked with County Investment Management (now Invesco) as Head of Economics, the Department of Treasury and the International Monetary Fund. committee membership Member of the Human Resources & Compensation, Sustainability and Nominations Committees. current directorships Director: Wesfarmers General Insurance Limited (since 2010). Co-chair: Reconciliation Australia (director since 2010, co-chair since 2011). Councillor: Victorian Division of the Australian Institute of Company Directors. Member: Advisory Panel of the Australian Scholarships Foundation and Advisory Council of the Global Foundation. e) frank c cooper1 BCom, FCA Director since February 2013 Independent: Yes Age: 57 Residence: Perth, Australia experience More than 35 years experience in corporate tax, specialising in the mining, energy and utilities sector, including most recently as a partner of PricewaterhouseCoopers. Director of Alinta Infrastructure Limited and Alinta Funds Management Limited (2005 to 2006). committee membership Member of the Audit & Risk, Human Resources & Compensation and Nominations Committees. current directorships Chair: Insurance Commission of Western Australia, University of Western Australia Strategic Resources Committee and West Australian Football Commission. Member: Senate of the University of Western Australia and State Health Research Adivisory Council. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONf g h i j f) erich fraunschiel2 BCom (Hons) Director since December 2002 Independent: Yes Age: 67 Residence: Perth, Australia h) Andrew jamieson, obe FREng, CEng, FIChemE Director since February 2005 Independent: Yes Age: 65 Residence: United Kingdom experience More than 18 years experience in senior executive positions with Wesfarmers Limited, including 10 years as CFO and Executive Director. committee membership Chair of the Audit & Risk Committee. Member of the Sustainability and Nominations Committees. current directorships Chair: Wesfarmers General Insurance Limited (since 2003). Director: WorleyParsons Limited (since 2003). g) christopher m haynes, obe BSc, DPhil, CEng, FIMechE Director since June 2011 Independent: Yes Age: 65 Residence: United Kingdom experience Former Executive Vice President Gas and Projects of Shell Gas and Power International BV with more than 30 years experience with Shell in Europe, Australia and Africa. From 1997 to 1999. Dr Jamieson was seconded to Woodside as General Manager North West Shelf Venture. Retired from Shell in June 2009. committee membership Chair of the Human Resources & Compensation Committee. Member of the Sustainability and Nominations Committees. current directorships Chair: Seven Energy International Limited (director since 2011, chair since 2012). Director: Leif Hoegh & Co Ltd (since 2009) and Oxford Catalysts Group PLC (since 2010). experience 38 year career with Shell including as Executive Vice President, Upstream Major Projects within Shell’s Projects and Technology Business, General Manager of Shell’s operations in Syria and a secondment as Managing Director of Nigeria LNG Ltd. From 1999 to 2002 Dr Haynes was seconded to Woodside as General Manager of the North West Shelf Venture. Retired from Shell on 31 August 2011. committee membership Member of the Audit & Risk, Sustainability and Nominations Committees. current directorships Director: WorleyParsons Limited (since 2012). i) david i mcevoy BSc (Physics), Grad Dip (Geophysics) Director since September 2005 Independent: Yes Age: 66 Residence: Sydney, Australia experience 34 year career with ExxonMobil involving extensive international exploration and development experience. committee membership Chair of the Sustainability Committee. Member of the Audit & Risk and Nominations Committees. current directorships Director: AWE Limited (since 2006). Directorships of other listed entities within the past three years: Acer Energy Limited (2002 to November 2012) and Po Valley Energy Ltd (2004 to May 2012). j) sarah e Ryan PhD (Petroleum and Geophysics), BSc (Geophysics) (Hons 1), BSc (Geology) Director since December 2012 Independent: Yes Age: 46 Residence: Sunshine Coast, Australia experience More than 20 years international experience in the oil and gas industry in various technical, operational and senior management positions, including 15 years with Schlumberger Limited. Dr Ryan also served as Chief Operating Officer of MTEM Ltd, an oilfield technology company. Dr Ryan is Director, Equity Investment at institutional investment firm Earnest Partners where she is responsible for research and portfolio management in the global energy sector. committee membership Member of the Audit & Risk, Sustainability and Nominations Committees. current directorships Director: Aker Solutions ASA (since 2011). NOT PICTURED pierre jmh jungels, cbe PhD (Geophysics and Hydraulics) Dr Pierre Jungels retired with effect on 7 December 2012 after ten years of service on Woodside’s Board of Directors. Dr Jungels served on a number of Woodside Board committees including the Human Resources & Compensation, Audit & Risk and Nominations Committees. 1 Mr Cooper will be appointed Chair of the Audit & Risk Committee with effect from 28 February 2013, following Mr Fraunschiel’s retirement. 2 Mr Fraunschiel will retire on 28 February 2013. Woodside Petroleum Ltd. | board of directors 37 coRpoRAte GoveRnAnce stAtement contents corporate governance at Woodside 39 board of directors committees of the board shareholders promoting responsible and ethical behaviour Risk management and internal control external auditor relationship diversity 39 43 45 46 47 48 49 AsX corporate Governance council recommendations checklist 51 38 Woodside Petroleum Ltd. | 2012 Annual Report WE BELIEVE hIgh standards of goVErnancE and transparEncy arE EssEntIaL.OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1 corporate governance at Woodside Woodside is committed to a high level of corporate governance and fostering a culture that values ethical behaviour, integrity and respect. We believe that adopting and operating in accordance with high standards of corporate governance is essential for sustainable long-term performance and value creation. This statement reports on Woodside’s key governance principles and practices. These principles and practices are reviewed regularly and revised as appropriate to reflect changes in law and developments in corporate governance. Woodside’s corporate governance model is illustrated below. The Woodside Management System (WMS) sets out how Woodside provides management governance and assurance. It defines how Woodside will deliver its business objectives and the boundaries within which Woodside employees and contractors are expected to work. The WMS establishes a common approach to how we operate, wherever the location. The company, as a listed entity, must comply with the Corporations Act 2001 (Cwlth) (Corporations Act), the Australian Securities Exchange (ASX) Listing Rules (ASX Listing Rules) and other Australian and international laws. The ASX Listing Rules require the company to report on the extent to which it has followed the Corporate Governance Recommendations contained in the ASX Corporate Governance Council’s (ASXCGC) second edition of its Corporate Governance Principles and Recommendations (August 2007). Woodside believes that, throughout the 2012 year and to the date of this report, it has complied with all the ASXCGC Recommendations. A checklist cross-referencing the ASXCGC Recommendations to the relevant sections of this statement and the Remuneration Report is provided on page 51. Information on Woodside’s governance framework is also provided in the corporate governance section of Woodside’s website. The website contains copies of Board and committee charters and copies of many of the policies and documents mentioned in this statement. The website is updated regularly to ensure it reflects Woodside’s most current corporate governance information. 2 board of directors 2.1 board role and responsibilities ASXCGC Recommendations 1.1, 1.3 The Constitution provides that the business and affairs of the Company are to be managed by or under the direction of the Board. The Board has approved a formal Board Charter which details the Board’s role, powers, duties and functions. Other than as specifically reserved to the Board in the Board Charter, responsibility for the management of Woodside’s business activities is delegated to the CEO who is accountable to the Board. The Board Charter and the delegation of Board authority to the CEO are reviewed regularly. The central role of the Board is to set the company’s strategic direction, to select and appoint a CEO and to oversee the company’s management and business activities. In addition to matters required by law to be approved by the Board, the following powers are reserved to the Board for decision: the appointment and removal of the CEO and the Company Secretary and determination of their remuneration and conditions of service; Woodside corporate Governance model Shareholders Board n o i t a g e e D l A c c o u n t a b i l i t y Audit & Risk committee human Resources & compensation committee Chief Executive Officer nominations committee sustainability committee independent Assurance external Auditors internal Audit major project Assurance checks management Governance and Assurance strategy Risk management mission vision values policies management Review and improvement management standards operating standards Woodside management system Authorities framework operating structure management committees Woodside Petroleum Ltd. | corporate Governance statement 39  approving the appointment and, where appropriate, the removal of executives who report directly to the CEO together with their remuneration and conditions of service; approving senior management succession plans and significant changes to organisational structure; authorising the issue of shares, options, equity instruments or other securities; authorising borrowings, other than in the ordinary course of business, and the granting of security over the undertaking of the company or any of its assets; authorising expenditures which exceed the CEO’s delegated authority levels; approving strategic plans and budgets; approving the acquisition, establishment, disposal or cessation of any significant business of the company; approving annual and half-year reports and disclosures to the market that contain or relate to financial projections, statements as to future financial performance or changes to the policy or strategy of the company; approving policies of company-wide or general application; the appointment of directors who will come before shareholders for election at the next annual general meeting (AGM); and establishing procedures which ensure that the Board is in a position to exercise its powers and to discharge its responsibilities as set out in the Board Charter. A copy of the Board Charter is available in the corporate governance section of Woodside’s website. 2.2 board composition ASXCGC Recommendations 2.1, 2.2, 2.3, 2.6 The Board is comprised of eight non- executive directors, the CEO and the Executive Director and Executive Vice President, Corporate and Commercial. Mr Erich Fraunschiel will retire with effect on 28 February 2013, reducing the number of non-executive directors to seven. Details of the directors, including their qualifications, experience, date of appointment and independent status, are set out on pages 36 and 37. 40 Woodside Petroleum Ltd. | 2012 Annual Report The Board and its committees actively seek to ensure that the Board continues to have the right balance of skills, knowledge and experience necessary to direct the company in accordance with high standards of corporate governance. In assessing the composition of the Board, the directors have regard to the following principles: the Chairman should be non-executive, independent and an Australian citizen or permanent resident; the role of the Chairman and the CEO should not be filled by the same person; the CEO should be a full-time employee of the company; the majority of the Board should comprise directors who are both non- executive and independent; the Board should represent a broad range of qualifications, diversity, experience and expertise considered of benefit to the company; and the number of Shell-nominated directors, as a proportion of the Board, should normally be in the proportion that Shell’s holding of fully paid ordinary shares in the company bears to all of the issued fully paid ordinary shares in the company. Section 2.6 on Board succession planning provides further information on the mix of skills and diversity the Board seeks to achieve in membership of the Board. The Board considers that collectively the directors have the range of skills, knowledge and experience necessary to direct the company. The non-executive directors contribute operational and international experience, an understanding of the industry in which Woodside operates, knowledge of financial markets and an understanding of the health, safety, environmental and community matters that are important to the company. The CEO and the Executive Director and Executive Vice President, Corporate and Commercial bring an additional perspective to the Board through a thorough understanding of Woodside’s business. The directors on the Board represent a diverse range of nationalities and backgrounds. Dr Sarah Ryan was appointed as a non-executive director effective 6 December 2012, increasing the number of women on the Board to two. The Board recognises that there is still a gender imbalance, and that an opportunity exists to address this upon future retirements of non-executive directors. The Constitution provides that the company is not to have more than ten, nor less than three, directors. 2.3 chairman ASXCGC Recommendations 2.2, 2.3 The Chairman of the Board, Mr Michael Chaney, is an independent, non-executive director and a resident Australian citizen. The Chairman is responsible for leadership and effective performance of the Board and for the maintenance of relations between directors and management that are open, cordial and conducive to productive cooperation. The Chairman’s responsibilities are set out in more detail in the Board Charter. A copy of the Board Charter is available in the corporate governance section of Woodside’s website. Mr Chaney is also chairman of National Australia Bank Limited (NAB). The Board considers that neither his chairmanship of NAB, nor any of his other commitments (listed on page 36), interfere with the discharge of his duties to the company. The Board is satisfied that Mr Chaney commits the time necessary to discharge his role effectively. 2.4 director independence ASXCGC Recommendations 2.1, 2.6 The independence of a director is assessed in accordance with Woodside’s Policy on Independence of Directors. A copy of the Policy on Independence of Directors is available in the corporate governance section of Woodside’s website. In accordance with the policy, the Board assesses independence with reference to whether a director is non-executive, not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement. In making this assessment, the Board considers all relevant facts and circumstances. Relationships that the Board will take into consideration when assessing independence are whether a director: is a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; is employed, or has previously been employed in an executive capacity by the company or another Group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board; OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION has within the last three years been a principal of a material professional adviser or a material consultant to the company or another Group member, or an employee materially associated with the service provided; is a material supplier or customer of the company or other Group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; or has a material contractual relationship with the company or another Group member other than as a director. The test of whether a relationship or business is material is based on the nature of the relationship or business and on the circumstances and activities of the director. Materiality is considered from the perspective of the company and its Group members, the persons or organisations with which the director has an affiliation and from the perspective of the director. To assist in assessing the materiality of a supplier or customer the Board has adopted the following materiality thresholds: a material customer is a customer of Woodside which accounts for more than 2% of Woodside’s consolidated gross revenue; and a supplier is material if Woodside accounts for more than 2% of the supplier’s consolidated gross revenue. The Board reviews the independence of directors before they are appointed, on an annual basis and at any other time where the circumstances of a director change such as to require reassessment. The Board has reviewed the independence of each of the directors in office at the date of this report and has determined that eight of the ten directors are independent. The directors that are not considered independent are Mr Peter Coleman and Mr Robert Cole as they are both executive directors and members of management. Dr Christopher Haynes and Dr Andrew Jamieson were nominated to the Woodside Board by Shell and were both previously executives of Shell. Dr Haynes and Dr Jamieson retired from Shell on 31 August 2011 and 30 June 2009 respectively and continue to serve on the Woodside Board. The Board is satisfied that Dr Haynes and Dr Jamieson have no continuing association with Shell that would interfere with their independent exercise of judgement, and that each is an independent director. Mr Fraunschiel and Dr Haynes serve on the board of directors of WorleyParsons Limited, a supplier of engineering services to Woodside. The value of services provided by the WorleyParsons Limited group of companies to Woodside in 2012 exceeded the Board’s materiality threshold relating to suppliers. The Board, having regard to the nature and value of the commercial relationship between Woodside and WorleyParsons Limited, is satisfied that Mr Fraunschiel and Dr Haynes remain independent. Where a matter involving WorleyParsons Limited comes before the Board, the Directors’ Conflict of Interest Guidelines apply (refer section 2.5 below). Certain non-executive directors hold directorships or executive positions in companies with which Woodside has commercial relationships. Details of other directorships and executive positions held by non-executive directors are set out on pages 36 and 37. Four of the non-executive directors have been employed by Woodside in the past and a significant period of time has elapsed since they ceased employment. Dr Haynes and Dr Jamieson were both seconded to Woodside as General Manager of the North West Shelf Venture from 1999 to 2002 and from 1997 to 1999 respectively. Dr Ryan was employed by Woodside as a member of the North West Shelf petroleum production team from 1993 to 1996. Mr Chaney was employed by Woodside as a petroleum geologist in the 1970s. The independent status of directors standing for election or re-election is identified in the notice of AGM. If the Board’s assessment of a director’s independence changes, the change is disclosed to the market. 2.5 conflicts of interest The Board has approved Directors’ Conflict of Interest Guidelines which apply if there is, or may be, a conflict between the personal interests of a director, or the duties a director owes to another company, and the duties the director owes to Woodside. Directors are required to disclose circumstances that may affect, or be perceived to affect, their ability to exercise independent judgment so that the Board can assess independence on a regular basis. A director with an actual or potential conflict of interest in relation to a matter before the Board does not receive the Board papers relating to that matter and when the matter comes before the Board for discussion, the director withdraws from the meeting for the period the matter is considered and takes no part in the discussions or decision-making process. Minutes reporting on matters in which a director is considered to have a conflict of interest are not provided to that director. However, the director is given notice of the broad nature of the matter for discussion and is updated in general terms on the progress of the matter. 2.6 board succession planning ASXCGC Recommendation 2.6 The Board manages its succession planning with the assistance of the Nominations Committee. The committee annually reviews the size, composition and diversity of the Board and the mix of existing and desired competencies across members and reports its conclusions to the Board. In conducting the review a skills matrix is used to enable the committee to assess the skills and experience of each director and the combined capabilities of the Board. The results of this review are considered in the context of Woodside’s operations and strategy. Where the committee identifies existing or projected competency gaps, it recommends a succession plan to the Board that addresses those gaps. The Board does not currently consider that there are any existing or projected competency gaps. Recognising the importance of Board renewal, the committee takes each director’s tenure into consideration in its succession planning. As a general rule directors are not expected to serve on the Board beyond ten years. The Nominations Committee is responsible for evaluating Board candidates and recommending individuals for appointment to the Board. The committee evaluates prospective candidates against a range of criteria including the skills, experience, expertise and diversity that will best complement Board effectiveness at the time. The Board may engage an independent recruitment firm to undertake a search for suitable candidates. In its evaluation of candidates for the Board, the Nominations Committee will have regard to normally accepted nomination criteria, including: honesty and integrity; the ability to exercise sound business judgement; appropriate experience and professional qualifications; absence of conflicts of interest or other legal impediments to serving on the Board; Woodside Petroleum Ltd. | corporate Governance statement 41  willingness to devote the required time; and availability to attend Board and committee meetings. In considering overall Board balance, the Nominations Committee will give due consideration to the value of a diversity of backgrounds and experiences among the members, and to having some of the directors based in the centres of operation of Woodside. With the exception of the Managing Director, directors appointed by the Board are subject to shareholder election at the next AGM. A copy of the Nominations Committee Charter and a description of Woodside’s procedure for the selection and appointment of new directors and the re-election of incumbent directors are available in the corporate governance section of Woodside’s website. In December 2012, Mr Fraunschiel and Dr Jungels had both served ten years on the Board. Dr Jungels retired with effect on 7 December 2012 and Mr Fraunschiel will retire with effect on 28 February 2013. During the year, the Board directly engaged executive recruitment specialists, to conduct an extensive search for suitable candidates for the Board. The search culminated in the appointment by the Board of Dr Ryan with effect on 6 December 2012 and Mr Frank Cooper with effect on 1 February 2013. Mr Cole was appointed to the Board as an executive director, effective 23 February 2012. Prior to his appointment as a director, Mr Cole worked for Woodside in senior executive roles since 2006, most recently as Executive Vice President Commercial. 2.7 directors’ retirement and re-election ASXCGC Recommendation 2.6 With the exception of the Managing Director, directors must retire at the third AGM following their election or most recent re-election. At least one director must stand for election at each AGM. Any director appointed to fill a casual vacancy since the date of the previous AGM must submit themselves to shareholders for election at the next AGM. Board support for a director’s re-election is not automatic and is subject to satisfactory director performance (in accordance with the evaluation process described in section 2.9). 42 Woodside Petroleum Ltd. | 2012 Annual Report 2.8 directors’ appointment, induction training and continuing education All new directors are required to sign and return a letter of appointment which sets out the key terms and conditions of their appointment, including duties, rights and responsibilities, the time commitment envisaged and the Board’s expectations regarding their involvement with committee work. Induction training is provided to all new directors. It includes a comprehensive induction manual, discussions with the CEO and senior executives and the option to visit Woodside’s principal operations either upon appointment or with the Board during its next site tour. The induction materials and discussions include information on Woodside’s strategy, culture and values; key corporate and Board policies; the company’s financial, operational and risk management position; the rights and responsibilities of directors; and the role of the Board and its committees and meeting arrangements. All directors are expected to maintain the skills required to discharge their obligations to the company. Directors are encouraged to undertake continuing professional education including industry seminars and approved education courses. These are paid for by the company, where appropriate. In addition, the company provides the Board with regular educational information papers and presentations on industry-related matters and new developments with the potential to affect Woodside. 2.9 board performance evaluation ASXCGC Recommendations 1.3, 2.5, 2.6 The Nominations Committee is responsible for determining the process for evaluating Board performance. Evaluations are conducted annually and have produced improvements in Board processes and overall efficiency. The Board performance evaluation process is conducted by way of questionnaires appropriate in scope and content to effectively review: the performance of the Board and each of its committees against the requirements of their respective charters; and the individual performance of the Chairman and each director. The questionnaires are completed by each director and the responses compiled by an external consultant. The reports on Board and committee performance are provided to all directors and discussed by the Board. The report on the Chairman’s performance is provided to the Chairman and two committee chairmen for discussion. The report on each individual director is provided to the individual and copied to the Chairman. The Chairman meets individually with each director to discuss the findings of their report. The performance of each director retiring at the next AGM is taken into account by the Board in determining whether or not the Board should support the re-election of the director. The Human Resources & Compensation Committee reviews and makes recommendations to the Board on the criteria for the evaluation of the performance of the CEO. The Board conducts the evaluation of the performance of the CEO. The Remuneration Report on pages 53 to 65 discloses the process for evaluating the performance of senior executives, including the CEO. In 2012, performance evaluations for the Board, its committees, directors and senior executives took place in accordance with the process disclosed above and in the Remuneration Report. 2.10 board access to information and independent advice ASXCGC Recommendation 2.6 Subject to the Directors’ Conflict of Interest Guidelines referred to in section 2.5, directors have direct access to members of company management and to company information in the possession of management. The Board has agreed a procedure under which directors are entitled to obtain independent legal, accounting or other professional advice at the company’s expense. Directors are entitled to reimbursement of all reasonable costs where a request for such advice is approved by the Chairman. In the case of a request made by the Chairman, approval is required by a majority of the non- executive directors. 2.11 directors’ remuneration Details of remuneration paid to directors (executive and non-executive) are set out in the Remuneration Report on pages 53 to 65. The Remuneration Report also contains information on the company’s policy for determining the nature and amount of remuneration for directors and senior executives and the relationship between the policy and company performance. Shareholders will be invited to consider and approve the Remuneration Report at the 2013 AGM. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION2.12 board meetings During the year ended 31 December 2012, the Board held six Board meetings. In addition, site visits and a strategic planning session were held in conjunction with the June Board meeting. Details of directors’ attendance at Board meetings are set out in Table 1 on page 45. The Chairman, in conjunction with the CEO and the Company Secretary, sets the agenda for each meeting. Any director may request matters be included on the agenda. Typically at Board meetings the agenda will include: minutes of the previous meeting and matters arising; the CEO’s report; the CFO’s report; reports on major projects and current issues; specific business proposals; that Board procedures are complied with and that governance matters are addressed. During 2012, Mr Cole and Ms Frances Kernot resigned as Company Secretaries following their appointment to other roles at Woodside. Woodside’s General Counsel Mr Michael Abbott and Senior Legal Counsel Mr Warren Baillie were appointed as Company Secretaries. 3 committees of the board 3.1 board committees, membership and charters ASXCGC Recommendations 2.4, 2.6, 4.1, 4.2, 4.3, 4.4, 8.1, 8.2, 8.4 The Board has the ability under the company’s constitution to delegate its powers and responsibilities to committees of the Board. This allows the directors to spend additional and more focused time on specific issues. The Board has four standing committees to assist in the discharge of its responsibilities. These are the: reports from the chairs of the committees on matters considered at committee meetings; and Audit & Risk Committee; Nominations Committee; minutes of previous committee Human Resources & Compensation meetings. The Board works to an annual agenda encompassing periodic reviews of Woodside’s operating business units and site visits; approval of strategy, business plans, budgets and financial statements; and review of statutory obligations and other responsibilities identified in the Board Charter. The CFO and the Company Secretary attend meetings of the Board by invitation. Other members of senior management attend Board meetings when a matter under their area of responsibility is being considered or as otherwise requested by the Board. At each scheduled Board meeting there is a session for non-executive directors to meet without management present. This session is led by the Chairman. Copies of Board papers are circulated in advance of the meetings in either electronic or hard copy form. Directors are entitled to request additional information where they consider further information is necessary to support informed decision- making. 2.13 company secretaries Details of the Company Secretaries are set out on page 52 in the Directors’ Report. The appointment and removal of a Company Secretary is a matter for decision by the Board. The Company Secretaries are responsible for ensuring Committee; and Sustainability Committee. The committees operate principally in a review or advisory capacity, except in cases where powers are specifically conferred on a committee by the Board. Each committee has a charter, detailing its role, duties and membership requirements. The committee charters are reviewed regularly and updated as required. Prior to the commencement of each year, the committees set an annual agenda for the coming year with reference to the committee charters and other issues the committee members or Board consider appropriate for consideration by the committees. Each committee’s charter is available in the corporate governance section of Woodside’s website. Membership of the committees is based on directors’ qualifications, skills and experience. Each standing committee is comprised of: only non-executive directors; at least three members, the majority of whom are independent; and a chairman appointed by the Board who is one of the independent non- executive directors. The Audit & Risk Committee and the Human Resources & Compensation Committee have additional membership requirements which are discussed in sections 3.2 and 3.4. The composition of each committee and details of the attendance of members at meetings held during the year are set out in Table 1 on page 45. All directors are entitled to attend meetings of the standing committees. Papers considered by the standing committees are available on request to directors who are not on that committee. Minutes of the standing committee meetings are provided to all directors and the proceedings of each meeting are reported by the chairman of the committee at the next Board meeting. Each committee is entitled to seek information from any employee of the company and to obtain any professional advice it requires in order to perform its duties. Each standing committee participates in a regular review of its performance and effectiveness. As a result of the 2012 review, the Board is satisfied that the committees have performed effectively with reference to their charters. Ad hoc committees are convened to consider matters of special importance or to exercise the delegated authority of the Board. 3.2 Audit & Risk committee ASXCGC Recommendations 4.1, 4.2, 4.3, 4.4 The role of the Audit & Risk Committee is to assist the Board to meet its oversight responsibilities in relation to the company’s financial reporting, compliance with legal and regulatory requirements, internal control structure, risk management procedures and the internal and external audit functions. The Audit & Risk Committee’s charter, which sets out further details on the role and duties of the committee, is available in the corporate governance section of Woodside’s website. The committee’s charter requires that the committee be composed of directors who are financially literate, with at least one director possessing accounting or related financial expertise and qualifications, and at least one director who has experience in, and an understanding of, the oil and gas industry. The chairman of the Audit & Risk Committee cannot be the Chairman of the company. Members of the Audit & Risk Committee are identified in Table 1 on page 45 which sets out their attendance at meetings. Their qualifications are listed on pages 36 and 37. Woodside Petroleum Ltd. | corporate Governance statement 43 Key activities undertaken by the Audit & Risk Committee during the year included: monitoring developments in accounting and financial reporting relevant to Woodside; approval of the scope, plan and fees for the 2012 external audit; review of the independence and performance of the external auditor; review of significant accounting policies and practices, including with respect to the financial implications of the enactment of the Clean Energy Act 2011 (Cth) and the transition of the North West Shelf project into the Petroleum Resources Rent Tax regime; review of Internal Audit reports and approval of the 2013 Internal Audit plan; review of the Group’s key risks and risk management framework; review of reports from management on the effectiveness of the Group’s management of its material business risks; monitoring progress of the Woodside Management System and matters arising under the Code of Conduct and the Whistleblower Policy; reviewing and making recommendations to the Board on amendments to the committee’s charter, the Group Treasury Policy and the Risk Management Policy; and review and recommendation to the Board for the adoption of the Group’s half-year and annual financial statements. The external auditors, the Chairman, the CEO, the Executive Director and Executive Vice President, Corporate and Commercial, the CFO, the Group Financial Controller, the head of Internal Audit, the head of Corporate Risk and the head of Taxation are regular attendees at Audit & Risk Committee meetings. At each committee meeting, time is scheduled for the committee to meet with the external auditors without management present. The Committee meets at least semi- annually with Woodside’s internal auditors without management present. 3.3 nominations committee ASXCGC Recommendations 2.4, 2.6 The role of the Nominations Committee is to assist the Board to review Board composition, performance and succession planning. This includes identifying, evaluating and recommending candidates for the Board. 44 Woodside Petroleum Ltd. | 2012 Annual Report The Nominations Committee’s charter, which sets out further details on the role and duties of the committee, is available in the corporate governance section of Woodside’s website. All non-executive directors are currently members of the Nominations Committee. Table 1 on page 45 sets out their attendance at committee meetings. Key activities undertaken by the Nominations Committee during the year included: monitoring legislative and corporate governance developments in relation to employment and remuneration matters relevant to Woodside; reviewing the company’s remuneration policies and practices, approving the use of remuneration consultants to provide recommendations in respect of the remuneration of Woodside’s key management personnel and considering advice on the remuneration of Woodside’s key management personnel; review of the size and composition of reviewing and making the Board; Board and CEO succession planning, including recommending that the Board appoint Mr Cole as Executive Director and Executive Vice President, Corporate and Commercial and Mr Cooper and Dr Ryan as non-executive directors; making recommendations to the Board regarding the directors seeking re- election at the 2013 AGM; and approval of the process for the annual Board performance evaluation. 3.4 human Resources & compensation committee ASXCGC Recommendations 8.1, 8.2, 8.4 The role of the Human Resources & Compensation Committee is to assist the Board in establishing human resources and compensation policies and practices which: enable the company to attract, retain and motivate employees who achieve operational excellence and create value for shareholders; and reward employees fairly and responsibly, having regard to the results of the Group, individual performance and general remuneration conditions. The Human Resources & Compensation Committee’s charter, which sets out further details on the role and duties of the committee, is available in the corporate governance section of Woodside’s website. The committee’s charter requires at least one member to have been a director of Woodside for not less than three years and states that it is desirable that at least one member has an understanding of remuneration policies and practices. Members of the Human Resources & Compensation Committee are identified in Table 1 on page 45 which sets out their attendance at meetings. Key activities undertaken by the Human Resources & Compensation Committee during the year included: recommendations to the Board on amendments to the committee’s charter; reviewing the company’s recruitment and retention strategies; approval of the appointment and remuneration packages of executives reporting directly to the CEO (other than the Executive Director and Executive Vice President, Corporate and Commercial); monitoring progress against measurable objectives in respect of gender diversity; and reviewing and making recommendations to the Board on: remuneration for non-executive directors; the remuneration of the CEO and the Executive Director and Executive Vice President, Corporate and Commercial; the criteria for the evaluation of the performance of the CEO; incentives payable to the CEO and the Executive Director and Executive Vice President, Corporate and Commercial; employee equity based plans; and the annual Remuneration Report. Review of the 2012 performance of the CEO and executive succession planning was conducted by the Board. The Human Resources & Compensation Committee assists the Board to ensure that Woodside’s remuneration arrangements are equitable and consistent with the delivery of superior performance that is aligned to the creation of value for shareholders. To ensure it is fully informed when making remuneration decisions, the committee draws on services from a range of external sources, including remuneration consultants where appropriate. Woodside’s guidelines on the use of remuneration consultants set out requirements to ensure the independence of remuneration consultants from OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONWoodside’s management, including the process for the selection of consultants and their terms of engagement. Remuneration consultants are engaged by, and report directly to, the committee. Further information on the activities of the Human Resources & Compensation Committee in relation to the use of remuneration consultants during 2012 is provided in the Remuneration Report on page 59. The Chairman, the CEO, the head of the Corporate function and the head of the Human Resources function are regular attendees at the Human Resources & Compensation Committee meetings. The CEO was not present during any committee or Board agenda item where his remuneration was considered or discussed. 3.5 sustainability committee The role of the Sustainability Committee is to assist the Board to meet its oversight responsibilities in relation to the company’s sustainability policies and practices. The Sustainability Committee’s charter, which sets out further details on the role and duties of the committee, is available in the corporate governance section of Woodside’s website. Members of the Sustainability Committee are identified in Table 1 below which sets out their attendance at meetings. Key activities undertaken by the Sustainability Committee during the year included: review of the Group’s environmental, health, safety and process safety performance, incidents and improvement plans; consideration of heritage and land access affecting the company and security and emergency management performance; monitoring Australian government policy development in respect of climate change and the enactment of the Clean Energy Act 2011 (Cth) and reviewing Woodside’s initiatives to reduce greenhouse gas emissions; review of delivery against Woodside’s Reconciliation Action Plan commitments; review of community relations activities and social investment themes and planned expenditure; reviewing and making recommendations to the Board on amendments to the committee’s charter and sustainability-related Board policies, including the Environment Policy; and approval of the annual Sustainable Development Report. Further information on the activities of the Sustainability Committee will be provided in the Sustainable Development Report to be released in March 2013, which will be made available in the sustainable development section of Woodside’s website. The Chairman, the CEO, the head of the Corporate function, the head of the Health and Safety function, the head of the Production function and the head of the Environment function are regular attendees at Sustainability Committee meetings. 4 shareholders 4.1 shareholder communication ASXCGC Recommendations 6.1, 6.2 Directors recognise that shareholders, as the ultimate owners of the company, are entitled to receive timely and relevant high quality information about their investment. Similarly, prospective new investors are entitled to be able to make informed investment decisions when considering the purchase of shares. table 1. directors in office, committee membership and directors’ attendance at meetings during 2012 director board Audit & Risk committee human Resources & compensation committee sustainability committee nominations committee (1) (2) held Attended held Attended held Attended held Attended held Attended executive director PJ Coleman RJ Cole (3) non-executive directors(4) MA Chaney MA Cilento E Fraunschiel(5) CM Haynes(6) A Jamieson PJMH Jungels(7) DI McEvoy SE Ryan (8) legend: Current Chairman Current member Prior member 6 5 6 6 6 6 6 6 6 1 6 5 6 6 6 6 6 6 6 1 notes: 6 5 6 5 6 2 6 6 1 6 6 6 1 7 7 7 7 7 7 7 7 7 7 1 1 6 6 6 6 6 1 6 2 6 6 6 6 6 4 6 1 6 6 6 6 6 6 6 1 6 4 6 6 6 6 6 6 6 1 (1) ‘Held’ indicates the number of meetings held during the period of each director’s tenure. (2) ‘Attended’ indicates the number of meetings attended by each director. (3) Mr Cole was appointed with effect on 23 February 2012. (4) Mr Frank Cooper was appointed a director with effect on 1 February 2013. He did not attend any meetings during 2012. (5) Mr Fraunschiel will retire with effect on 28 February 2013. (6) Dr Haynes ceased to be a member of the Human Resources & Compensation Committee on 7 December 2012. He became a member of the Audit & Risk Committee with effect on the same date. (7) Dr Jungels retired with effect on 7 December 2012. (8) Dr Ryan was appointed a director with effect on 6 December 2012. Woodside Petroleum Ltd. | corporate Governance statement 45 Woodside’s Continuous Disclosure and Market Communications Policy encourages effective communication with the company’s shareholders by requiring: the disclosure of full and timely information about Woodside’s activities in accordance with the disclosure requirements contained in the ASX Listing Rules and the Corporations Act; all information released to the market to be placed on Woodside’s website promptly following release; the company’s market announcements to be maintained on Woodside’s website for at least three years; and that all disclosures, including notices of meetings and other shareholder communications, are drafted clearly and concisely. A copy of the Continuous Disclosure and Market Communications Policy is available in the corporate governance section of Woodside’s website. Briefings on the financial results, and other briefings with institutional investors and analysts containing material information not previously released to the market, are webcast and made available on Woodside’s website. Shareholders are notified in advance of the date of investor briefing webcasts. Presentation material from briefings or speeches containing material information not previously released is disclosed to the market via ASX and posted to the website. The company produces a short form annual and half-year shareholder review. The Annual Report, the Sustainable Development Report and the short form shareholder reviews are available on the company’s website, or shareholders can elect to receive hard copies. Shareholders can elect to receive email notification when these reports are posted to the website. Shareholders can also receive email notification of Woodside’s ASX announcements and media releases. Any person wishing to receive email alerts of significant market announcements can subscribe through Woodside’s website. The company recognises the importance of shareholder participation in general meetings and supports and encourages that participation. The company has direct voting arrangements in place, allowing shareholders unable to attend the AGM to vote on resolutions without having to appoint someone else as a proxy. Shareholders are also able to register their voting instructions electronically. 46 Woodside Petroleum Ltd. | 2012 Annual Report The company’s AGM is webcast live and is archived for viewing on Woodside’s website. The company also makes available podcasts of the AGM. Copies of the addresses by the Chairman and the CEO are disclosed to the market and posted to the company’s website. The outcome of voting on the items of business are disclosed to the market and posted to the company’s website after the AGM. price-sensitive information concerning Woodside is assessed with reference to the Continuous Disclosure and Market Communications Policy and associated guidelines as soon as the employee becomes aware of the information. A copy of the Continuous Disclosure and Market Communications Policy is available in the corporate governance section of Woodside’s website. All of Woodside’s directors attended the company’s 2012 AGM and are expected to attend the 2013 AGM. The company’s external auditor attends the company’s AGM to answer shareholder questions about the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the company and the independence of the auditor in relation to the conduct of the audit. 4.2 continuous disclosure and market communications ASXCGC Recommendations 5.1, 5.2 Woodside is committed to ensuring that shareholders and the market are provided with full and timely information and that all stakeholders have equal opportunities to receive externally available information issued by Woodside. A Disclosure Committee manages compliance with market disclosure obligations and is responsible for implementing and monitoring reporting processes and controls and setting guidelines for the release of information. The Disclosure Committee is comprised of senior executives. The Disclosure Committee reports at least annually to the Board on the performance of Woodside’s reporting processes and controls. Continuous disclosure matters are considered at each Board meeting. The Board approves any announcement relating to the annual and half year financial reports and any other information for disclosure to the market that contains or relates to financial projections, statements as to future financial performance or changes to the policy or strategy of the company (taken as a whole). Woodside’s Continuous Disclosure and Market Communications Policy, referred to in section 4.1, and associated guidelines reinforce Woodside’s commitment to continuous disclosure and outline management’s accountabilities and the processes to be followed for ensuring compliance. The policy also describes Woodside’s guiding principles for market communications. Each Woodside employee is required to ensure potentially 5 promoting responsible and ethical behaviour 5.1 code of conduct and Whistleblower policy ASXCGC Recommendation 3.1 Woodside has a Code of Conduct which outlines Woodside’s commitment to appropriate and ethical corporate practices. The Code of Conduct describes Woodside’s mission, vision and values and sets out the principles, practices and standards of personal and corporate behaviour Woodside expects in daily business activities. The Code of Conduct covers matters such as compliance with laws and regulations, responsibilities to shareholders and the community, sound employment practices, confidentiality, privacy, conflicts of interest, giving and accepting business courtesies and the protection and proper use of Woodside’s assets. The Code of Conduct is available in the corporate governance section of Woodside’s website. All directors, officers and employees are required to comply with the Code of Conduct. Managers are expected to take reasonable steps to ensure that employees, contractors, consultants, agents and partners under their supervision are aware of the Code and to foster an environment that encourages ethical behaviour and compliance with the Code. Directors and employees are required to complete online Code of Conduct training upon appointment and thereafter annually. Failure to comply with the Code of Conduct is a serious breach of Woodside’s policy and will be investigated. Breaches may result in disciplinary action ranging from a formal warning through to termination of employment. All breaches are required to be recorded. The Sustainable Development Report, which will be released in March 2013 and made available in the sustainable development section of Woodside’s website, provides further information on the Code of Conduct. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONDirectors and senior management are required to provide annual certification of their compliance with the Code of Conduct and the Securities Dealing Policy. In addition, all executives and key finance managers complete a questionnaire from the directors on a half-yearly basis which includes questions on compliance by the managers and all employees and contractors within their area of responsibility with the Code of Conduct, the Securities Dealing Policy, the Whistleblower Policy and the Continuous Disclosure and Market Communications Policy. The responses to the questionnaire, together with a report on breaches of the Code of Conduct and matters raised through the Whistleblower helpline (refer below) are considered by the Audit & Risk Committee. Woodside’s Whistleblower Policy documents Woodside’s commitment to maintaining an open working environment in which employees and contractors are able to report instances of unethical, unlawful or undesirable conduct without fear of intimidation or reprisal. The purpose of the Whistleblower Policy is to: help detect and address unacceptable conduct; help provide employees and contractors with a supportive working environment in which they feel able to raise issues of legitimate concern to them and to Woodside; provide an external confidential helpline which can be used for reporting unacceptable conduct; and help protect people who report unacceptable conduct in good faith. A summary of the Whistleblower Policy is available in the corporate governance section of Woodside’s website. 5.2 securities ownership and dealing ASXCGC Recommendation 8.4 Woodside’s Securities Dealing Policy applies to all directors, employees, contractors, consultants and advisers. This policy provides a brief summary of the law on insider trading and other relevant laws; sets out the restrictions on dealing in securities by people who work for, or are associated with, Woodside; and is intended to assist in maintaining market confidence in the integrity of dealings in the company’s securities. The policy is aligned with the ASX Listing Rules on trading policies and associated ASX guidelines. The policy prohibits directors and employees from dealing in the company’s securities when they are in possession of price-sensitive information that is not generally available to the market. It also prohibits dealings by directors and certain restricted employees during “black-out” periods, including during the periods between the end of the financial half-year and the announcement of the half-year results and the end of the financial full-year and the announcement of the full-year results. Directors are required to seek the approval of the Chairman (or in the case of the Chairman, the CEO) before dealing in the company’s securities or entering into any financial arrangement by which Woodside securities are used as collateral. Restricted employees are required to notify their manager and the General Counsel before dealing in the company’s securities. In addition, executives reporting directly to the CEO, and the Company Secretaries, have notification requirements in respect of entering into any financial arrangement by which Woodside securities are used as collateral. The Board has adopted a requirement for non-executive directors to have a minimum holding of 2,000 shares in Woodside. Non-executive directors who have less than the minimum holding are required to direct 25% of their net fees to the purchase of shares in Woodside until the minimum holding requirement is satisfied. Non-executive directors (other than directors who are both nominated and employed by Shell) are eligible to participate in Woodside’s non-executive directors’ share plan. Under the plan a proportion of the director’s after tax remuneration is applied to the purchase of shares in Woodside. These shares are acquired on market at market value at predetermined intervals. Any dealing in Woodside securities by directors is notified to the ASX within five business days of the dealing. It is a condition of the Securities Dealing Policy that directors, and executives participating in an equity-based incentive plan, are prohibited from entering into any transaction which would have the effect of hedging or otherwise transferring to any person the risk of any fluctuation in the value of any unvested entitlement in Woodside securities. This prohibition is also contained in the terms of the Executive Incentive Plan. A copy of the Securities Dealing Policy is available in the corporate governance section of Woodside’s website. 5.3 political donations Woodside’s Code of Conduct prohibits donations to any political party, politician or candidate for public office in any country without prior Board approval. In certain circumstances Woodside representatives may attend a party-political function which charges an attendance fee without Board approval. Attendance at these functions must be approved by the head of the Government Affairs function, and a register of attendances and the cost of attending each function is maintained by Woodside at a corporate level. 6 Risk management and internal control 6.1 Approach to risk management and internal control ASXCGC Recommendations 7.1, 7.4 The Board recognises that risk management and internal compliance and control are key elements of good corporate governance. Woodside’s Risk Management Policy describes the manner in which Woodside: provides a consistent process for the recognition and management of risks across Woodside’s business; and confers responsibility on Woodside staff at all levels to proactively identify, manage, review and report on risks relating to the objectives those staff are accountable for delivering. A copy of the Risk Management Policy is available in the corporate governance section of Woodside’s website. Woodside recognises that risk is inherent to its business and that effective management of risk is vital to delivering on its objectives, success and continued growth. Woodside is committed to managing all risk in a proactive and effective manner. Woodside’s approach to risk enhances opportunities, reduces threats and sustains Woodside’s competitive advantage. The Woodside Group operates a standardised enterprise-wide risk management process that provides an over-arching and consistent framework for the identification, assessment, monitoring and management of material business risks. Woodside has a Risk function, separate to Internal Audit, and aligns the company’s risk management process with the International Standard for risk management (ISO 31000 Risk Management). Risks are identified, assessed and prioritised using a common methodology. Assessed risk is escalated to increasingly senior levels of management based on corporate materiality thresholds. Woodside Petroleum Ltd. | corporate Governance statement 47 6.2 Risk management roles and responsibilities ASXCGC Recommendations 7.2, 7.4 The Board is responsible for reviewing and approving Woodside’s risk management strategy, policy and key risk parameters, including determining the Group’s appetite for country risk and major investment decisions. The Board is also responsible for satisfying itself that management has developed and implemented a sound system of risk management and internal control. The Board has delegated oversight of the Risk Management Policy, including review of the effectiveness of Woodside’s internal control system and risk management process, to the Audit & Risk Committee. Management is responsible for promoting and applying the Risk Management Policy. This responsibility involves identifying and assessing business and operational risks, developing and implementing appropriate risk treatment strategies and controls, monitoring the effectiveness of risk controls and reporting on risk management capability and performance. Within each major business and functional area there is a designated senior risk role, with specific responsibilities to ensure appropriate application of Woodside’s risk management process and regular risk review and reporting. Every organisational unit has a risk management section within its annual business plan, and these plans are discussed at regular performance reviews. The Risk function is responsible for Woodside’s risk management process, development of risk management capability, and providing risk management reports to the executive team and the Audit & Risk Committee on the corporate risk profile and the Group’s risk management performance. In 2012, both the Audit & Risk Committee and the Board reviewed the risk profile for the Group and received reports from management on the effectiveness of the Group’s management of its material business risks. The reported risks considered Woodside’s health and safety, environmental, financial, legal and compliance, social and cultural and reputational exposures. Internal Audit is responsible for providing an independent appraisal of the adequacy and effectiveness of the Group’s risk management and internal control system. 6.3 internal Audit Internal Audit is independent of both business management and of the activities it reviews. Internal Audit provides assurance that the design and operation of 48 Woodside Petroleum Ltd. | 2012 Annual Report the Group’s risk management and internal control system is effective. A risk-based audit approach is used to ensure that the higher risk activities in each business unit or function are targeted by the audit program. All audits are conducted in a manner that conforms to international auditing standards. Internal Audit has all necessary access to management and information and is staffed by industry professionals including qualified accountants and engineers. The Audit & Risk Committee oversees and monitors Internal Audit’s activities and reviews Internal Audit’s performance. It approves the annual audit program and receives reports from Internal Audit concerning the effectiveness of internal control and risk management. The Audit & Risk Committee approves the appointment of the head of Internal Audit. The head of Internal Audit is jointly accountable to the Audit & Risk Committee and the Executive Director and Executive Vice President, Corporate and Commercial. The Committee members have access to Internal Audit without the presence of other management. Internal Audit has unfettered access to the Audit & Risk Committee and its chairman. Internal Audit and external audit are separate and independent of each other. 6.4 ceo and cfo assurance ASXCGC Recommendations 7.3, 7.4 The Board receives regular reports on the Group’s financial and operational results. Before the adoption by the Board of the 2012 half-year and full-year financial statements, the Board received written declarations from the CEO and the CFO that the financial records of the company have been properly maintained in accordance with section 286 of the Corporations Act, and the company’s financial statements and notes comply with accounting standards and give a true and fair view of the consolidated entity’s financial position and performance for the financial period. The CEO and the CFO have also stated in writing to the Board that the statement relating to the integrity of Woodside’s financial statements is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. In addition, all executives and key finance managers complete a questionnaire from the directors on a half-yearly basis. The questions relate to the financial position of the company, market disclosure, the application of company policies and procedures (including the Risk Management Policy), compliance with external obligations and other governance matters. This process assists the CEO and the CFO in making the declarations to the Board referred to above. 7 external auditor relationship ASXCGC Recommendation 4.4 In accordance with Woodside’s External Auditor Policy, the Audit & Risk Committee oversees detailed External Auditor Guidelines covering the terms of engagement of Woodside’s external auditor. The guidelines include provisions directed to maintaining the independence of the external auditor and assessing whether the provision of any non-audit services by the external auditor that may be proposed is appropriate. Such provisions are referenced to the Code of Ethics published by the International Federation of Accountants (IFAC). The External Auditor Guidelines contain a set of controls which address threats to the independence of the external auditor including, in particular, any threat which may arise by reason of self-interest, self-review, advocacy, familiarity or intimidation. The External Auditor Guidelines classify a range of non-audit services which could potentially be provided by the external auditor as: acceptable within limits; requiring the approval of the CFO; requiring the approval of the Audit & Risk Committee; or not acceptable. The services considered not acceptable for provision by the external auditor include: internal audit; acquisition accounting due diligence where the external auditor is also the auditor of the other party; transactional support for acquisitions or divestments where the external auditor is also the auditor of the other party; book-keeping and financial reporting activities to the extent such activities require decision-making ability and/or posting entries to the ledger; the design, implementation, operation or supervision of information systems and provision of systems integration services; independent expert reports; financial risk management; and OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION taxation planning and taxation the Board annually reviewing the transaction advice. The External Auditor Guidelines require rotation of the audit partner and audit review partner at least every five years and prohibit the reinvolvement of a previous audit partner in the audit service for two years following rotation. In addition to incorporating safeguards to ensure compliance with sections 324CI and 324CK of the Corporations Act in respect of employment of a former partner of the audit firm or member of the audit team as a director or senior employee of Woodside, the Guidelines also require assessment of the significance of a potential threat to the external auditor’s independence before any employment of a former partner or audit team member. Any employment of a member of the audit team or a partner of the audit firm also requires the approval of the Audit & Risk Committee. Information on the procedures for the selection and appointment of the external auditor and for the rotation of external audit engagement partners is available in the corporate governance section of Woodside’s website. 8 diversity ASXCGC Recommendations 3.2, 3.3, 3.4, 3.5 Woodside recognises that workforce diversity provides a key competitive advantage and our success is a reflection of the quality and skills of our people. To this end Woodside leadership continues to focus on the development of a workplace climate that promotes diversity as a key contributor to our business success. A copy of Woodside’s Diversity Policy is available in the corporate governance section of Woodside’s website. Woodside’s policy is to recruit and manage on the basis of competence and performance regardless of age, nationality, race, gender, religious beliefs, sexuality, physical ability or cultural background. Woodside aims to meet its ongoing commitment to diversity by, among other things: respecting the unique attributes that each individual brings to the workplace and fostering an inclusive and supportive culture; providing diversity education and training as well as undertaking diversity initiatives and measuring their effectiveness; the Board reviewing Woodside’s diversity strategy; and measurable objectives it has set for achieving improvement in the diversity mix of Woodside and the progress in achieving those objectives. During 2012, Woodside continued to meet its specific commitments under its Reconciliation Action Plan (RAP) to increase Indigenous participation at Woodside. Woodside has increased Indigenous employment by over 188% since the RAP was adopted in 2010 and at the end of 2012 had 92 Indigenous employees, 54 people on Indigenous pathway programs and four Indigenous university students participating in Woodside’s cadetship program. Since 2009, Woodside has successfully converted 70% of its Indigenous pathway participants to employment following completion of their training program and had 75 participants at its peak during the year. Woodside also significantly enhanced its support for the establishment or expansion of Indigenous businesses during the year, internally through its commercial contracting activities, as well as through its support of external programs operating in the Kimberley, the Pilbara and Perth. Woodside has already exceeded its target of more than 750 employees attending cultural awareness training and is now looking beyond that target and devising new programs to support Woodside’s Indigenous employees, such as formal mentoring and supervisor training. Woodside continued to undertake initiatives in 2012 aimed at improving gender diversity across the organisation. A detailed review and analysis of gender diversity progress occurred at the end of 2011 with the aim of reducing female turnover and increasing female progression into senior roles. The review resulted in the development, communication and implementation in 2012 of a three-year gender diversity strategy. Key activities carried out in 2012 to support Woodside’s gender diversity strategy included improvements to the graduate program recruitment process which delivered a 40% increase in applications and an improved gender diversity balance outcome. A critical review of female talent conducted through an organisation-wide capability review resulted in improved gender balance in senior management succession planning. A review of remuneration demonstrated effective pay parity for males and females doing similar roles. During the year, Woodside strengthened its general recruitment processes to ensure gender diversity in candidate short-listing and on interview panels. These changes will be fully embedded in 2013 and aim to deliver improved gender recruitment and promotion outcomes over time. During 2012, Woodside’s overall female representation remained stable at 26.7%. Women are represented at all levels within the organisation. In particular, female representation in middle and senior management roles remained steady at approximately 10% at the end of 2012. The focus in 2013 will continue to be on building a strong pipeline of female talent to fill senior roles in the future. To this end, a specific development program for high talent females and a job design toolkit will be developed and implemented to increase part-time and flexible working opportunities, support ongoing competency development and facilitate improved career progression. Table 2 on page 50 sets out Woodside’s 2012 measurable objectives, as disclosed in the 2011 Annual Report, and progress made towards achieving those objectives. The 2013 measurable objectives agreed by the Board to improve gender diversity remain consistent with the 2012 objectives, so that Woodside is able to measure and demonstrate cumulative progress. The 2013 diversity measurable objectives, set out below, will continue to be centred on the five themes of Leadership, Process and Practice, Education, Government and Community Engagement, and Metrics and Measurement established in 2012. 2013 measurable objectives Achieve gender balance in Woodside’s graduate intake; Increase the percentage of women in senior management roles; Maintain remuneration equity between men and women in the same role at the same level; Achieve female senior management turnover that is equal to or less than total senior management turnover; Achieve overall female turnover that is equal to or less than organisational turnover; Increase the overall percentage of females employed by Woodside; and Deliver diversity development programs, including Equal Employment Opportunity training, recruitment and promotion training and ‘Leading Diverse Teams’ programs. Woodside will report on progress against these objectives in its 2013 Annual Report. Woodside Petroleum Ltd. | corporate Governance statement 49 table 2 - Woodside’s 2012 measurable diversity objectives 2012 measurable objectives progress Graduates Achieve gender balance in Woodside’s graduate intake senior management development Increase the representation of women in senior management roles executive development Increase the number of senior women who are ready to move into executive leadership roles Remuneration Remuneration equity between men and women in the same role at the same level voluntary turnover Female turnover levels no greater than organisation turnover levels Attraction and retention Increase overall percentage of women employed by Woodside education and awareness ‘Leading Diverse Teams’ program rolled out to 300 managers Changes to the 2012 graduate recruitment process resulted in a 40% increase in the total number of applicants and 50% overall female graduate intake representation, with 43% of the technical graduate intake being female. This represents a significant improvement from 2011. Representation of females in middle and senior management roles remains stable at approximately 10%. Continued focus is required in this area which will be supported by 2013 initiatives. Woodside remains ahead of target for female succession into executive roles, having doubled the number of women ready to move into executive leadership roles through a critical review of talent in the bi-annual organisation wide capability review process. In the annual remuneration review process there was a continued reduction in the average difference between men and women in the same role at the same level such that the gap is now negligible. Although overall company turnover has increased, female turnover remains on par with overall organisational turnover at 8.5%. The overall percentage of female employees remained stable at 26.7%, short of the target of 28%. The leading diverse teams program continued to be delivered in 2012 and was reshaped to enable broader attendance. Attendance was lower than planned at 98 attendees. Equal Employment Opportunity (EEO) program rolled out to 150 managers EEO training was attended by 47 employees, below the target of 150. There will be renewed focus on this in early 2013. Selection and promotion program rolled out to 100 managers Selection and promotion process training was deferred to 2013. A practical ‘How to Interview’ guide, which includes tools to ensure any bias is removed from the selection process, is being finalised and will be rolled out in the first quarter of 2013. Woodside’s strong focus in 2012 on its Organisational Effectiveness program and supporting training for leaders and managers impacted on the roll-out and delivery of gender diversity training and development initiatives. Further information regarding Woodside’s commitment to diversity will be available in Woodside’s 2012 Sustainable Development Report which will be released in March 2013 and made available in the sustainable development section of Woodside’s website. table 3 - Woodside workforce gender profile female female % male male % Administration Technical Supervisory / Professional Middle Management Senior Management total Board Members 234 366 395 69 4 1,068 2 65.9 25.4 26.6 10.3 8.9 26.7 22.2 121 1,076 1,089 602 41 2,929 7 34.1 74.6 73.4 89.7 91.1 73.3 77.8 50 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION9 AsX corporate Governance council recommendations checklist This table cross-references the ASXCGC Recommendations to the relevant sections of the Corporate Governance Statement and the Remuneration Report. AsX corporate Governance council recommendations Reference comply principle 1: lay solid foundations for management and oversight 1.1 1.2 1.3 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions. 2.1 Companies should disclose the process for evaluating the performance of senior executives. Companies should provide the information indicated in Guide to Reporting on Principle 1. Remuneration Report 2.1, 2.9, Remuneration Report 2.2, 2.4 2.2, 2.3 2.2, 2.3 3.1, 3.3 2.9 2.2, 2.4, 2.6, 2.7, 2.9, 2.10, 3.1, 3.3 principle 2: structure the board to add value 2.1 2.2 2.3 2.4 2.5 2.6 A majority of the board should be independent directors. The chair should be an independent director. The roles of chair and chief executive officer should not be exercised by the same individual. The board should establish a nomination committee. Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. Companies should provide the information indicated in Guide to Reporting on Principle 2. principle 3: promote ethical and responsible decision-making 3.1 3.2 3.3 3.4 3.5 Companies should establish a code of conduct and disclose the code or summary of the code as to: ƒ the practices necessary to maintain confidence in the company’s integrity ƒ the practices necessary to take into account their legal obligations and the reasonable expectations of their 5.1 stakeholders ƒ the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. Companies should provide the information indicated in the Guide to reporting on Principle 3. 8 8 8 8 principle 4: safeguard integrity in financial reporting 4.1 4.2 4.3 4.4 The board should establish an audit committee. The audit committee should be structured so that it: ƒ consists only of non-executive directors ƒ consists of a majority of independent directors ƒ is chaired by an independent chair, who is not chair of the board ƒ has at least three members. The audit committee should have a formal charter. Companies should provide the information indicated in Guide to Reporting on Principle 4. principle 5: make timely and balanced disclosure 5.1 5.2 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. Companies should provide the information indicated in Guide to Reporting on Principle 5. principle 6: Respect the rights of shareholders 3.1, 3.2 3.1, 3.2 3.1, 3.2 3.1, 3.2, 7 4.2 4.2 6.1 6.2 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Companies should provide the information indicated in Guide to Reporting on Principle 6. 4.1 4.1 principle 7: Recognise and manage risk 7.1 7.2 7.3 7.4 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 6.1 6.2 6.4 Companies should provide the information indicated in Guide to Reporting on Principle 7. 6.1, 6.2, 6.4 principle 8: Remunerate fairly and responsibly 8.1 8.2 8.3 8.4 The board should establish a remuneration committee. The remuneration committee should be structured so that it: ƒ consists of a majority of independent directors ƒ is chaired by an independent chair ƒ has at least three members. Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Companies should provide the information indicated in Guide to Reporting on Principle 8. 3.1, 3.4 3.1, 3.4 Remuneration Report 3.1, 3.4, 5.2                               Woodside Petroleum Ltd. | corporate Governance statement 51 diRectoRs’ RepoRt (includinG RemuneRAtion RepoRt) The directors of Woodside Petroleum Ltd present their report (including the Remuneration Report) together with the Financial Report of the consolidated entity, being Woodside Petroleum Ltd and its controlled entities, for the year ended 31 December 2012. directors The directors of Woodside Petroleum Ltd in office at any time during or since the end of the 2012 financial year are set out in the Remuneration Report on page 55. Additional information on the directors (including qualifications and experience and directorships of listed companies held by the directors at anytime in the last three years) is set out on pages 36 and 37. The number of directors’ meetings held (including meetings of committees of the Board) and the number of meetings attended by each of the directors of Woodside Petroleum Ltd during the financial year are shown in Table 1 on page 45. Details of director and senior executive remuneration is set out in the Remuneration Report on pages 53 to 65. The particulars of directors’ interests in shares of the company as at the date of this report are set out on page 66. principal activities The principal activities and operations of the Group during the financial year were hydrocarbon exploration, evaluation, development, production and marketing. Other than as previously referred to in the Annual Report, there were no other significant changes in the nature of the activities of the consolidated entity during the year. consolidated results The consolidated operating profit attributable to the company’s shareholders after provision for income tax was $2,983 million ($1,507 million in 2011). significant changes in state of affairs The review of operations (pages 1 to 35) sets out a number of matters which have had a significant effect on the state of affairs of the consolidated entity. Other than those matters, there were no significant changes in the state of affairs of the consolidated entity during the financial year. events subsequent to end of financial year dividends Since the reporting date, the directors have declared a fully franked dividend of US65 cents (2011: US55 cents), payable on 3 April 2013. The amount of this dividend will be US$536 million (2011: US$443 million). No provision has been made for this dividend in the Financial Report as the dividend was not declared or determined by the directors on or before the end of the financial year. likely developments and expected results In general terms, the review of operations of the Group gives an indication of likely developments and the expected results of the operations. In the opinion of the directors, disclosure of any further information would be likely to result in unreasonable prejudice to the Group. environmental compliance Woodside is subject to a range of environmental legislation in Australia and other countries in which it operates. Details of Woodside’s environmental performance is provided on page 13. Through its Environment Policy, Woodside plans and performs activities so that adverse effects on the environment are avoided or kept as low as reasonably practicable. Woodside did not incur any environmental fines or penalties during 2012. Review of operations dividends A review of the operations of the Woodside Group during the financial year and the results of those operations are set out on pages 1 to 35. The directors have declared a final dividend out of profits of the company in respect of the year ended 31 December 2012 of US65 cents per ordinary share (fully franked) payable on 3 April 2013. A fully franked final dividend of US55 cents per ordinary share was paid to shareholders on 4 April 2012 in respect of the year ended 31 December 2011. Together with the fully franked interim dividend of US65 cents per share paid to shareholders on 2 October 2012, the total dividend paid during the 2012 year was US120 cents per share fully franked. Woodside’s dividend reinvestment plan operated during the year. company secretaries The following individuals have acted as company secretary during 2012: michael Abbott BJuris LLB, BA, MBA (UWA) General Counsel and Joint Company Secretary Mr Abbott joined Woodside in 2007 and was appointed to the role of General Counsel effective 23 February 2012. He was appointed Joint Company Secretary effective 3 May 2012. Mr Abbott holds Bachelor of Laws and Bachelor of Arts degrees and a Masters of Business Administration. Warren baillie LLB, BCom, Grad. Dip. CSP Company Secretary Warren Baillie joined Woodside in 2005 and was appointed Company Secretary effective 1 February 2012. Mr Baillie holds Bachelor of Laws and Bachelor of Commerce degrees and is a solicitor and chartered secretary. He is a member of the National Board and WA State Council of Chartered Secretaries Australia. Robert cole BSc, LLB (Hons) (ANU) Executive Director and Executive Vice President, Corporate and Commercial Mr Cole retired as a Joint Company Secretary effective 3 May 2012 following his appointment to the role of Executive Director and Executive Vice President, Corporate and Commercial effective 23 February 2012. frances Kernot BCom (Hons) (UWA), Grad. Dip. CSP, CA, ACIS Company Secretary Ms Kernot resigned as Company Secretary effective 29 February 2012 to take another role in the company. 52 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONRemuneRAtion RepoRt (Audited) contents overview executive remuneration ceo remuneration General employee share plans contracts for Kmp executives non-executive directors human Resources & compensation committee securities dealing policy use of remuneration consultants Reporting notes 54 55 57 58 58 58 59 59 59 59 summary index of tables table description General 1 Woodside five year performance 2 3 Allocation of executive remuneration between fixed and variable annual reward Summary of contractual provisions for KMP executives ceo and senior executive Remuneration 4 Compensation of KMP executives’ for the year ended 31 December 2012 and 2011 variable Annual Rewards – executive incentive plan 5 Vesting schedule for RTSR-tested Variable Pay Rights awarded for the 2012 performance year 6 7 8 9 10 11 12 13 Vesting Schedule for RTSR-tested Variable Pay Rights awarded for the performance years 2008 - 2011 STA Peer Group and LTA Peer Group for performance years 2008 - 2011 LTA peer group 2012 performance year – International Oil and Gas Companies Summary of terms and conditions of unvested RTSR-tested Variable Pay Rights Summary of terms and conditions of unvested deferred short-term award Summary of the KMP executives’ interests in Time-tested Variable Pay Rights Summary of KMP executives’ interests in Restricted Shares Summary of the KMP executives’ interests in RTSR-tested Variable Pay Rights Retention and General employee share plans 14 Summary of KMP executives’ interests in shares under the Woodside Share Purchase Plan 15 16 Summary of KMP executives’ interests in Equity Rights under the Woodside Employee Equity Plan Summary of KMP executives’ interests in Equity Rights under the Woodside Equity Plan non-executive directors 17 Annual base Board and committee fees for non-executive directors 18 Total remuneration paid to non-executive directors in 2012 and 2011 page 54 55 58 60 61 61 61 61 61 61 62 62 63 64 64 65 65 65 Woodside Petroleum Ltd. | Remuneration Report 53 overview Details of the EIP are provided on pages 55 to 57 of this report. Woodside’s remuneration philosophy is based on providing competitive rewards that attract, retain and motivate the highest calibre people to deliver superior performance that is aligned with the creation of value for shareholders. To achieve this Woodside ensures that the level and composition of remuneration is sufficient and reasonable; there is a clear relationship between Woodside and individual performance and remuneration; and the remuneration policy is openly communicated. The Human Resources & Compensation Committee (Committee) assists the Board in creating a strong linkage between executive remuneration and Woodside’s performance and the details of these linkages are provided in the following sections. Woodside’s 2012 AGM was held on 2 May. The Remuneration Report for 2011 was adopted at the AGM with a clear majority of 479,930,217 votes in favour of the motion (representing 96.4% of the votes received). Review of executive incentive arrangements During 2012 the Committee undertook with the assistance of PricewaterhouseCoopers a review of the approach, framework and structure of the executive incentive arrangements to ensure ongoing alignment with Woodside’s strategic direction and values. As a result of the review the Board approved a number of changes to the short and long-term incentives applicable to Woodside executives under the Executive Incentive Plan (EIP). In respect of the short-term incentive the Board has determined to award restricted shares instead of variable pay rights for the deferred portion of the short-term award. These are awards which have already been earned, a portion of which is taken in shares which are only time restricted and therefore the Board considers it reasonable for the executives to earn dividends on the shares during the restriction period. To enhance the alignment of the long-term award with company strategy and executive performance the Board has determined to: Extend the initial performance testing period from three years to four years; Remove the ability for greater than 100% of an award to vest; Change the approach to re-testing (while continuing to ensure that executives only benefit from re-testing if the company’s relative performance improves); Use the “fair value”, as determined by the relevant accounting standards, to determine the number of performance tested variable pay rights to award to participants; Extend the international oil and gas peer group to 18 companies (including Woodside); and Introduce a second peer group, being the ASX top 50. table 1 - Woodside five year performance executive remuneration outcomes for 2012 Performance outcomes for 2012 for the Chief Executive Officer and the broad executive group, including Key Management Personnel (KMP) were as follows: The value of the short-term award (STA) scorecard for 2012 was 1.27 out of a maximum possible result of 2. The total potential amount of the STA pool for 2012 ranged from a minimum of A$ nil to a maximum of A$30,943,948. The actual STA pool for 2012 was A$20,271,351 for 102 participants including the executive directors. One third of the STA for the 2012 performance year for current executives (A$6,757,117) will be deferred as an equity award, the vesting of which is dependent on three years continuous service. A long-term award (LTA) in respect of the 2012 performance year will be allocated in February 2013 to eligible participants. Vested Awards during 2012: Time-tested Variable Pay Rights that were allocated in 2009 as deferred STA in respect of the 2008 performance year vested during 2012. The LTA awarded in 2009 was subject to performance testing during 2012 and as the 50th percentile of the peer group was attained 50% of the award vested and 50% of the award lapsed. The LTA awarded in 2008 was subject to a second test in 2012 and failed to satisfy the vesting requirements and as such the award lapsed. In 2012, Woodside also made awards of equity rights under the Woodside Equity Plan to Key Management Personnel (KMP), excluding the Chief Executive Officer, Executive Director and Executive Vice President Corporate and Commercial and the non-executive directors. There were no individual retention arrangements for KMP entered into or vested in 2012. executive remuneration and company performance Whilst there are a number of internal and external factors relevant to Woodside’s performance, the Board believes Woodside’s performance is also attributable to the ability to motivate and retain its executives and, thus, the effectiveness of its remuneration policies. Table 1 below shows the key financial measures of company performance over the past five years. year ended 31 december Net Profit After Tax Earnings Per Share Dividends Per Share Production Share closing price (last trading day of the year)(5) 5 Year rolling TSR(2) Relative TSR(3) (US$ million) (US cents)(1) (US cents) (MMboe) (A$) (%) (1 year) 2012 2,983 366 130 84.9 33.88 2011 1,507 190 110 64.6 30.62 2010 1,575 204 105 72.7 42.56 2009(4) 1,474 210 95 80.9 47.20 2008(4) 1,546 225 100 81.3 36.70 (0.33) 2nd Quartile 4.58 4th Quartile 12.11 4th Quartile 26.44 1st Quartile 19.65 2nd Quartile (1) Basic and diluted earnings per share from total operations. (2) This calculation is annualised and measured in US dollars. (3) As discussed under the STA component of EIP on page 55. (4) Amounts were translated to US dollars using monthly average exchange rates. (5) The share closing price (last trading day) for 2007 was A$50.39. 54 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONexecutives executive directors P Coleman - (Managing Director and Chief Executive Officer) (CEO) R Cole (Executive Director and Executive Vice President, Corporate and Commercial)(1) senior executives F Ahmed (Executive Vice President Technology)(2) L Della Martina (Executive Vice President Pluto)(3) R Edwardes (Executive Vice President Development)(4) P Moore (Executive Vice President Exploration) G Roder (Executive Vice President Corporate Strategy and Planning) V Santostefano (Chief Operations Officer)(5) L Tremaine (Executive Vice President and Chief Financial Officer) non-executive directors M A Chaney (Chairman) M A Cilento F Cooper(6) E Fraunschiel(7) C M Haynes A Jamieson P J M H Jungels(8) D I McEvoy S Ryan(9) (1) On 23 February 2012 Mr Cole was appointed to the position of Executive Director and Executive Vice President, Corporate and Commercial. He previously held the position of Executive Vice President Commercial and General Counsel and Joint Company Secretary. (2) On 19 June 2012 Mr Ahmed was appointed to the position of Executive Vice President Technology. He previously held the position of Executive Vice President Development. (3) On 10 May 2012 Mr Della Martina departed from Woodside. (4) On 7 May 2012 Mr Edwardes joined Woodside and became key management personnel. (5) On 1 May 2012 Mr Santostefano was appointed to the position of Chief Operations Officer. He previously held the position of Executive Vice President Production. (6) Effective 1 February 2013 Mr Cooper was appointed a non-executive director of Woodside. (7) On 28 February 2013 Mr Fraunschiel will retire as a non-executive director of Woodside. (8) On 7 December 2012 Dr Jungels retired as a non-executive director of Woodside. (9) On 6 December 2012 Dr Ryan was appointed a non-executive director of Woodside. executive remuneration Remuneration policy Woodside’s Remuneration Policy aims to reward executives fairly and responsibly in accordance with the regional (and in some instances, international) market and ensure that Woodside: provides competitive rewards that attract, retain and motivate executives of the highest calibre; sets demanding levels of performance which are clearly linked to an executive’s remuneration; structures remuneration at a level that reflects the executive’s duties and accountabilities; benchmarks remuneration against appropriate comparator groups; proportion of remuneration at risk The target allocation of remuneration between fixed remuneration and VAR for Woodside’s executives is shown in Table 2 on this page. Participation in retention plans and participation in general employee share plans is not taken into account for the calculation of the percentages shown in the table. table 2 - Allocation of executive remuneration between fixed and variable annual reward position not at risk fixed Annual Reward At risk variable Annual Reward stA 30% ltA 40% aligns executive incentive rewards with the creation of value for ceo 30% shareholders; and complies with applicable legal requirements and appropriate standards of governance. Executive remuneration is reviewed annually having regard to individual and business performance and relevant comparative information. executive remuneration structure Woodside’s remuneration structure for executives has several components: Fixed remuneration - the ‘not at risk’ component which includes base salary, superannuation contribution and other allowances such as motor vehicle and health insurance. Fixed remuneration is determined on the basis of the scope of the executive’s role and the individual level of knowledge, skill and experience; Variable Annual Reward (VAR) – the ‘at risk’ component (related to performance) which is awarded under the EIP and comprises: Short-term award (detailed on page 56); Long-term award (detailed on page 56); Participation in general employee share plans; and Participation in retention plans from time to time. executives 45%-50% 30%-33% 20%-22% executive incentive plan The short-term and long-term awards which are described in more detail below are delivered through the EIP. The EIP aims to reward executives for meeting or exceeding their individual performance targets, while at the same time linking their reward to the creation of long-term sustainable wealth for shareholders. Under the EIP executives may receive a VAR which is based on a percentage of an executive’s fixed remuneration. This percentage is determined by the Board with reference to market comparator data and the scope of the executive’s role. VAR has two elements: 1. The STA (which links remuneration to short-term performance) which is delivered two thirds in cash and one third as a deferred equity award the vesting of which is dependent on three years continuous service; and 2. The LTA (which links remuneration to long-term performance) which is delivered as a grant of variable pay rights, the vesting of which is dependent on service and total shareholder return on Woodside shares relative to two identified peer groups (RTSR tested VPRs). Woodside Petroleum Ltd. | Remuneration Report 55 short-term award The STA is determined by reference to both individual performance and a company scorecard which is set and approved annually by the Board (Scorecard). The Scorecard for 2012 was based on four equally weighted measures: safety and environmental factors; production; operating expenditure; and Woodside’s one year total return to shareholders, ranked against an international peer group (STA Peer Group, see Table 7 on page 61). Total return to shareholders is the growth in the value of shares over the performance year, plus the value of dividends, other distributions paid out over that year (assuming that dividends and other distributions are reinvested in shares on the payment date) and pro rata buybacks. The measures for the Scorecard were chosen because of the impact they have on shareholder value. The specific measurable targets related to each performance measure are approved by the Board at the commencement of the performance year. For the 2012 performance year Woodside exceeded its targets on three of the four equally weighted scorecard measures which resulted in an overall scorecard multiple of 1.27 out of a maximum of two. In summary: Production volume achieved for the 2012 year exceeded the production target falling within the upper 10% of the potential production range which resulted in a scorecard multiple of 1.8 out of a maximum of two, weighted at 25%; Woodside achieved a better than budget performance on operating cost which resulted in a scorecard multiple of 1.49 out of a maximum of two, weighted at 25%; Woodside’s good day frequency measure for health safety and environment tracked below target. The resulting scorecard multiple was 0.4 out of a maximum of two, weighted at 25%; and Woodside achieved fourth place in the STA peer group of 12, which resulted in a scorecard multiple of 1.4 out of a maximum possible of two, weighted at 25%. The total STA available for all participating executives is pooled in each pool group by adding the target STA value for each individual within the pool(s). The Scorecard result (with a possible value of between zero and two) is used as a multiple to adjust the value of the pool(s). The adjusted pool(s) are allocated among the executives in that pool group based on their individual performance relative to other executives in that pool. Therefore the potential value of the STA for an individual executive is in part dependent on the performance rating of the other executives in the pool. An executive’s performance during the year is assessed against their individual performance agreement, which is set at the start of each year and includes key performance indicators (KPIs) relevant to the executive’s areas of responsibility. KPIs may include the following: health and safety (e.g. total recordable case frequency, high potential incident frequency); environment (e.g. greenhouse gas emissions, flared gas); human resources (e.g. voluntary turnover); financial (e.g. revenue, operating costs, earnings before interest and tax, return on average capital employed, production costs, drilling costs); and operational (e.g. production volumes, project progress). 56 Woodside Petroleum Ltd. | 2012 Annual Report These KPIs are chosen because they align individual performance with the achievement of Woodside’s business plan and objectives. Each executive receives a performance rating based upon the assessment of their performance and demonstrated values and behaviour. This assessment is conducted by the CEO and approved by the Committee. This rating is then used to determine the short-term award (if any). The short-term award for a performance year is delivered two thirds in cash and one third as deferred equity. For the 2012 performance year the deferred equity component will be delivered in the form of restricted shares. Participants will receive any dividends paid on their restricted shares after they have been allocated. The deferred portion of STA made in respect of performance years 2008 to 2011 were delivered in the form of Time-tested VPRs. Generally, vesting of the deferred STA is subject to the executive’s employment not being terminated with cause, or by resignation for three years after allocation. The deferred STA may vest prior to the expiry of the three years upon a change of control event, or on the death or total and permanent disablement of the executive. Deferred STA granted will also generally vest upon redundancy, retirement or the cessation of a fixed term employment contract. There are no further performance conditions for vesting of deferred STA. A summary of the terms of deferred STA awarded to key management personnel is provided in Table 10 on page 61. Details of restricted shares awarded to KMP are provided in Table 12 on page 62. Details of Time-tested VPRs awarded for previous performance periods are provided in Table 11 on page 62. No amount is payable by the executives on the grant or vesting of either restricted shares or Time-tested VPRs. long-term award (ltA) 2012 The LTA for the 2012 performance year is granted in the form of variable pay rights, the vesting of which is linked to service and total shareholder return. A variable pay right is a right to receive a fully paid ordinary share in Woodside, subject to satisfaction of vesting conditions. The number of variable pay rights awarded under the EIP for long-term award purposes for the 2012 performance year is calculated by dividing the value of the award by the fair value of a variable pay right (as calculated in accordance with the relevant accounting standards). The RTSR-tested VPRs are divided into two tranches which will each be subject to a separate relative total shareholder return (RTSR) performance hurdle tested over a four or five year period. One tranche weighted at 33% will be tested against a comparator group that comprises the entities within the S&P/ASX 50 index at 7 December 2012. The other tranche, weighted at 67%, will be tested against an international group of oil and gas companies. The oil and gas companies used for the 2012 performance year are set out in Table 8 on page 61. RTSR was chosen in order to ensure that Woodside’s Executives’ remuneration is aligned with the company’s performance in relation to the performance of peer companies. The RTSR in respect of Woodside and both peer groups is calculated by an external advisor in accordance with the EIP rules on the fourth anniversary of the allocation of these RTSR- tested VPRs. The outcome of the test is measured against the schedule shown in Table 5 on page 61. Any RTSR-tested VPRs which do not vest at this time are subject to a second RTSR test on the fifth anniversary of the allocation date, but further vesting in accordance with the schedule will only occur if Woodside OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONachieves a superior RTSR ranking at the second test date. Any RTSR-tested VPRs that do not vest on the fifth anniversary lapse. RTSR-tested VPRs will lapse if the executive’s employment is terminated with cause, or by resignation, prior to vesting. RTSR-tested VPRs may vest prior to the satisfaction of the vesting conditions upon a change of control event, or on the death or total and permanent disablement of the executive. In the event of retirement, redundancy or the cessation of a fixed term employment contract of a participant RTSR-tested VPRs continue in the plan and remain subject to the normal performance measures. long-term awards 2008 – 2011 The LTA for the performance years 2008 to 2011 inclusive was granted in the form of variable pay rights, the vesting of which is linked to service and total shareholder return. The vesting of the 2008 to 2011 RTSR-tested VPRs is conditional on a satisfactory ranking of Woodside’s RTSR, as calculated under the EIP rules, over a three or four year period in comparison with an international peer group. The international oil and gas LTA Peer Group for the grant of RTSR-tested VPRs for the performance years 2008 to 2011 is set out in Table 7 on page 61. The RTSR in respect of Woodside and the peer group is calculated by an external advisor in accordance with the EIP rules on the third anniversary of the allocation of these RTSR-tested VPRs. The outcome of the test is measured against the schedule shown in Table 6 on page 61. If no RTSR-tested VPRs vested at the first test then the award is subject to a second RTSR test on the fourth anniversary of the allocation date. Any RTSR-tested VPRs that do not vest on the fourth anniversary lapse. RTSR-tested VPRs will lapse if the executive’s employment is terminated with cause, or by resignation, prior to vesting. RTSR-tested VPRs may vest prior to the satisfaction of the vesting conditions upon a change of control event, or on the death or total and permanent disablement of the executive. In the event of retirement, redundancy or the cessation of a fixed term employment contract of a participant RTSR-tested VPRs continue in the plan and are subject to the normal vesting. variable pay rights The Board has a discretion to satisfy variable pay rights that vest in cash rather than shares (although participants in the EIP cannot elect to receive one or the other). The shares used to satisfy vested variable pay rights may be acquired through on market purchase or by subscription. If the Board exercises its discretion to satisfy vested variable pay rights in cash, the cash amount will be based on the market value of a Woodside share at the vesting date calculated by reference to the Volume Weighted Average Price (VWAP) of Woodside shares in the five trading days prior to the vesting date. No amount is payable by the recipient executive on the grant or vesting of a variable pay right. A summary of the terms and conditions of VPRs under each award made to executives under the EIP is provided in Table 9 on page 61. A summary of executives’ interests in Time-tested VPRs and RTSR-tested VPRs are in Tables 11 and 13 on pages 62 and 63. ceo remuneration Mr Coleman’s remuneration is governed by his contract of employment which, in summary, for 2012 is comprised of: 30% fixed remuneration; 30% short-term award component; and 40% long-term award component. short-term award The grant of an STA to the CEO is determined by the Scorecard and individual performance as determined by the Board. The Scorecard and performance against the scorecard measures is described on page 56 of this report under the section related to executive Short-term Award. Each year the Board determines and documents the factors which will be used to assess the annual performance of the CEO. The individual performance of the CEO is reviewed by the Board against the following factors which were chosen because of their impact on shareholder value: setting and pursuing the growth agenda; achieving effective execution; building enterprise and organisational capacity; enhancing culture and reputation; and ensuring shareholder focus. At the completion of the performance year each Board member contributes to the documented review of the CEO’s performance for that year. The STA for the CEO is calculated by multiplying the CEO’s fixed remuneration by the scorecard multiple and the CEO’s individual performance factor. For the 2012 performance year, STA is allocated as two-thirds cash and one-third Restricted Shares. Restricted Shares have the same terms and conditions as those awarded to other executives under the EIP as described on pages 55 to 57. long-term award The LTA entitlement for the 2012 performance year will be allocated in February 2013 and will be subject to Relative Total Shareholder Return (RTSR) testing in February 2017. The vesting conditions for the LTA allocation reflect those contained in the EIP as outlined on page 55 and summarised in Table 9 on page 61 in respect of the 2012 EIP allocation. A summary of the CEO’s equity awards is provided in Tables 11 to 13 on pages 62 and 63. sign-on bonus Mr Coleman was awarded a one-off sign on incentive with a grant date of 30 May 2011 to recognise certain rights he was giving up with his former employer. Woodside acquired 66,004 Woodside Petroleum Ltd shares which are held in trust for Mr Coleman. The sign-on award was structured such that one third of these shares vest on each anniversary after the date of his appointment. In accordance with the award rules one third of the shares vested on 30 May 2012 being the first anniversary of Mr Coleman’s employment. The fair value of each of the shares awarded is USD$49.19. Any unvested entitlements will be forfeited if Mr Coleman’s employment is terminated for cause or by his resignation. There are no performance conditions attached to this award. Woodside Petroleum Ltd. | Remuneration Report 57 General employee share plans historical plans Woodside has a history of providing employees with the opportunity to participate in ownership of shares in the Company. This has supported staff retention and alignment of employees with shareholder interests. As part of the strategy to attract, retain and motivate employees, the Board approved the introduction from November 2011 of a broad-based, long-term equity plan called the Woodside Equity Plan to recognise and reward the commitment of eligible employees. Woodside equity plan The Woodside Equity Plan (WEP) is available to all Australian based permanent employees including executives, other than the CEO and any executive director. Woodside’s intention is to enable eligible employees to build up a holding of equity in the Company as they progress through their career at Woodside. The number of equity rights (ERs) offered to each eligible employee is calculated with reference to salary and performance as assessed under the performance review process as described on page 56 under the heading Short-term Award. There are no further ongoing performance conditions upon allocation of each individual’s ERs. The linking of performance to an allocation allows Woodside to recognise and reward eligible employees for high performance. Participants do not make any payment in respect of the ERs at grant nor at vesting. Eligible participants receive an allocation of ERs. Each ER entitles the participant to receive a Woodside share on the vesting date three years after the effective date. ERs may vest prior to the vesting date on a change of control or on a pro rata basis, at the discretion of the CEO, limited to the following circumstances; redundancy, retirement (after six months participation), death, termination due to medical illness or incapacity or total and permanent disablement of a participating employee. An employee whose employment is terminated by resignation or for cause prior to the vesting date will forfeit all of their ERs. Participants in the WEP cannot dispose of or otherwise deal with an ER and do not receive any dividends or have voting rights in respect of an ER. Allocations of ERs to participants will be adjusted in the event of Woodside making a bonus issue of shares or upon reconstruction of the Company’s share capital. Table 16 on page 65 provides a summary of KMP executives’ interests in ERs under the WEP. During 2012 the Woodside Employee Equity Plan 2009 – 2012 and the Woodside Share Purchase Plan were formally ended. Details of the KMP executives’ participation in these plans are provided in Tables 14 and 15 on page 64. contracts for Kmp executives Each KMP executive has a contract of employment. Table 3 below contains a summary of the key contractual provisions of the contracts of employment for the KMP executives. termination provisions Under each executive contract of employment Woodside may choose to terminate the contract immediately by making a payment equal to the ‘Company Notice Period’ of Fixed Annual Reward in lieu of notice as shown in Table 3 below. Since 2009 new executive contracts ensure that any payments made in the event of a company-initiated termination of an executive contract would be consistent with the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009. non-executive directors Remuneration policy Woodside’s Remuneration Policy for non-executive directors aims to attract, retain, motivate and to remunerate fairly and responsibly having regard to: the level of fees paid to non-executive directors relative to other major Australian companies; the size and complexity of Woodside’s operations; and the responsibilities and work requirements of Board members. Fees paid to non-executive directors are recommended by the Human Resources & Compensation Committee based on advice from external remuneration consultants, Mercer Australia Pty Ltd (Mercer) and determined by the Board, subject to an aggregate limit of A$3 million per financial year, approved by shareholders at the 2007 Annual General Meeting (AGM). The annual base Board fees and committee fees were increased with effect from 1 July 2012 in line with general movements in the comparator market as reported by Mercer. table 3 - summary of contractual provisions for Kmp executives name contract duration employing company termination notice period company(1)(2) termination notice period executive(2) P Coleman F Ahmed R Cole L Della Martina(3) R Edwardes P Moore G Roder V Santostefano L Tremaine Woodside Petroleum Ltd Unlimited Woodside Energy Ltd Woodside Energy Ltd Fixed Term Contract until 13 February 2015 Unlimited Woodside Energy Ltd Unlimited Woodside Energy Ltd Woodside Energy Ltd Woodside Energy Ltd Woodside Energy Ltd Fixed Term Contract until 6 May 2015 Unlimited Fixed Term until 31 August 2017 Unlimited Woodside Energy Ltd Unlimited 12 months 12 months 12 months 12 months 6 months 12 months 6 months 12 months 12 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months (1) Termination provisions – Woodside may choose to terminate the contract immediately by making a payment equal to the ‘Company Notice Period’ fixed remuneration in lieu of notice. In the event of termination for serious misconduct or other nominated circumstances, executives are not entitled to this termination payment. (2) On termination of employment, executives will be entitled to the payment of any fixed remuneration calculated up to the termination date, any leave entitlement accrued at the termination date and any payment or award permitted under the EIP Rules. Executives are restrained from certain activities for specified periods after termination of their employment in order to protect Woodside’s interests. (3) Mr Della Martina departed Woodside on 10 May 2012. 58 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONThe Woodside Petroleum Ltd shareholding guideline for non- executive directors requires non-executive directors to hold a minimum holding of 2,000 Woodside Petroleum Ltd shares and non-executive directors who have less than the minimum holding are required to direct 25% of net (after tax) fees to the purchase of Woodside shares until the minimum holding requirement is satisfied. The non-executive directors may utilise the Non- Executive Directors’ Share Plan (NEDSP) to acquire the shares on market at market value. As the shares are acquired with net fees the shares in the NEDSP are not subject to any forfeiture conditions. Remuneration structure Non-executive director remuneration consists of base fees, committee fees, other payments for additional services outside the scope of Board and committee duties, and statutory superannuation contributions or payments in lieu (currently 9%). Non-executive directors do not earn retirement benefits other than superannuation and are not entitled to any form of performance-linked remuneration. Table 17 on page 65 shows the annual base Board and committee fees for non-executive directors. In addition to these fees, non-executive directors are entitled to reimbursement of reasonable travel, accommodation and other expenses incurred attending meetings of the Board, committees or shareholders, or while engaged on Woodside business. Non-executive directors are not entitled to compensation on termination of their directorships. Board fees are not paid to the CEO or other executive directors, as the time spent on Board work and the responsibilities of Board membership are considered in determining the remuneration package provided as part of the normal employment conditions. The total remuneration paid to, or in respect of, each non- executive director in 2012 is set out in Table 18 on page 65. human Resources & compensation committee The Human Resources & Compensation Committee (Committee) assists the Board to determine appropriate remuneration policies and structures for non-executive directors and executives. Further information on the role of the Committee is described in the Corporate Governance Statement set out in this Annual Report at pages 44 to 45. securities dealing policy Woodside’s Securities Dealing Policy prohibits executives who participate in an equity-based plan from entering into any transaction which would have the effect of hedging or otherwise transferring to any other person the risk of any fluctuation in the value of any unvested entitlement in Woodside securities. Directors proposing to enter into arrangements to limit the economic risk of a vested holding in Woodside securities must obtain the approval of the Chairman (or, where the notifying director is the Chairman, the CEO) prior to entering into the arrangement and immediately provide details of the arrangements entered into. Executives who report directly to the CEO and the Company Secretary/ies must submit a completed compliance certificate in respect of arrangements to limit the economic risk of a vested holding in Woodside securities to their direct manager and then to the General Counsel for acknowledgement. Adherence to this policy by executives is monitored by six monthly directors’ questionnaires to management. Further information on Woodside’s Securities Dealing Policy is provided in section 5.2 of the Corporate Governance Statement on page 47. In addition to the restrictions imposed under the Securities Dealing Policy, key management personnel are prohibited by law from hedging any of their unvested entitlements or any of their vested entitlements that remain subject to a holding lock. use of remuneration consultants The Committee directly engages external advisors to provide input to the process of reviewing non-executive director, executive director and executive remuneration. Following a formal tender process the Committee engaged PricewaterhouseCoopers to undertake a review of the EIP in 2012 and to provide recommendations to the Committee in regard to the alignment of the plan with the Woodside values and strategies. The reports and recommendations prepared by PricewaterhouseCoopers were provided directly to the Human Resources & Compensation Committee chairman. The fee for the provision of the recommendations was $320,000. A statement was provided by PricewaterhouseCoopers to the Committee that the recommendations had been prepared free of undue influence from KMP. The Committee had full oversight of the review process and therefore it, and the Board, were satisfied the recommendations made by PricewaterhouseCoopers were free from undue influence by KMP. PricewaterhouseCoopers provided other services to Woodside including provision of taxation advice, support for international assignee movements and general financial and business consulting which resulted in a total of $3,852,790 fees being paid by Woodside. Mercer Consulting provided market data and a recommendation in regard to non-executive director fees in May 2012. Mercer Consulting also provided market data and a recommendation in November 2012 in relation to the remuneration of the CEO. In both cases, the market data reports and the recommendations were provided directly to the Committee chairman. The fee for the provision of the reports was A$55,728. Mercer Consulting provided a statement to the Committee that the reports had been prepared free of undue influence from KMP. The Committee had full oversight of the review process and therefore it, and the Board, were satisfied that the recommendations made by Mercer Consulting were free from undue influence by KMP. Woodside’s superannuation arrangements for all participating employees are provided through Woodside’s participation in the Mercer Master Trust. The total of fees paid by Woodside to Mercer in respect of services provided directly to Woodside during 2012 was $35,605. Reporting notes Reporting in united states dollars In this report the remuneration and benefits reported have been presented in US dollars. This is consistent with the change in functional currency of the company from Australian dollars to US dollars from 1 January 2010. Compensation for Australian-based employees is paid in Australian dollars and, for reporting purposes, converted to US dollars based on the applicable exchange rate at the date of payment. Valuation of equity awards is converted at the spot rate applying when the equity award is granted. RtsR fair values During the year, a review of the RTSR valuation model was conducted to ensure it accurately reflected the EIP rules. This review concluded that the fair values for the RTSR tested VPR’s that were granted from 2007 to 2011 had been overstated. The revised fair values are reflected in Table 13 on page 63. The impact on total compensation of executives as reported for the year ended 31 December 2011 is an aggregate decrease of $236,333. Woodside Petroleum Ltd. | Remuneration Report 59 table 4 - compensation of Kmp executives for the year ended 31 december 2012 and 2011(1)(2) fixed Annual Reward variable Annual Reward short term post employment short term share based payments executives year salaries, fees and allowances benefits and allowances (inc non-monetary)(3) company contributions to superannuation short-term award (cash)(5) share plans(6)(13) termination benefits total remuneration performance related P Coleman, Chief Executive Officer(7),(8) F Ahmed, Executive Vice President Technology(4),(9) R Cole, Executive Director and Executive Vice President Corporate and Commercial R Edwardes, Executive Vice President Development(10) P Moore, Executive Vice President Exploration G Roder, Executive Vice President Corporate Strategy and Planning(11) V Santostefano, Chief Operations Officer L Tremaine, Executive Vice President and Chief Financial Officer L Della Martina, Executive Vice President Pluto(12) $ 2,255,383 1,375,146 $ 84,745 38,730 658,746 275,676 473,808 363,684 $ 16,693 9,569 - - $ 2,380,590 978,550 280,857 $ 2,559,787 1,430,807 (139,313) 285,544 622,667 825,899 27,609 38,722 556,487 439,589 2012 2011 2012 2011 2012 2011 726,382 12,516 23,065 415,541 398,011 2012 509,534 366,898 36,714 330,317 75,884 2011 2012 2011 - - 405,206 380,764 62,241 41,352 2012 738,321 48,779 2011 2012 2011 2012 114,680 631,571 544,433 593,264 25,281 19,827 13,003 21,657 - 88,927 83,643 59,761 10,301 129,549 110,784 49,938 - - 181,211 183,111 245,583 216,825 270,387 48,785 - - 616,037 362,194 489,505 389,325 319,626 291,218 2011 503,712 12,516 27,584 294,809 221,457 $ $ - - - - - - - - - - - - - - - - 7,297,198 3,832,802 1,075,966 1,745,703 1,888,306 1,575,515 1,319,347 - 983,168 905,695 1,166,033 150,262 1,786,309 1,350,040 1,445,582 1,060,078 2012 2011 173,641 455,952 23,933 51,148 38,201 100,309 - (492,083) 355,266 98,958 248,483 290,747 - 1,146,639 % 68 63 13 52 53 52 31 - 43 44 27 - 56 51 54 49 - 47 (1) The Australian dollar compensation paid during the year ended 31 December 2012 was converted to US dollars at the average exchange rate of US$1:A$0.96586, and valuation of equity awards at 1 January 2012 was converted to US dollars at the spot rate of US$1:A$0.97885. The Australian dollar compensation paid during the year ended 31 December 2011 was converted to US dollars at the average exchange rate of US$1:A$0.96834, and valuation of equity awards at 1 January 2011 was converted to US dollars at the spot rate of US$1:A$0.97585. (2) KMP Executives in 2011 who are no longer KMP Executives in 2012 have not been disclosed. (3) Reflects the value of allowances and benefits including but not limited to travel, motor vehicle and health insurance. (4) As a non-resident for Australian tax purposes Mr Ahmed has elected to receive a cash payment in lieu of all superannuation contributions, in accordance with the Superannuation Guarantee (Administration) Act 1992. The cash payment is subject to (PAYG) income tax and paid as part of his normal monthly salary. The amount is included in salaries, fees and allowances. (5) The amount represents the short-term incentive earned in the respective year, which is (6) actually paid in the following year. ‘Share plan’ incorporates all equity based plans. In accordance with the requirements of AASB 2 Share-based Payment, the fair value of rights as at their date of grant has been determined by applying the Black-Scholes option pricing technique or binomial valuation method combined with a Monte Carlo simulation with the exception of Mr Ahmed’s 2008 VPR’s which are to be settled in cash as a result of his international secondment.  The fair value of rights is amortised over the vesting period, such that ‘Total remuneration’ includes a portion of the fair value of unvested equity compensation during the year.  The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity instruments vest.  (7) Mr Coleman commenced with Woodside on 30 May 2011. (8) On Mr Coleman’s commencement 66,004 Woodside Petroleum Limited shares were acquired and held in trust for Mr Coleman. Details were provided under the heading sign- on bonus in the 2011 Remuneration Report. The proportionate fair value for the shares is included in the Share-based Payments. (9) Mr Ahmed’s 2011 share-based payment amortisation expense was accelerated as his contract was due to expire on the 13 February 2012 and details of an extension had not been finalised at the time of reporting. Mr Ahmed’s contract has since been extended to the 13 February 2015. The 2012 share-based payment amortisation expense has been adjusted accordingly. (10) Mr Edwardes commenced with Woodside on 7 May 2012. (11) On 27 October 2011 Mr Roder was appointed to KMP. Mr Roder was engaged as a third party contractor through Energy Resourcing Australia, he transferred to a Fixed Term contract on 1 September 2012. (12) On 10 May 2012 Mr Della Martina departed Woodside. The Australian dollar compensation paid for the period from 1 January 2012 to 10 May 2012 was converted to US dollars at the average exchange rate of US$1:A$0.95450. (13) 2011 comparatives have been appropriately restated to reflect the revised fair values. The impact on total compensation of executives as reported for the year ended 31 December 2011 is an aggregate decrease of $236,333. 60 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONeXecutive incentive plAn table 5 - vesting schedule for RtsR-tested vpRs awarded for the 2012 performance year Woodside RtsR percentile position within peer Group Less than 50th percentile Equal to 50th percentile Equal to 75th percentile Vesting between these percentile points is on a pro rata basis. vesting of RtsR-tested vpRs no vesting 50% vest 100% vest table 6 - vesting schedule for RtsR-tested vpRs awarded for the performance years 2008 to 2011 Woodside RtsR percentile position within peer Group Less than 50th percentile Equal to 50th percentile Equal to 75th percentile Equal to 100th percentile Vesting between these percentile points is on a pro rata basis. While a VPR generally only confers an entitlement to a single share on vesting (or its cash value), when greater than 100% vesting is achieved additional shares are allocated in respect of each RTSR-tested VPR to achieve the necessary uplift. vesting of RtsR-tested vpRs no vesting 50% vest 100% vest 150% vest (i.e. 50% uplift for topping LTA Peer Group) table 7 - stA peer Group and ltA peer Group for performance years 2008 to 2011(1) table 8 - ltA peer Group 2012 performance year – international oil and Gas companies Apache Corporation Anadarko Petroleum Corporation BG Group PLC CNOOC Limited Inpex Corporation Marathon Oil Company Murphy Oil Corporation Pioneer Natural Resources Company Repsol YPF, S.A. Santos Ltd Talisman Energy Inc (1) As a consequence of the merger between Petro-Canada and Suncor Energy Inc. in August 2009, Petro-Canada was deleted from the Peer Group for the purposes of LTA awards made in February 2009, leaving 10 comparator companies. For the 2009, 2010 and 2011 Performance Years Inpex Corporation has been added to the LTA Peer Group. Apache Corporation Anadarko Petroleum Corporation BG Group PLC ConocoPhillips ENI S.p.A Hess Corporation Inpex Corporation Marathon Oil Company Murphy Oil Corporation Oil Search Limited Origin Energy Limited Pioneer Natural Resources Company Repsol YPF, S.A Santos Ltd Statoil ASA Talisman Energy Inc Tullow Oil PLC table 9 - summary of terms and conditions of unvested RtsR tested vpRs The following table summarises the terms and conditions of the RTSR tested VPRs awarded for performance years 2012, 2011, 2010 and 2009. terms and conditions 2012 vpR allocation 2011 vpR allocation 2010 vpR allocation 2009 vpR allocation Allocation Date 22 February 2013 1 March 2012 25 February 2011 5 March 2010 Pricing Date Grant Date Allocation Price(4) Vesting Date(1) Retesting Date 7 December 2012 31 December 2011 31 December 2010 31 December 2009 1 January 2012 1 January 2011 1 January 2010 1 January 2009 A$19.65 A$31.93 A$42.78 A$47.86 22 February 2017 1 March 2015 25 February 2014 5 March 2013 22 February 2018(2) 1 March 2016(3) 25 February 2015(3) 5 March 2014(3) (1) Provision is made for accelerated vesting in certain events such as total and permanent disability, death or a change in control of Woodside. (2) Any VPRs that do not vest as a result of the first test will be re-tested based on a five year performance period. Retesting is not applicable in respect of Time-tested VPRs. (3) Retesting is applied to the RTSR tested VPRs if the RTSR threshold is not achieved at the vesting date. (4) For allocations made for the years prior to 2012, the allocation price was determined by calculating the Volume Weighted Average Price of Woodside shares for the trading days in the month of December of the respective performance year. For the 2012 performance year, the allocation price is the fair value of a variable pay right, as at 7 December 2012, as determined by the relevant accounting standard. table 10 - summary of terms and conditions of unvested deferred stA The following table summarises the terms and conditions of the deferred short-term award for performance years 2012, 2011, 2010 and 2009. terms and conditions 2012 allocation 2011 allocation 2010 allocation 2009 allocation Deferral Instrument Restricted Shares Time-tested VPRs Time-tested VPRs Time-tested VPRs Allocation Date 22 February 2013 1 March 2012 25 February 2011 5 March 2010 Pricing Date Grant Date Volume Weighted Average Price Vesting Date(1) 31 December 2012 31 December 2011 31 December 2010 31 December 2009 1 January 2012 1 January 2011 1 January 2010 1 January 2009 A$34.09 A$31.93 A$42.78 A$47.86 22 February 2016 1 March 2015 25 February 2014 5 March 2013 (1) Provision is made for accelerated vesting in certain events such as total and permanent disability, death or a change in control of Woodside. Woodside Petroleum Ltd. | Remuneration Report 61 table 11 - summary of Kmp executives’ interests in time-tested vpRs(1) name Allocation date vesting date(2) Awarded but March 2012 March 2015 14,791 not vested P Coleman F Ahmed February 2009 February 2012 December 2009(4) February 2012 March 2010 March 2013 February 2011 February 2014 March 2012 March 2015 R Cole February 2009 February 2012 December 2009(4) February 2012 March 2010 March 2013 February 2011 February 2014 March 2012 March 2015 P Moore(5) February 2009 February 2012 December 2009(4) February 2012 February 2011 February 2014 March 2012 March 2015 V Santostefano February 2009 February 2012 December 2009(4) February 2012 March 2010 March 2013 February 2011 February 2014 March 2012 March 2015 L Tremaine(6) February 2009 February 2012 December 2009(4) February 2012 March 2012 March 2015 L Della Martina(7) February 2009 February 2012 December 2009(4) February 2012 March 2010 March 2013 February 2011 February 2014 March 2012 March 2015 - - 3,692 2,415 4,330 - - 4,599 4,302 6,301 - - 2,018 2,776 - - 3,786 2,286 5,492 - - 4,470 - - 2,950 2,753 3,768 vested in 2012 % of total vested lapsed in 2012 fair value(3) of vpRs by performance year - 3,245 27 - - - 4,543 38 - - - 1,344 11 - - 2,910 24 - - - 1,252 10 - 2,916 24 - - - - 100 100 - - - 100 100 - - - 100 100 - - 100 100 - - - 100 100 - 100 100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,950 2,753 3,768 38.87 31.26 31.26 29.57 38.32 38.87 39.81 39.92 29.57 38.32 38.87 39.81 39.92 38.32 38.87 39.81 39.92 29.57 38.32 38.87 39.81 39.92 38.87 39.81 39.92 29.57 38.32 38.87 (1) For valuation purposes all VPRs are treated as if they will be equity settled, with the (4) Additional allocation of VPRs to each tranche of granted VPRs, following renounceable exception of Mr Ahmed’s 2008 VPRs which are to be settled in cash as a result of his international secondment. This fair value for the cash settled awards is recalculated at the end of every reporting period. In 2011 the fair value of the 2008 cash settled VPRs was $31.26. (2) Vesting date and exercise date are the same. Vesting is subject to satisfaction of vesting (3) conditions. In accordance with the requirements of AASB 2 Share-based Payment, the fair value of rights as at their date of grant has been determined by applying the Binomial or Black Scholes option pricing technique with the exception of Mr Ahmed as noted in (1). The fair value of rights is amortised over the vesting period, such that ‘Total remuneration’ includes a portion of the fair value of unvested equity compensation during the year. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity instruments vest. equity rights issue by the company. (5) Mr Moore did not meet the definition of KMP under AASB 124 for years prior to 2010. Previous years comparative figures are not shown. (6) Mr Tremaine did not meet the definition of KMP under AASB 124 for years prior to 2011. Previous years comparative figures are not shown. (7) A total of 9,471 Time-tested VPRs with a value of A$316,331 were forfeited on Mr Della Martina’s departure on 10 May 2012. table 12 - summary of Kmp executives’ interests in restricted shares(1) name Allocation date vesting date(1) Awarded but not vested vested in 2012 % of total vested lapsed in 2012 value(2) of restricted shares by performance year P Coleman February 2013 February 2016 33,720 F Ahmed February 2013 February 2016 R Cole February 2013 February 2016 R Edwardes February 2013 February 2016 P Moore G Roder February 2013 February 2016 February 2013 February 2016 V Santostefano February 2013 February 2016 L Tremaine February 2013 February 2016 3,978 7,882 4,710 2,566 3,829 8,726 6,933 - - - - - - - - - - - - - - - - - - - - - - - - 30.98 30.98 30.98 30.98 30.98 30.98 30.98 30.98 (1) Vesting date and exercise date are the same. Vesting is subject to satisfaction of vesting conditions. (2) The modifications made to the EIP only affect awards made from the 2012 performance year onwards. The fair value of the awards allocated in February 2013 at the grant date based on the original plan rules was $28.22, the fair value at modification date under the original rules was $33.19 and the fair value at the modification date after the changes was $35.95. Accordingly, the value of the restricted shares is represented by the sum of the grant date fair value and the incremental benefit on modification date amounting to $2.76. 62 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONtable 13 - summary of Kmp executives’ interests in RtsR tested vpRs(1) name Allocation date vesting date (2),(3) Awarded but not vested vested in 2012 % of total vested lapsed in 2012(4) fair value(5),(9), (10) of vpRs P Coleman March 2012 March 2016 February 2013 February 2018 F Ahmed March 2008 March 2012 December 2009 March 2012 February 2009 February 2012 December 2009 February 2012 March 2010 March 2014 February 2011 February 2015 March 2012 March 2016 February 2013 February 2018 R Cole March 2008 March 2012 R Edwardes P Moore(6) December 2009 March 2012 February 2009 February 2012 December 2009 February 2012 March 2010 March 2014 February 2011 February 2015 March 2012 March 2016 February 2013 February 2018 February 2013 February 2018 March 2008 March 2012 December 2009 March 2012 February 2009 February 2012 December 2009 February 2012 February 2011 February 2015 March 2012 March 2016 February 2013 February 2018 G Roder February 2013 February 2018 V Santostefano March 2008 March 2012 December 2009 March 2012 February 2009 February 2012 December 2009 February 2012 March 2010 March 2014 February 2011 February 2015 March 2012 March 2016 February 2013 February 2018 L Tremaine(7) March 2008 March 2012 December 2009 March 2012 February 2009 February 2012 December 2009 February 2012 March 2012 March 2016 February 2013 February 2018 L Della Martina(8) March 2008 December 2009 March 2012 March 2012 February 2009 February 2012 December 2009 February 2012 March 2010 March 2014 February 2011 February 2015 March 2012 March 2016 51,769 150,665 - - - - 6,017 7,042 9,768 16,503 - - - - 6,305 7,526 10,661 19,430 11,923 - - - - 4,412 6,264 10,788 5,774 - - - - 5,190 6,665 9,293 18,259 - - - - 7,564 14,631 - - - - 4,045 6,020 8,500 - - - - 4,119 34 - - - - - - 4,325 36 - - - - - - - 1,208 10 - - - - - - 2,770 23 - - - - - - 1,126 10 - - - - 2,776 23 - - - - - - - 50 50 - - - - - - 50 50 - - - - - - - 50 50 - - - - - - 50 50 - - - - - - 50 50 - - - - 50 50 - - - - - 2,050 17 4,119 34 - - - - 4,862 40 4,325 36 - - - - - 1,541 13 1,208 10 - - - - 3,465 29 2,770 23 - - - - 1,422 12 1,126 9 - - 3,481 29 2,776 23 4,045 6,020 8,500 21.36 15.90 0.21 0.21 7.44 7.46 14.82 20.02 21.36 15.90 14.36 22.94 19.08 25.53 14.82 20.02 21.36 15.90 15.90 14.36 22.94 19.08 25.53 20.02 21.36 15.90 15.90 14.36 22.94 19.08 25.53 14.82 20.02 21.36 15.90 14.36 22.94 19.08 25.53 21.36 15.90 14.36 22.94 19.08 25.53 14.82 20.02 21.36 (1) For valuation purposes all VPRs are treated as if they will be equity settled, with the exception of Mr Ahmed’s 2007 and 2008 VPRs which are to be settled in cash as a result of his international secondment. The fair value for the cash settled awards is recalculated at the end of every reporting period. In 2011 the fair value of the 2007 and 2008 cash settled VPR’s was $0.21, $7.44 and $7.46 respectively. in (1). The fair value of rights is amortised over the vesting period, such that ‘Total remuneration’ includes a portion of the fair value of unvested equity compensation during the year. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity instruments vest. (2) Vesting date and exercise date are the same. Vesting is subject to satisfaction of (6) Mr Moore did not meet the definition of KMP under the AASB 124 for the years prior vesting conditions. to 2010. Comparative figures are not shown. (3) Vesting date is 14 March 2012 in respect of March 2008 allocations, on 27 February (7) Mr Tremaine did not meet the definition of KMP under the AASB 124 for the years 2012 in respect of February 2009 allocations, on 5 March 2013 or 5 March 2014 in respect of March 2010 allocations, 25 February 2014 or 25 February 2015 in respect of February 2011 allocations and 1 March 2015 or 1 March 2016 in respect of March 2012 allocations. Vesting date is 22 February 2017 or 22 February 2018 in respect of March 2013 allocations. (4) The 2007 performance year RTSR-tested VPRs lapsed as they did not meet the vesting conditions. The VPRs lapsed on 14 March 2012 and the Share Price at that date was $35.59. For the 2008 performance year Woodside’s TSR was at the 50th Peer Group Percentile, therefore 50% RTSR-tested VPRs vested and 50% lapsed. The VPRs lapsed on 27 February 2012 and the Share Price at that date was $37.16. In accordance with the requirements of AASB 2 Share-based Payment, the fair value of rights as at their date of grant has been determined by applying the Binomial or Black Scholes option pricing technique with the exception of Mr Ahmed as noted (5) prior to 2011. Comparative figures are not shown. (8) A total of 18,565 RTSR-tested VPRs with a value of A$620,071 were forfeited on Mr Della Martina’s departure on 10 May 2012. (9) The modifications made to the EIP were made on the 7 December 2012 where the share price was A$34.22. The modification only affects awards made from the 2012 performance year onwards. The fair value of the awards allocated in February 2013 at the grant date based on the original plan rules was $15.90, the fair value at modification date under the original rules was $21.64 and the fair value at the modification date after the changes was $20.64. Accordingly, there was no incremental benefit from the modification. (10) A review of the RTSR valuation model was conducted to ensure it accurately reflects the EIP rules. Prior year fair values have been appropriately restated to reflect the modification. Woodside Petroleum Ltd. | Remuneration Report 63 Retention And GeneRAl employee shARe plAns table 14 - summary of Kmp executives’ interests in shares under the Wspp(1)(2) name R Cole P Moore(7) V Santostefano L Della Martina(8) Wspp year 2012 2011 2010 2009 WSPP(4) 2008 WSPP(5) 2007 WSPP(6) 2011 2010 2012 2011 2010 2009 WSPP(4) 2008 WSPP(5) 2007 WSPP(6) 2012 2011 2010 2009 WSPP(4) 2008 WSPP(5) opening balance 395 shares purchased under Wspp - matching shares(3) - vested shares 395 lapsed / forfeited - closing balance - 769 893 498 124 - 234 358 395 769 893 498 124 - 395 769 893 498 124 - - 158 173 62 - - - - - 158 173 62 - - - 158 173 - - 237 201 62 - - - - - 237 201 62 - - - 237 201 374 124 - - - 234 124 395 374 124 - - - 395 374 124 - - - - - - - - - - - - - - - - - - - - 395 769 893 498 124 - 234 - 395 769 893 498 124 - 395 769 893 498 (1) For a full summary of executives interests in shares see note 28b to the financial report on page 125. (2) Participants in the WSPP elected to sacrifice an amount of salary and this amount was applied by the WSPP Trustee to purchase Woodside Shares on market. Woodside provided funds to the WSPP Trustee to buy additional Woodside Shares (matching shares) on Market. (3) To become entitled to the matching shares funded by Woodside, the participant had to remain a Woodside employee for the three year qualification period. (4) 2009 WSPP refers to the purchases made in 2009 for the 2008/09 Plan. The matching shares for the 2009 WSPP with a grant date of 2 Janaury 2009 had a fair value of $31.46 and a grant date of 1 April 2009 had a fair value of $34.49 per share. (5) 2008 WSPP refers to the plan for the 2008/09 Plan Year as well as the purchases made in 2008 for the 2007/08 Plan. The matching shares for the 2008 WSPP with a grant date of 3 March 2008 had a fair value of $49.97, with a grant date of 13 June 2008 had a fair value of $56.16 and with a grant date of 1 October 2008 has a fair value of $47.19 per share. (6) 2007 WSPP refers to the plan for the 2007/08 Plan Year granted in 2007. The matching shares for the 2007 WSPP with a grant date of 27 November 2007 had a fair value of $43.11 per share. (7) Mr Moore did not meet the definition of KMP under AASB 124 for any years prior to 2010. Previous years comparative figures are not shown. (8) Mr Della Martina did not meet the definition of KMP under AASB 124 for the 2007 year. Previous years comparative figures are not shown. table 15 - summary of Kmp executives’ interests in equity Rights under the eep(1) name Grant date F Ahmed R Cole P Moore V Santostefano 31 October 2009 30 April 2010 31 October 2009 30 April 2010 31 October 2009 30 April 2010 31 October 2009 30 April 2010 L Tremaine 31 October 2009 L Della Martina(3) 31 October 2009 number of equity Rights granted number of equity Rights which have lapsed/forfeited number of equity Rights which have vested during 2012 fair value of equity Rights(2) 4,350 36 4,350 36 4,350 36 4,350 36 4,350 4,350 - - - - - - - - - 4,350 4,350 36 4,350 36 4,350 36 4,350 36 4,350 - 39.81 39.83 39.81 39.83 39.81 39.83 39.81 39.83 39.81 39.81 (1) Under the EEP eligibility participants received a one-off allocation of Equity Rights entitling the participant to receive a Woodside share on the vesting date. There were no performance conditions attached. Participants did not make any payment in respect of the Equity Rights at grant nor at vesting. (2) The fair value of Equity Rights as at their date of grant has been determined by reference to the share price at acquisition. The fair value of Equity Rights is amortised over the vesting period, such that ‘Total remuneration’ includes a portion of the fair value of unvested equity compensation during the year. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives received upon vesting in August 2012. (3) A total of 4,350 Equity Rights with a value of A$145,390 were forfeited on Mr Della Martina’s departure on 10 May 2012. 64 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONtable 16 - summary of Kmp executives’ interests in equity Rights under the Wep name Grant date R Cole P Moore V Santostefano L Tremaine L Della Martina(2) 30 November 2011 30 November 2011 1 October 2012 30 November 2011 1 October 2012 30 November 2011 1 October 2012 30 November 2011 number of equity Rights granted number of equity Rights which have lapsed/forfeited number of equity Rights which have vested during 2012 fair value of equity Rights(1) 1,830 1,830 2,000 1,830 2,000 1,830 2,000 1,830 - - - - - - - 1,830 - - - - - - - - 30.49 30.49 31.99 30.49 31.99 30.49 31.99 30.49 (1) The fair value of Equity Rights as at their date of grant has been determined by reference to the share price at acquisition. The fair value of Equity Rights is amortised over the vesting period, such that ‘Total remuneration’ includes a portion of the fair value of unvested equity compensation during the year. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity instruments vest. (2) A total of 1,830 Equity Rights with a value of A$61,122 were forfeited on Mr Della Martina’s departure on 10 May 2012. table 17 - Annual base board and committee fees for non-executive directors position board Audit & Risk committee human Resources & compensation committee sustainability committee nominations committee Chairman of the Board(1) Non-executive directors(2) Committee Chairman Committee Member A$ 679,200(3) 206,500(3) - - A$ - - 54,400(3) 27,100(3) A$ - - 46,000(3) 23,000(3) A$ - - 46,000(3) 23,000(3) A$ - - Nil Nil Inclusive of committee work. (1) (2) Board fees paid to non-executive directors, other than the Chairman. (3) Annual fee from 1 July 2012. table 18 - total remuneration paid to non-executive directors in 2012 and 2011(1) M A Chaney M A Cilento F C Cooper(2) E Fraunschiel(3) C Haynes A Jamieson P J M H Jungels(4) D I McEvoy S Ryan(5) cash salary and fees pension super salaries, fees and allowances company contributions to superannuation $ 689,698 659,941 255,162 242,889 - 287,672 274,592 278,127 155,712 302,898 278,700 326,670 332,451 282,702 264,111 19,132 - $ 62,073 59,395 22,965 21,860 - 25,891 24,713 - - - - - - 25,444 23,770 1,722 - total $ 751,771 719,336 278,127 264,749 - 313,563 299,305 278,127 155,712 302,898 278,700 326,670 332,451 308,146 287,881 20,854 - 2012 2011 2012 2011 2012 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 (1) The total remuneration for 2011 was converted at the average exchange rate of US$1:A$0.96834 and the 2012 total remuneration was converted at the average exchange rate of US$1:A$0.96586. (2) Effective 1 February 2013 Mr Cooper was appointed a non-executive director of Woodside. (3) On 28 February 2013 Mr Fraunschiel will retire as a non-executive director of Woodside. (4) Dr Jungels retired on 7 December 2012. The Australian dollar compensation paid for the period from 1 January 2012 to 7 December 2012 was converted to US dollars at the average exchange rate of US$1:A$0.96659. (5) Dr Ryan was appointed to the Board on 6 December 2012. The Australian dollar compensation paid for the period from 6 December 2012 to 31 December 2012 was converted to US dollars at the average exchange rate of US$1:A$0.95543. Woodside Petroleum Ltd. | Remuneration Report 65 diRectoRs’ RepoRt (continued) indemnification and insurance of directors and officers The company’s constitution requires the company to indemnify each director, secretary, executive officer or employee of the company or its wholly-owned subsidiaries against liabilities (to the extent the company is not precluded by law from doing so) incurred in or arising out of the conduct of the business of the company or the discharge of the duties of any such person. The company has entered into deeds of indemnity with each of its directors, secretaries, certain senior executives, and employees serving as officers on wholly-owned or partly-owned companies of Woodside in terms of the indemnity provided under the company’s constitution. From time to time, Woodside engages its external auditor, Ernst & Young, to conduct non-statutory audit work and provide other services in accordance with Woodside’s External Auditor Guidelines. The terms of engagement include an indemnity in favour of Ernst & Young: against all losses, claims, costs, expenses, actions, demands, damages, liabilities or any proceedings (liabilities) incurred by Ernst & Young in respect of third party claims arising from a breach by the Group under the engagement terms; and for all liabilities Ernst & Young has to the Group or any third party as a result of reliance on information provided by the Group that is false, misleading or incomplete. The company has paid a premium under a contract insuring each director, officer, secretary and employee who is concerned with the management of the company or its subsidiaries against liability incurred in that capacity. Disclosure of the nature of the liability covered by and the amount of the premium payable for such insurance is subject to a confidentiality clause under the contract of insurance. The company has not provided any insurance for the external auditor of the company or a body corporate related to the external auditor. non-audit services and auditor independence declaration Details of the amounts paid or payable to the external auditor of the company, Ernst & Young, for audit and non-audit services provided during the year are disclosed in note 32 to the Financial Report. Based on advice provided by the Audit & Risk Committee, the directors are satisfied that the provision of non-audit 66 Woodside Petroleum Ltd. | 2012 Annual Report services by the external auditor during the financial year is compatible with the general standard of independence for auditors imposed by the Corporations Act for the following reasons: all non-audit services were provided in accordance with Woodside’s External Auditor Policy and External Auditor Guidelines; and all non-audit services were subject to the corporate governance processes adopted by the company and have been reviewed by the Audit & Risk Committee to ensure that they do not affect the integrity or objectivity of the auditor. Further information on Woodside’s policy in relation to the provision of non-audit services by the auditor is set out in section 7 of the Corporate Governance Statement on pages 48 to 49. The auditor independence declaration, as required under section 307C of the Corporations Act, is set out on this page and forms part of this report. proceedings on behalf of the company No proceedings have been brought on behalf of the company, nor has any application been made in respect of the company, under section 237 of the Corporations Act. Rounding of amounts The amounts contained in this report have been rounded to the nearest million dollars under the option available to the company under Australian Securities and Investments Commission Class Order 98/0100 dated 10 July 1998. directors’ relevant interests in Woodside shares as at date of report director Relevant interest in shares MA Chaney RJ Cole1,2,3 PJ Coleman2,3 MA Cilento F Cooper E Fraunschiel CM Haynes A Jamieson DI McEvoy SE Ryan 20,000 28,502 55,004 2,086 - 81,930 1,333 4,235 8,040 - (1) Mr Cole holds 1,830 equity rights under the Woodside Equity Plan, on the terms and conditions summarised in the Remuneration Report on page 58. (2) Messrs Cole and Coleman hold variable pay rights under Woodside’s Executive Incentive Plan, details of which are set out in the Remuneration Report on pages 62 to 63. (3) Messrs Cole and Coleman will be allocated restricted shares under Woodside’s Executive Incentive Plan on 22 February 2013, as set out in the Remuneration Report on page 62. Signed in accordance with a resolution of the directors. m A chaney, Ao Chairman Perth, Western Australia 20 February 2013 p j coleman Chief Executive Officer and Managing Director Perth, Western Australia 20 February 2013 Auditor’s independence declaration to the directors of Woodside petroleum ltd In relation to our audit of the financial report of Woodside Petroleum Ltd for the year ended 31 December 2012, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. ernst & young R j curtin Partner Perth, Western Australia 20 February 2013 Liability limited by a scheme approved under Professional Standards Legislation. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION2012 FinanciaL REPORT consolidated income statement consolidated statement of comprehensive income consolidated statement of financial position consolidated statement of cash flows consolidated statement of changes in equity notes to and forming part of the Financial Report 1. Summary of significant accounting policies 2. Operating segments 3. 4. 5. Revenue and expenses Taxes Earnings per share 6. Dividends paid and proposed 7. 8. 9. Cash and cash equivalents Receivables Inventories 10. Other financial assets 11. Other assets 12. Exploration and evaluation assets 13. Oil and gas properties 14. Other plant and equipment 15. Payables 16. Interest-bearing liabilities 17. Tax payable 18. Other financial liabilities 19. Other liabilities 20. Provisions 21. Contributed equity 22. Other reserves 23. Retained earnings 24. Parent entity information 25. Financial and capital risk management 26. Expenditure commitments 27. Employee benefits 28. Key management personnel compensation 29. Events after the end of the reporting period 30. Related party disclosures 31. Contingent liabilities and contingent assets 32. Auditor remuneration 33. Joint ventures 34. Associated entities 35. Subsidiaries 36. Corporate information Directors’ declaration independent audit report 68 69 70 71 72 73 86 89 91 94 94 95 95 95 96 96 97 98 99 99 100 100 100 101 101 102 103 104 104 104 113 114 124 128 128 129 129 130 131 132 134 135 136 Woodside Petroleum Ltd. | Financial Report 67 Consolidated income statement For the year ended 31 December 2012 Operating revenue Cost of sales Gross profit Other income Other expenses Profit before tax and net finance costs Finance income Finance costs Profit before tax Petroleum Resource Rent Tax expense Income tax expense Profit after tax Profit attributable to Equity holders of the parent Non-controlling interest Profit for the year notes 3(a) 3(b) 3(c) 3(d) 3(e) 3(f) 4(a) 4(a) Basic and diluted earnings per share attributable to the equity holders of the parent (US cents) 5 The accompanying notes form part of the Financial Report. 2012 US$m 6,348 (2,618) 3,730 830 (765) 3,795 8 (145) 3,658 523 (1,137) 3,044 2,983 61 3,044 366 2011 US$m 4,802 (1,657) 3,145 97 (1,030) 2,212 10 (36) 2,186 (17) (660) 1,509 1,507 2 1,509 190 68 Woodside Petroleum Ltd. | 2012 annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONConsolidated statement of comprehensive income For the year ended 31 December 2012 Profit for the year Other comprehensive income Net change in fair value of available-for-sale financial assets Companies voluntarily liquidated Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to Equity holders of the parent Non-controlling interest Total comprehensive income for the year The accompanying notes form part of the Financial Report. 2012 US$m 2011 US$m 3,044 1,509 (2) - (2) (3) (16) (19) 3,042 1,490 2,981 61 3,042 1,488 2 1,490 Woodside Petroleum Ltd. | Financial Report 69 Consolidated statement of financial position As at 31 December 2012 notes 2012 US$m 2011 US$m 7(a) 8 9(a) 10(a) 11(a) 9(b) 10(b) 11(b) 12 13 14 4(c) 15(a) 16(a) 17 19(a) 20 15(b) 16(b) 4(c) 18 19(b) 20 21(a) 21(b) 22 23 2,422 574 241 32 20 3,289 7 64 3 1,120 19,375 60 892 21,521 24,810 829 575 647 24 290 2,365 196 3,765 1,368 7 165 1,117 6,618 8,983 15,827 6,547 (44) 859 7,786 15,148 679 15,827 41 669 195 16 93 1,014 18 86 3 2,235 19,289 62 524 22,217 23,231 1,214 770 74 27 327 2,412 215 4,332 1,825 6 181 991 7,550 9,962 13,269 5,880 (67) 1,063 5,782 12,658 611 13,269 current assets Cash and cash equivalents Receivables Inventories Other financial assets Other assets Total current assets non-current assets Inventories Other financial assets Other assets Exploration and evaluation assets Oil and gas properties Other plant and equipment Deferred tax assets Total non-current assets Total assets current liabilities Payables Interest-bearing liabilities Tax payable Other liabilities Provisions Total current liabilities non-current liabilities Payables Interest-bearing liabilities Deferred tax liabilities Other financial liabilities Other liabilities Provisions Total non-current liabilities Total liabilities net assets Equity Issued and fully paid shares Shares reserved for employee share plans Other reserves Retained earnings Equity attributable to equity holders of the parent non-controlling interest Total equity The accompanying notes form part of the Financial Report. 70 Woodside Petroleum Ltd. | 2012 annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONConsolidated statement of cash flows For the year ended 31 December 2012 cash flows from/(used in) operating activities Profit after tax for the year Adjustments for: Non-cash items Depreciation and amortisation Impairment of exploration and evaluation assets Impairment/(reversal) of oil and gas properties and other assets Unrealised foreign exchange loss/(gain) Gain on disposal of exploration and evaluation assets Loss/(gain) on disposal of oil and gas properties Gain on disposal of investments Change in fair value of derivative financial instruments Change in fair value of other financial instruments Net finance costs Tax expense Exploration and evaluation written off Other Changes in assets and liabilities Decrease/(increase) in trade and other receivables Increase in inventories (Decrease)/increase in provisions Increase/(decrease) in other assets and liabilities (Decrease)/increase in trade and other payables Cash generated from operations Purchases of shares and payments relating to employee share plans Interest received Dividends received Interest paid Income tax paid Petroleum Resource Rent Tax paid Payments for restoration net cash from operating activities cash flows from/(used in) investing activities Payments for capital and exploration expenditure Proceeds from disposal of investments Proceeds from disposal of exploration and evaluation assets Proceeds from disposal of oil and gas properties net cash from/(used in) investing activities cash flows from/(used in) financing activities (Repayments of)/proceeds from borrowings Contributions from non-controlling interests Proceeds from underwriters of Dividend Reinvestment Plan (DRP) Dividends paid (net of DRP) Dividends paid outside of DRP net cash (used in)/from financing activities net increase/(decrease) in cash held cash and cash equivalents at the beginning of the year Effects of exchange rate changes on the balances of cash held in foreign currencies cash and cash equivalents at the end of the year The accompanying notes form part of the Financial Report. 7(b) notes 2012 US$m 2011 US$m 3,044 1,509 1,217 26 131 3 (762) 7 (2) 10 - 137 614 129 63 23 (38) (66) 12 (6) 4,542 (11) 5 5 (198) (604) (260) (4) 3,475 (1,914) 7 2,068 - 161 (772) 67 320 (325) (542) (1,252) 2,384 41 (3) 2,422 664 14 (17) (3) (7) (5) - 5 (12) 26 677 176 59 (175) (63) 250 (45) 13 3,066 (10) 10 4 (200) (496) (132) - 2,242 (3,584) - 16 35 (3,533) 172 194 648 (652) - 362 (929) 963 7 41 Woodside Petroleum Ltd. | Financial Report 71 Consolidated statement of changes in equity For the year ended 31 December 2012 y l l u f d n a d e u s s i s e r a h s d i a p d e v r e s e r s e r a h S e r a h s e e y o p m e r o f l s n a l p s t i f e n e b e e y o p m E l e v r e s e r y c n e r r u c n g i e r o F e v r e s e r n o i t a l s n a r t t e n f o e g d e H e v r e s e r t n e m t s e v n i r i a f t n e m t s e v n i e v r e s e r e u l a v i s g n n r a e d e n i a t e R l f o s r e d o h y t i u q E t n e r a p e h t note 21 (a) note 21 (b) note 22 note 22 note 22 note 22 note 23 g n i l l o r t n o c - n o n t s e r e t n i l a t o T y t i u q e at 1 January 2012 5,880 (67) 303 663 110 (13) 5,782 12,658 611 13,269 US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m Profit for the year Other comprehensive income Total comprehensive income for the year Non-controlling interest Dividend Reinvestment Plan Shares issued Employee share plan purchases Employee share plan redemptions Share-based payments Dividends paid - - - - 431 236 - - - - at 31 December 2012 6,547 - - - - - (236) (11) 270 - - (44) - - - - - - - (270) 68 - 101 - - - - - - - - - - - - - - - - - - - - - 2,983 2,983 61 3,044 (2) (2) - - - - - - - - (2) - (2) 2,983 2,981 61 3,042 - - - - - - (979) - 431 - (11) - 68 (979) 7 - - - - - - 7 431 - (11) - 68 (979) 663 110 (15) 7,786 15,148 679 15,827 At 1 January 2011 5,036 (57) 192 679 110 (10) 5,141 11,091 595 11,686 Profit for the year Other comprehensive income Total comprehensive income for the year Non-controlling interest Dividend Reinvestment Plan Shares issued Employee share plan purchases Employee share plan redemptions Share-based payments Dividends paid - - - - 844 - - - - - At 31 December 2011 5,880 - - - - - - (10) - - - (67) The accompanying notes form part of the Financial Report. - - - - - - - - 111 - - (16) (16) - - - - - - - - - - - - - - - - - - (3) (3) 1,507 - 1,507 1,507 (19) 1,488 - - - - - - - - - - - - - (866) - 844 - (10) - 111 (866) 2 - 2 14 - - - - - - 1,509 (19) 1,490 14 844 - (10) - 111 (866) 303 663 110 (13) 5,782 12,658 611 13,269 72 Woodside Petroleum Ltd. | 2012 annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 1. Summary of significant accounting policies (a) Basis of preparation The Financial Report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The Financial Report has been prepared on a historical cost basis, except for derivative financial instruments and certain other financial assets, which have been measured at fair value. The Financial Report is presented in US dollars. The amounts contained in this report have been rounded to the nearest million dollars under the option available to the Group under Australian Securities and Investments Commission Class Order 98/0100 dated 10 July 1998, unless otherwise stated. The Financial Report was authorised for issue in accordance with a resolution of the directors on 20 February 2013. Woodside Petroleum Ltd is a for-profit entity. The nature of the operations and principal activities of the Group are described in the Directors’ Report. Except as disclosed below, the accounting policies adopted are consistent with those disclosed in the Annual Financial Report for the year ended 31 December 2011. Certain comparative information has been reclassified to be presented on a consistent basis with the current year’s presentation. Changes in accounting policy and disclosures The Group has adopted all new and amended Australian Accounting Standards and Interpretations effective from 1 January 2012 including: • AASB 1054 Australian Additional Disclosures • AASB 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132 & AASB 134 and Interpretations 2, 112 & 113] New and amended Standards and Interpretations did not result in any significant changes to the Group’s accounting policies. The Group has not elected to early adopt any other new or amended Standards or Interpretations that are issued but not yet effective (refer Note 1(af)). (b) Statement of compliance The Financial Report complies with Australian Accounting Standards and International Financial Reporting Standards, as issued by the International Accounting Standards Board. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the Group as at 31 December each year. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date at which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. At acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits and losses arising from intra-group transactions, have been eliminated in full. Woodside Petroleum Ltd. | Financial Report 73 Notes to and forming part of the Financial ReportFor the year ended 31 December 20121. Summary of significant accounting policies (continued) (c) Basis of consolidation (continued) A change in ownership of a subsidiary that does not result in a loss of control is accounted for as an equity transaction. On loss of control of a subsidiary, all carrying amounts of assets, liabilities and non-controlling interests are derecognised. Any retained interest in the subsidiary is remeasured to its fair value and a gain or loss is recognised in the income statement. Investments in subsidiaries are carried at cost less impairment charges in the separate financial statements of the parent company. Dividends received from subsidiaries are recorded as other income in the separate income statement of the parent company and do not impact the recorded cost of investment. The parent company will assess whether any indicators of impairment of the carrying amount of the investment in the subsidiary exist. Where such indicators exist, to the extent that the carrying amount of the investment exceeds its recoverable amount, an impairment loss is recognised. Non-controlling interests are allocated their share of the net profit after tax in the consolidated income statement, their share of other comprehensive income, net of tax in the consolidated statement of comprehensive income and are presented within equity in the consolidated statement of financial position, separately from parent shareholders’ equity. (d) Revenue Revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Product revenue Revenue earned from the sale of oil, gas and condensate produced is recognised when the risks and rewards of ownership of the products are transferred to the customer. This policy is applied to the Group’s different operating arrangements as follows: • • • • revenue earned under a lease or licence conferring ownership rights to production, in which the Group has a working interest with other producers, is recognised in earnings on the basis of the Group’s interest in the relevant lease or licence (entitlements method). Revenue is not reduced for royalties and other taxes payable from production, except where royalties are payable in kind; revenue from take or pay contracts is recognised in earnings when the product has been drawn by the customer or recorded as unearned revenue when not drawn by the customer; revenue earned under a risk service contract is recognised when the Group has a legally enforceable entitlement to the proceeds; revenue earned under a production service contract is recognised on the basis of the Group’s share of oil, gas or condensate allocated to the contractor party or parties under the contract; and • revenue earned from LNG processing services is recognised when the services are rendered. Interest revenue Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividend revenue Dividend revenue is recognised when the Group’s right to receive payment is established. 74 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (e) Exploration and evaluation Expenditure on exploration and evaluation is accounted for in accordance with the area of interest method. The Group’s application of the accounting policy for the cost of exploring and of evaluating discoveries is closely aligned to the US GAAP-based successful efforts method. Exploration licence acquisition costs are capitalised and subject to half-yearly impairment testing. All exploration and evaluation expenditure, including general permit activity, geological and geophysical costs and new venture activity costs, is expensed as incurred except where: • the expenditure relates to an exploration discovery that, at the reporting date, has not been recognised as an area of interest, as an assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or • an area of interest is recognised and it is expected that the expenditure will be recouped through successful exploitation of the area of interest, or alternatively, by its sale. The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful discovery of economically recoverable hydrocarbons and the recognition of an area of interest. Areas of interest are recognised at the field level. Subsequent to the recognition of an area of interest, all further evaluation costs relating to that area of interest are capitalised. Each potential or recognised area of interest is reviewed half-yearly to determine whether economic quantities of reserves have been found, or whether further exploration and evaluation work is underway or planned to support the continued carry forward of capitalised costs. Upon approval for the commercial development of an area of interest, accumulated expenditure for the area of interest is transferred to oil and gas properties. The recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. Where a potential impairment is indicated, assessment is performed for each area of interest to which the exploration and evaluation expenditure is attributed. To the extent that capitalised expenditure is not expected to be recovered it is charged to the income statement. In the statement of cash flows, those cash flows associated with capitalised exploration and evaluation expenditure are classified as cash flows used in investing activities. Exploration and evaluation expenditure expensed is classified as cash flows used in operating activities. (f) Oil and gas properties Oil and gas properties are stated at cost less accumulated depreciation and impairment charges. Oil and gas properties include construction, installation or completion of production and infrastructure facilities such as pipelines and platforms, capitalised borrowing costs, transferred exploration and evaluation assets, development wells and the cost of dismantling and restoration. Subsequent capital costs, including major maintenance, are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Otherwise costs are charged to the income statement during the financial year in which they are incurred. Woodside Petroleum Ltd. | Financial Report 75 Notes to and forming part of the Financial ReportFor the year ended 31 December 20121. Summary of significant accounting policies (continued) (g) Other plant and equipment Other plant and equipment is stated at cost less accumulated depreciation and any impairment charges. (h) Depreciation and amortisation Oil and gas properties and other plant and equipment are depreciated to their estimated residual values at rates based on their expected useful lives. The major categories of assets are depreciated as follows: category Method Estimated useful lives (years) Oil and gas properties Land Buildings Not depreciated Straight-line over useful life Transferred exploration and evaluation assets and offshore plant and equipment Units of production basis over Proved plus Probable reserves Onshore plant and equipment Straight-line over the lesser of useful life and the life of Proved plus Probable reserves Marine vessels and carriers Other plant and equipment Straight-line over useful life Straight-line over useful life - 24-40 5-50 5-50 10-40 5-15 (i) impairment of assets The carrying amounts of all assets, other than inventory, financial assets and deferred tax assets, are reviewed half-yearly to determine whether there is an indication of an impairment loss. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of an asset is determined as the higher of its value in use and fair value less costs to sell. Value in use is determined by estimating future cash flows after taking into account the risks specific to the asset and discounting them to its present value using a pre-tax discount rate that reflects current market assessment of the time value of money. For any asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. If the carrying amount of an asset (or cash generating unit) exceeds its recoverable amount, the asset (or cash generating unit) is written down. Generally, the Group evaluates its oil and gas properties on a field-by-field basis. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (j) non-current assets and disposal groups held for sale and discontinued operations Non-current assets and disposal groups that are expected to be recovered primarily through a sale transaction rather than through continuing use are classified as held for sale and measured at the lower of their carrying amounts and fair values less cost to sell. They are not depreciated or amortised. To be classified as held for sale, an asset or a disposal group must be available for immediate sale in its present condition and its sale must be highly probable. An impairment loss is recognised for any initial or subsequent write-down of the asset to its fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent impairment gains or losses on remeasurement are recognised in the income statement. Gains are not recognised in excess of any cumulative impairment loss. (k) Derivative financial instruments and hedge accounting From time to time, the Group uses derivative financial instruments such as swaps, options, futures and forward contracts to hedge its risks associated with commodity price, interest rate and foreign currency fluctuations. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair values in line with market fluctuations. The unrealised gain or loss on remeasurement is immediately recognised in the income statement, except where hedge accounting applies. 76 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (k) Derivative financial instruments and hedge accounting (continued) The fair values of derivative financial instruments that are traded on an active market are based on quoted market prices at the reporting date. The fair values of financial instruments not traded on an active market are determined using a valuation technique based on cash flows discounted to present value using current market interest rates. Hedge accounting When a derivative is designated as a hedge for accounting purposes, the relationship between the derivative and the hedged item is documented, as is its risk management objective and strategy for undertaking the hedge transaction. Also documented is the assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been, and will continue to be, highly effective in offsetting changes in fair values or cash flows of hedged items. For the purposes of hedge accounting, hedges are classified and accounted for as follows: Hedge type and risk accounting treatment Fair value hedge Exposure to changes in the fair value of a recognised asset, liability or committed transaction Cash flow hedge Changes in fair value of derivatives that are designated and qualified as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged risk that are attributable to the asset, liability or committed transaction. Exposure to variability in cash flows associated with a highly probable forecasted transaction or a committed foreign currency transaction The effective portion of changes in the fair value of derivatives is recognised in other comprehensive income and in the hedging reserve in equity. The gain or loss relating to any ineffective portion is recognised in the income statement immediately. Hedge of net investment Exposure to changes in the net assets of foreign operations from foreign exchange movements Amounts accumulated in equity are taken to the income statement in the periods when the hedged item affects income, for instance, when the forecast sale that is hedged takes place. The accounting treatment is substantially similar to a cash flow hedge. Gains or losses accumulated in the hedge of net investment reserve in equity are taken to the income statement on disposal of the foreign operation. Hedge accounting is discontinued when the hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity remains in equity until the forecasted transaction occurs. If the forecast transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. Embedded derivatives Derivatives embedded in the Group’s contracts, that change the nature of a host contract’s risk and are not clearly and closely related to the host contract, are initially recognised at fair value on the date the contract is entered into. Subsequent fair value movements of the derivative are recognised in the income statement. (l) Provision for restoration The Group records the present value of the estimated cost of legal and constructive obligations to restore operating locations in the period in which the obligation arises. The nature of restoration activities includes the removal of facilities, abandonment of wells and restoration of affected areas. A restoration provision is recognised and updated at different stages of the development and construction of a facility and then reviewed on an annual basis. When the liability is initially recorded, the estimated cost is capitalised by increasing the carrying amount of the related exploration and evaluation assets or oil and gas properties. Woodside Petroleum Ltd. | Financial Report 77 Notes to and forming part of the Financial ReportFor the year ended 31 December 20121. Summary of significant accounting policies (continued) (l) Provision for restoration (continued) Over time, the liability is increased for the change in the present value based on a pre-tax discount rate appropriate to the risks inherent in the liability. The unwinding of the discount is recorded as an accretion charge within finance costs. The carrying amount capitalised in oil and gas properties is depreciated over the useful life of the related asset (refer to Note 1(h)). Costs incurred that relate to an existing condition caused by past operations and do not have a future economic benefit are expensed. (m) Joint ventures The Group’s interests in jointly controlled assets are accounted for by recognising its proportionate share in assets and liabilities from joint ventures, except where as operator, Woodside takes on the role as independent contractor. In these instances, receivables and payables relating to jointly controlled operations are brought to account on a gross basis. Joint venture expenses and the Group’s entitlement to production are recognised on a pro-rata basis according to the Group’s joint venture interest. Investments in jointly controlled entities, where the Group has significant influence, but not control, are accounted for using the equity method of accounting. Under the equity method, the cost of the investment is adjusted by the post- acquisition changes in the Group’s share of the net assets of the venture. On loss of joint control in a jointly controlled entity, any retained interest in the former entity is recognised at its fair value at the date that joint control is lost. A gain or loss, on loss of joint control, is recognised in the income statement. (n) Borrowing costs Borrowing costs incurred for the acquisition or construction of qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Assets are considered to be qualifying assets when this period of time is substantial (greater than 12 months). The interest rate used to determine the amount of borrowing costs to be capitalised is the weighted average effective interest rate applicable to the Group’s outstanding borrowings during the year. (o) Foreign currency The functional and presentation currency of Woodside Petroleum Ltd and all its subsidiaries is US dollars. Translation of foreign currency transactions Transactions in foreign currencies are initially recorded in the functional currency of the transacting entity at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the rates of exchange ruling at that date. Exchange differences in the consolidated financial statements are taken to the income statement, with the exception of differences on foreign currency borrowings that provide an effective hedge against a net investment in subsidiaries which are taken directly to the hedge of net investment reserve until the disposal of the net investment, at which time they are recognised in the income statement. Translation of the financial results of foreign operations prior to 2010 Prior to 1 January 2010, certain entities within the Group had a functional currency of Australian dollars as a result of the economic environment in which they were operating. For the period prior to the date of change in functional currency assets and liabilities of these entities were translated into the presentation currency of the Group (US dollars) at the rate of exchange ruling at the respective reporting dates. The income statements were translated at the average exchange rates for the reporting period, or at the exchange rates ruling at the date of transactions. Exchange differences arising on translation were taken to the foreign currency translation reserve in equity. Hedge transactions Derivatives and other financial instruments are used to hedge foreign exchange risk relating to certain transactions (refer to Note 1(k)). Disposal of foreign operations On disposal of a foreign operation, the proportionate share of exchange differences recognised in the foreign currency translation reserve relating to the particular foreign operation is recognised in the income statement. 78 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (p) Leases The determination of whether an arrangement is or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Assets held under leases that transfer to the Group substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Finance leases are capitalised at the inception of the lease, at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement over the lease term. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease assets are not capitalised and payments are recognised in the income statement as an expense over the lease term. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. (q) cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and short-term deposits with an original maturity of three months or less. Cash and cash equivalents are stated at face value in the statement of financial position. For the purposes of the statement of cash flows, cash and cash equivalents are reported net of outstanding bank overdrafts. (r) Trade and other receivables Trade and other receivables, including receivables from related parties, are initially recognised at fair value and subsequently measured at amortised cost less an allowance for uncollectible amounts. Collectability and impairment are assessed on a regular basis. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. (s) inventories Inventories include hydrocarbon stocks, consumable supplies and maintenance spares. Inventories are valued at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes direct costs and an appropriate portion of fixed and variable production overheads where applicable. Inventories determined to be obsolete or damaged are written down to net realisable value. (t) investments Investments are classified as either available-for-sale or held for trading and are initially recognised at fair value plus, in the case of investments not held for trading, any directly attributable transaction costs. After initial recognition investments are carried at fair value. Changes in the fair value of available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative change in fair value previously reported in equity is included in the income statement. Changes in the fair value of held for trading investments are recognised in the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the reporting date. Where investments are not actively traded, fair value is established by using other market accepted valuation techniques. Woodside Petroleum Ltd. | Financial Report 79 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 1. Summary of significant accounting policies (continued) (u) investments in associates The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. An associate is an entity in which the Group has significant influence and is neither a subsidiary nor a joint venture. The financial statements of associates, prepared for the same reporting period as the Group and applying consistent accounting policies, are used by the Group to apply the equity method. The investment in the associate is carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate less any impairment. The income statement reflects the Group’s share of the associate’s after tax profit or loss from operations. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, where applicable, in the consolidated statement of changes in equity. On loss of significant influence of an associate, any retained investment in the former associate is recognised at its fair value. A gain or loss, on loss of significant influence, is recognised in the income statement. (v) Employee provisions Provision is made for employee benefits accumulated as a result of employees rendering services up to the end of the reporting period. These benefits include wages, salaries, annual leave and long service leave. Liabilities in respect of employees’ services rendered that are not due to be settled within one year after the end of the period in which the employees render the related services are recognised in the statement of financial position. These liabilities are measured at the present value of the estimated future cash outflow to be made to the employees using the projected unit credit method. In determining the present value of the estimated future cash outflow, consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Estimated future payments are discounted using appropriate discount rates. Liabilities due to be settled within one year after the end of the period in which the employees render the related services are measured at the amount due to be paid. (w) Share-based payments Equity-settled transactions The Group provides benefits to its employees (including key management personnel) in the form of share-based payments whereby employees render services for shares (equity-settled transactions). The cost of equity-settled transactions with employees is measured by reference to the fair values of the equity instruments at the date at which they are granted. The fair value is determined by using a Binomial or Black-Scholes option pricing technique combined with a Monte Carlo simulation methodology, where relevant. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the vesting conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the awards (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the income statement is the result of: • • the grant date fair value of the award; the current best estimate of the number of awards that will vest, taking into account the likelihood of employee turnover; and • the expired portion of the vesting period. The charge to the income statement for the year is the cumulative amount, as calculated above, less the amounts charged in the previous years. There is a corresponding entry to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the award is recognised immediately. Shares in the Group reacquired on-market are classified and disclosed as reserved shares and deducted from equity (refer to Note 1(ac)). No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. 80 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (w) Share-based payments (continued) Cash-settled transactions The Group provides benefits to employees who have been on international assignment or secondment at any time during the vesting period in the form of cash-settled share-based payments. Employees render services in exchange for cash, the amounts of which are determined by reference to the price of the shares of Woodside Petroleum Ltd. The ultimate cost of these cash-settled share-based payments will be equal to the actual cash paid to the employees which will be the fair value at settlement date. The cumulative cost recognised until settlement is held as a liability. All changes in the liability are recognised in the income statement for the year. The fair value of the liability is determined, initially and at each reporting date until it is settled, by using a Binomial or Black-Scholes option pricing technique combined with a Monte Carlo simulation methodology, where relevant. (x) Retirement benefits All employees of the Group’s Australian entities are entitled to benefits under the Group’s superannuation plan due to retirement, disability or death. The Group has a defined benefit component and a defined contribution component within the plan. The defined benefit section of the plan is closed to new members. The defined benefit component provides defined lump sum benefits based on years of service and final average salary. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. A liability or asset in respect of the defined benefit component of the superannuation plan is recognised in the statement of financial position and is measured at the present value of the defined benefit obligation at the reporting date less the fair value of the superannuation fund’s assets at that date. The defined benefit obligation includes actuarial estimates of future variables such as employee turnover and the plan’s rate of return. The cost of the defined benefit component is charged to the income statement systematically over the employee’s service life. Gains and losses arising from changes in actuarial estimates are recognised immediately as income or expense in the income statement. The defined contribution component receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. Contributions to the defined contribution fund are recognised as an expense as incurred. (y) Financial liabilities Borrowings are initially recognised at fair value less transaction costs. Borrowings are subsequently carried at amortised cost, except for those designated in a fair value hedge relationship as described previously. Any difference between the proceeds received and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Trade and other payables are carried at amortised cost when goods and services are received, whether or not billed to the Group, prior to the end of the financial year. Dividends payable are recognised when declared by the Group. (z) Tax Income tax Income tax expense on the profit or loss for the year comprises current and deferred tax expense. Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Temporary differences arise between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax expense is determined based on changes in temporary differences. Woodside Petroleum Ltd. | Financial Report 81 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 1. Summary of significant accounting policies (continued) (z) Tax (continued) Deferred tax liabilities are recognised for taxable temporary differences. Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits only if it is probable that sufficient future taxable income will be available to utilise those temporary differences and losses. Such deferred tax liabilities and assets are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit or loss nor the accounting profit or from investments in subsidiaries, associates and interests in joint ventures. This is to the extent that the Group is able to control the reversal of the temporary difference and the temporary difference is not expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantially enacted by the end of the reporting period. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax expenses are recognised in the income statement, except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity. Petroleum Resource Rent Tax (PRRT) PRRT is considered, for accounting purposes, to be a tax based on income. Accordingly, current and deferred PRRT expense is measured and disclosed on the same basis as income tax. Tax consolidation The parent and its wholly owned Australian controlled entities have elected to enter into tax consolidation, with Woodside Petroleum Ltd as the head entity of the tax consolidated group. The tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group, using the stand alone approach. (aa) Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of GST except where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities that is recoverable from, or payable to, the taxation authority is classified as an operating cash flow. (ab) Royalties and excise duty Royalties and excise duty under existing regimes are considered to be production based taxes and are therefore accrued on the basis of the Group’s entitlement to physical production. (ac) issued capital Ordinary shares are classified as equity and recorded at the value of consideration received. The cost of issuing shares is shown in share capital as a deduction, net of tax, from the proceeds. Reserved shares The Group’s own equity instruments, which are reacquired for later use in employee share-based payment arrangements (reserved shares), are deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. 82 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (ad) carbon emissions Carbon emission units purchased for compliance purposes under the Australian Carbon Pricing Mechanism are recognised at cost as an intangible asset. Carbon emission units granted by the Australian Government are recognised at nominal value (nil value). An emissions liability is recognised as a provision when actual emissions exceed the emission units granted by the Australian Government. Any provision recognised is measured at the value of purchased units held, with any excess measured at the current market value of carbon units at the reporting date. The movement in the provision is recognised in the income statement. (ae) critical accounting estimates, assumptions and judgements In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from those judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below. Impairment of assets In determining the recoverable amount of assets, in the absence of quoted market prices, estimates are made regarding the present value of future cash flows. For oil and gas properties, expected future cash flow estimation is based on reserves, future production profiles, commodity prices and costs. Restoration obligations The Group estimates the future removal costs of offshore oil and gas platforms, production facilities, wells and pipelines at different stages of the development and construction of assets or facilities. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and liability specific discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of provision for restoration refer to Note 1(l). Reserve estimates Estimation of reported recoverable quantities of Proven and Probable reserves include judgemental assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Changes in reported reserves can impact assets’ carrying amounts, provision for restoration and recognition of deferred tax assets due to changes in expected future cash flows. Reserves are integral to the amount of depreciation, amortisation and impairment charged to the income statement. Reserve estimates are prepared in accordance with Woodside’s Hydrocarbon Resource Inventory Management Process and guidelines prepared by the Society of Petroleum Engineers. Exploration and evaluation The Group’s accounting policy for exploration and evaluation assets is set out in Note 1(e). The application of this policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular, the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under the policy, the Group concludes that it is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the income statement. Woodside Petroleum Ltd. | Financial Report 83 Notes to and forming part of the Financial ReportFor the year ended 31 December 20121. Summary of significant accounting policies (continued) (ae) critical accounting estimates, assumptions and judgements (continued) PRRT - North West Shelf Project The Group’s accounting policy for PRRT is set out in Note 1(z). The application of this policy to the North West Shelf Project as a result of its transition into the PRRT regime initially results in a deductible temporary difference which is available to offset against future taxable profits. An estimated deferred tax asset (refer Note 4(d)) in respect of this deductible temporary difference has not been recognised on the basis deductions from future augmentation of the deductible temporary difference will be sufficient to offset future taxable profit. Had an alternative approach been used to assess recovery of the deferred tax asset, whereby future augmentation was not included in the assessment, the estimated deferred tax asset would have been recognised, with a corresponding benefit to income tax expense. It was determined that the approach adopted provides the most meaningful information on the implications of transition of the North West Shelf Project to the PRRT regime, whilst ensuring compliance with AASB 112 Income Taxes. (af) new and amended accounting Standards and interpretations issued but not yet effective The following Standards and interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Group as at the financial reporting date. Title AASB 9 Financial Instruments AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] AASB 10 Consolidated Financial Statements AASB 11 Joint Arrangements AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 9, 2009-11, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17] application date of the Standard Periods beginning on or after 1 January 2015 Periods beginning on or after 1 January 2013 Summary AASB 9 includes requirements for the classification and measurement of financial assets and financial liabilities and the recognition and derecognition requirements for financial instruments. This standard will be applied retrospectively. This Standard adds the requirements for classifying and measuring financial liabilities to AASB 9. The Standard also makes amendments to several Australian Accounting Standards and Interpretations. These amendments arise from the issuance of AASB 9 Financial Instruments as issued in December 2010. Periods beginning on or after 1 January 2013 AASB 10 introduces a revised definition of control and establishes a single control model that applies to all entities. This Standard replaces AASB 127 Consolidated and Separate Financial Statements and Interpretation 112 Consolidation - Special Purpose Entities and will be applied on a modified retrospective basis. Periods beginning on or after 1 January 2013 Periods beginning on or after 1 January 2013 This Standard supersedes AASB 131 Interests in Joint Ventures and Interpretation 113 Jointly Controlled Entities - Non-Monetary Contributions by Venturers and establishes principles for the financial reporting by parties to a joint arrangement. Changes will be applied on a modified retrospective basis. This Standard makes amendments to several Australian Accounting Standards and Interpretations arising from the issuance of the consolidation and joint arrangements Standards. 84 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION1. Summary of significant accounting policies (continued) (af) new and amended accounting Standards and interpretations issued but not yet effective (continued) AASB 12 Disclosures of Interests in Other Entities AASB 13 Fair Value Measurement AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 [AASB 1, 2, 3, 4, 5, 7, 9, 2009-11, 2010-7, 101, 102, 108, 110, 116, 117, 118, 119, 120, 121, 128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004 and Interpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132] AASB 119 Employee Benefits (revised) Periods beginning on or after 1 January 2013 Periods beginning on or after 1 January 2013 Periods beginning on or after 1 January 2013 Periods beginning on or after 1 January 2013 AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, 8, 101, 124, 134, 1049 & 2011-8 and Interpretation 14] Periods beginning on or after 1 January 2013 AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] Periods beginning on or after 1 July 2013 This standard provides a single source of guidance for all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. This standard defines fair value and provides a single framework for measuring fair value when required by individual Standards. The requirements of AASB 13 will be applied prospectively. This Standard makes amendments to several Australian Accounting Standards and Interpretations. These amendments principally arise from the issuance of AASB 13. The revised Standard requires the immediate recognition of defined benefit costs, improves the presentation and disclosure requirements for defined benefit plans and requires the recognition of short-term and other long-term employee benefits to be based on the expected timing of settlement rather than employee entitlement. These revisions will be applied retrospectively. This Standard makes amendments to several Australian Accounting Standards and Interpretations. These amendments principally arise from amendments to the revised employee benefits Standard. This Standard removes the requirements to include individual key management personnel disclosures in the notes to and forming part of the Financial Report. AASB 2011-9 Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] Periods beginning on or after 1 July 2012 This Standard amends the presentation of components of other comprehensive income including presenting separately those items that will be reclassified to profit or loss in the future and those that would not. Amendments will be applied retrospectively. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle [AASB 1,101, 116, 132, & 134 and Interpretation 2] Periods beginning on or after 1 January 2013 This Standard makes amendments to several Australian Accounting Standards. These amendments primarily relate to clarification of narrative requirements for comparative information and segment disclosures for interim financial reports. The potential effect of these Standards is yet to be fully determined. However, it is not expected that the new or amended Standards will significantly affect the Group’s accounting policies, financial position or performance. Woodside Petroleum Ltd. | Financial Report 85 Notes to and forming part of the Financial ReportFor the year ended 31 December 20122. Operating segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The following operating segments are identified by management based on the nature and geographical location of the business or venture. North West Shelf Business Unit Exploration, evaluation, development, production and sale of liquefied natural gas, pipeline natural gas, condensate, liquefied petroleum gas and crude oil from the North West Shelf ventures. Australia Oil Business Unit Exploration, evaluation, development, production and sale of crude oil in assigned permit areas including Laminaria, Mutineer– Exeter, Enfield, Vincent and Stybarrow ventures. Pluto Business Unit Exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas. Browse Business Unit Exploration, evaluation and development of liquefied natural gas and condensate in assigned permit areas. United States Business Unit Exploration, evaluation, development, production and sale of pipeline natural gas, condensate and crude oil in assigned permit areas. Other This segment comprises the activities undertaken by Exploration, International and Sunrise Business Units. Unallocated items Unallocated items comprise non-segmental items of revenue and expenses and associated assets and liabilities not allocated to operating segments as they are not considered part of the core operations of any segment. Performance monitoring and evaluation Management monitors the operating results of the Business Units separately for the purpose of making decisions about resource allocation and performance assessment. The performance of operating segments is evaluated based on profit before tax and net finance costs (profit before tax and interest) and is measured in accordance with the Group’s accounting policies. Financing requirements, finance income, finance costs and taxes are managed at a Group level. 86 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION2. Operating segments (continued) (a) Revenue and profit after tax for the year ended 31 December 2012 t s e W h t r o n f l e h S t i n U s s e n i s u B 2012 US$m l i O a i l a r t s u a t i n U s s e n i s u B o t u P l t i n U s s e n i s u B e s w o r B t i n U s s e n i s u B s e t a t S d e t i n U t i n U s s e n i s u B r e h t O d e t a c o l l a n U s m e t i d e t a d i l o s n o c 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 3,300 1,545 1,427 (739) (57) (267) (1,063) 2,237 (19) 4 - - (7) - - 2 - - - - 21 (3) 2,235 (365) (1) (356) (722) 823 (11) - - - - - - - - 1 (1) (82) 8 - 738 (178) (81) (526) (785) 642 (17) - - - - - - - - (17) 3 (49) 3 (112) 453 - - - - - - (95) - - - - - 3 - - - - - 1 - (91) 76 (12) (5) (33) (50) 26 (75) - - - - - 5 - - - - - 1 (17) (60) - - - - - - (176) - - - - - - - - 1 1 (26) - (1) (201) - (1) (6) 9 2 2 1 - (10) - - (11) 754 - (3) 12 4 - 21 (49) 721 2011 US$m 2011 US$m 2011 US$m 2011 US$m 2011 US$m 2011 US$m 2011 US$m 6,348 (1,295) (150) (1,173) (2,618) 3,730 (392) 4 (10) - (7) (11) 762 2 (3) (3) 7 (157) 55 (182) 3,795(1) 8 (145) 3,658 (614) 3,044 2011 US$m 2,989 1,677 (692) (43) (182) (917) 2,072 (4) 3 - - 1 - - - - - - - 14 (39) 2,047 (252) (1) (374) (627) 1,050 (3) - - - - - - - - 6 (3) (14) 3 (4) 1,035 - (1) (6) - (7) (7) (278) - - 12 - - - - - 14 (3) - 2 (330) (590) - - - - - - (31) - - - - - - - - (3) - - - (3) (37) 93 (13) (6) (32) (51) 42 (69) - - - 4 (1) 1 - - - - 17 - (22) (28) 43 (10) - (26) (36) 7 (194) - - - - - 6 - - - - - - (1) (182) - 4,802 (13) (5) (1) (19) (19) (8) - (5) - - (11) - - (7) (10) 52 - 10 (35) (33) (981) (61) (615) (1,657) 3,145 (587) 3 (5) 12 5 (12) 7 - (7) 7 46 3 29 (434) 2,212(1) 10 (36) 2,186 (677) 1,509 Revenue Operating revenue cost of sales Cost of production Shipping and direct sales costs Oil and gas properties depreciation and amortisation Total cost of sales Gross profit Exploration and evaluation Share of associates net profit Change in fair value of derivative financial instruments Change in fair value of other financial instruments Loss on disposal of oil and gas properties Depreciation of other plant and equipment Gain on disposal of exploration and evaluation assets Gain on disposal of investments Net defined benefit plan loss Exchange loss on cash balances Other exchange gain Impairment loss Other income Other expenses Profit before tax and net finance income/(costs) Finance income Finance costs Profit before tax Taxes Profit after tax Revenue Operating revenue cost of sales Cost of production Shipping and direct sales costs Oil and gas properties depreciation and amortisation Total cost of sales Gross profit Exploration and evaluation Share of associates net profit Change in fair value of derivative financial instruments Change in fair value of other financial instruments Gain on disposal of oil and gas properties Depreciation of other plant and equipment Gain on disposal of exploration and evaluation assets Gain on disposal of investments Net defined benefit plan loss Exchange gain on cash balances Other exchange gain Impairment reversal/(loss) Other income Other expenses Profit before tax and net finance income/(costs) Finance income Finance costs Profit before tax Taxes Profit after tax (1) The performance of operating segments is evaluated based on profit before finance income, finance costs and tax. Financing requirements, finance income, finance costs and taxes are managed on a Group basis. There were no significant inter-segment transactions during the financial year. Woodside Petroleum Ltd. | Financial Report 87 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 2. Operating segments (continued) (b) Segment assets and liabilities and other segment information at 31 December 2012 t s e W h t r o n f l e h S t i n U s s e n i s u B l i O a i l a r t s u a t i n U s s e n i s u B o t u P l t i n U s s e n i s u B e s w o r B t i n U s s e n i s u B s e t a t S d e t i n U t i n U s s e n i s u B r e h t O d e t a c o l l a n U s m e t i d e t a d i l o s n o c 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m 2012 US$m Segment assets Segment liabilities 4,083 1,704 14,981 1,714 448 771 Other segment information Investment in associates Additions to oil and gas properties Additions to exploration and evaluation assets Additions to other plant and equipment 2 328 7 - - 132 58 - - 899 8 - 2011 US$m 2011 US$m 2011 US$m 48 57 - - 283 - 2011 US$m Segment assets Segment liabilities 3,975 1,941 14,672 1,184 1,632 573 1,028 86 Other segment information Investment in associates Additions to oil and gas properties Additions to exploration and evaluation assets Additions to other plant and equipment 2 460 28 - - 366 48 - - 2,446 283 - - - 460 - 318 49 - 25 2 - 2011 US$m 365 41 - 15 (10) - 227 71 3,449 24,810 5,873 8,983 - (2) 43 - - - (12) 9 2011 US$m 2011 US$m 2 1,382 389 9 2011 US$m 216 112 878 23,231 6,490 9,962 - - 7 - - - - 2 2 3,287 816 2 (c) Geographical information Revenue from external customers and non-current assets by geographical locations is detailed below. Revenue is attributable to geographic location based on the location of the customers. australia asia United States of america Other consolidated 2012 US$m 2011 US$m 2012 US$m 2011 US$m 2012 US$m 2011 US$m 2012 US$m 2011 US$m 2012 US$m 2011 US$m Revenue from external customers 549 507 5,483 3,400 Non-current assets 20,303 21,272 - 6 187 291 224 342 129 2 671 6,348 4,802 25 20,596(2) 21,645(3) (2) Non-current assets excludes derivatives (US$33 million) and deferred tax (US$892 million). (3) Non-current assets excludes derivatives (US$48 million) and deferred tax (US$524 million). (d) Major customer information The Group has one major customer which accounts for 11% of external revenue within the Pluto Business Unit (2011: nil). 88 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 3. Revenue and expenses (a) Operating Revenue Revenue from sale of goods Liquefied natural gas North West Shelf Pluto Pipeline natural gas North West Shelf United States of America Condensate North West Shelf Pluto Ohanet(1) United States of America Oil North West Shelf Laminaria Mutineer–Exeter Enfield Vincent Stybarrow United States of America Liquefied petroleum gas North West Shelf Ohanet(1) Total revenue from sale of goods LnG processing revenue Total operating revenue (b) cost of sales Cost of production Production costs Royalties and excise Carbon costs Insurance Inventory movement Shipping and direct sales costs Oil and gas properties depreciation and amortisation Land and buildings Transferred exploration and evaluation Plant and equipment Marine vessels and carriers Total cost of sales Gross profit (1) Woodside’s interest in the Ohanet risk sharing contract expired in October 2011. 2012 US$m 2011 US$m 1,670 1,164 2,834 367 3 370 765 138 - - 903 373 222 20 325 713 265 73 1,991 125 - 125 6,223 125 6,348 (692) (501) (17) (40) (45) (1,295) (150) (41) (42) (1,084) (6) (1,173) (2,618) 3,730 1,509 - 1,509 375 8 383 860 - 26 1 887 118 152 11 475 589 450 84 1,879 127 17 144 4,802 - 4,802 (505) (466) - (31) 21 (981) (61) (7) (21) (581) (6) (615) (1,657) 3,145 Woodside Petroleum Ltd. | Financial Report 89 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 3. Revenue and expenses (continued) (c) Other income Other fees and recoveries Share of associates’ net profit Other exchange gain Gain on disposal of exploration and evaluation assets(1) Gain on disposal of investments Change in fair value of other financial instruments Total other income (d) Other expenses Exploration and evaluation Exploration expensed in current year Exploration expensed previously capitalised Amortisation of license acquisition costs Evaluation Total exploration and evaluation Other costs Net defined benefit plan loss (Loss)/gain on disposal of oil and gas properties Change in fair value of derivative financial instruments Exchange (loss)/gain on cash balances Depreciation of other plant and equipment General, administrative and other costs Pluto mitigation and initial start up costs Impairment of exploration and evaluation assets (Impairment)/reversal of oil and gas properties(2) Total other costs Total other expenses Profit before tax and net finance income/(costs) (e) Finance income Interest Total finance income (f) Finance costs Unwinding of present value discount (accretion) Other finance costs Total finance costs Profit before tax 2012 US$m 2011 US$m 55 4 7 762 2 - 830 (230) (38) (26) (98) (392) (3) (7) (10) (3) (11) (96) (86) (26) (131) (373) (765) 3,795 29 3 46 7 - 12 97 (381) (147) (28) (31) (587) (7) 5 (5) 7 (12) (130) (304) (14) 17 (443) (1,030) 2,212 8 8 10 10 (26) (119) (145) 3,658 (27) (9) (36) 2,186 (1) On 18 September 2012, the Group sold a 14.7% interest in the Browse LNG permits on an assumed unitised basis to Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) for US$2 billion. The proceeds were treated as a reimbursement of previously incurred costs and credited against the exploration and evaluation assets. The excess was recognised as a gain on sale. (2) As part of the Group’s regular review of assets whose value may be impaired, the impairment loss includes, a charge of US$82 million recognised in relation to the Laminaria-Corallina field (which is part of the Australia Oil Business Unit segment). This followed an assessment of the expected ultimate reserve recovery. The recoverable amount for the cash-generating unit was determined based on the value in use calculation. The nominal pre-tax discount rate applied to the cash generating unit was 12%. 90 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION4. Taxes (a) Tax expense comprises PRRT Current tax expense Under/(over) provided in prior years Deferred tax expense related to the movements in deferred tax balances Income tax Current tax expense Under provided in prior years Deferred tax expense related to the movements in deferred tax balances Total tax expense reported in the income statement (b) Reconciliation of tax expense to prima facie tax payable Profit before tax PRRT expense Profit after PRRT expense Tax expense calculated at 30% Tax effect of items which are non-deductible/(assessable) Sale of assets Research and development Other Foreign expenditure not brought to account Tax rate differential on non-Australian income Under/(over) provided in prior years Foreign exchange impact on tax expense PRRT expense Tax expense 2012 US$m 2011 US$m 387 - (910) (523) 1,030 14 93 1,137 614 3,658 523 4,181 1,254 (186) (6) (1) 58 - 14 4 (523) 614 92 - (75) 17 579 (5) 86 660 677 2,186 (17) 2,169 651 - (9) (4) 21 2 (5) 4 17 677 The tax rate used in the above reconciliation is that applied to resident companies pursuant to the income tax statutes in force in Australia as at the reporting date. There has been no change in the corporate tax rate when compared with the previous reporting year. Woodside Petroleum Ltd. | Financial Report 91 Notes to and forming part of the Financial ReportFor the year ended 31 December 20124. Taxes (continued) at 1 January charged/ (credited) to income statement acquisition/ (disposal) at 31 December US$m US$m US$m US$m (c) Deferred tax 2012 Deferred tax assets Arising from temporary differences and tax losses Foreign jurisdiction Domestic jurisdiction Arising from PRRT Deferred tax liabilities Arising from temporary differences Exploration and evaluation assets Oil and gas properties Financial instruments Other liabilities Provisions Other Arising from PRRT 2011 Deferred tax assets Arising from temporary differences and tax losses Foreign jurisdiction Domestic jurisdiction Arising from PRRT Deferred tax liabilities Arising from temporary differences Exploration and evaluation assets Oil and gas properties Financial instruments Other liabilities Provisions Other Arising from PRRT 11 22 491 524 563 686 39 (203) (374) (53) 1,167 1,825 11 30 211 252 410 548 114 (238) (203) (49) 962 1,544 - (22) 390 368 (71) 229 (6) 118 (53) 33 (117) 133 - (8) 280 272 153 138 (75) 35 (171) (4) 205 281 - - - - (308) - - 121 - - (403) (590) - - - - - - - - - - - - 11 - 881 892 184 915 33 36 (427) (20) 647 1,368 11 22 491 524 563 686 39 (203) (374) (53) 1,167 1,825 92 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION4. Taxes (continued) (d) Unrecognised deferred tax assets Tax losses not recognised Revenue Capital Deductible temporary differences not recognised(1) Temporary differences associated with investments 2012 US$m 2011 US$m 250 - 3,203 5 3,458 205 100 144 4 453 (1) Includes a deductible temporary difference of $3 billion related to the transition of the North West Shelf Project to the PRRT regime. Refer Note 1(ae). (e) Tax losses At the reporting date the Group has unused (recognised and not recognised) tax losses of US$751 million (2011: US$981 million) that are available for offset against future taxable profits. There are no deferred tax assets recognised in respect of tax losses as they have been fully utilised in 2012 (2011: US$16 million). No deferred tax asset has been recognised in respect of the remaining tax losses and credits due to the uncertainty of future profit streams. There are no carried forward tax credits available in 2012 (2011: nil). (f) Tax consolidation The parent and its wholly-owned Australian controlled entities have elected to enter tax consolidation, with Woodside Petroleum Ltd as the head entity of the tax consolidated group. The members of the tax consolidated group are identified at Note 35(a). Entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, Woodside Petroleum Ltd and each of the entities in the tax consolidated group have agreed to make a tax equivalent payment to or from the head entity calculated on a stand alone basis based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from, or payable to, other entities in the tax consolidated group. The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities, should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote. Woodside Petroleum Ltd. | Financial Report 93 Notes to and forming part of the Financial ReportFor the year ended 31 December 20125. Earnings per share Profit attributable to equity holders of the parent (US$m) Weighted average number of shares on issue Basic and diluted earnings per share (US cents)(1) 2012 2011 2,983 814,751,356 366 1,507 791,668,973 190 (1) Earnings per share is calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The weighted average number of shares makes allowance for shares reserved for employee share plans. Diluted earnings per share is not significantly different from basic earnings per share. There have been no transactions involving ordinary shares between the reporting date and the date of completion of this Financial Report. 6. Dividends paid and proposed (a) Dividends paid during the financial year Prior year fully franked final dividend US$0.55, paid on 4 April 2012 (2011: US$0.55, paid on 6 April 2011) Current year fully franked interim dividend US$0.65, paid 2 October 2012 (2011: US$0.55 paid on 30 September 2011) (b) Dividend declared (not recorded as a liability) Final dividend US$0.65,to be paid on 3 April 2013 (2011: US$0.55, paid on 4 April 2012) Dividend per share in respect of financial year (US cents) 2012 US$m 2011 US$m 443 536 979 536 130 430 436 866 443 110 (c) Franking credit balance Franking credits available for the subsequent periods 3,391 2,785 94 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION7. cash and cash equivalents (a) components of cash and cash equivalents Cash at bank Money market deposits Total cash and cash equivalents (b) Reconciliation to statement of cash flows For the purpose of the statement of cash flows, cash and cash equivalents comprise the following: Cash at bank Money market deposits 8. Receivables Trade receivables(1) Other receivables(2) Dividends receivable(3) Interest receivable (1) Denominated in a mixture of Australian dollars and US dollars, interest free and settlement terms between 7 and 30 days. (2) Other receivables are interest-free with various maturities. (3) Dividends and interest receivable are receivable within 30 days of period end. 9. inventories (a) inventories (current) Petroleum products (at cost) Work in progress Goods in transit Finished stocks Warehouse stores and materials (at cost) (b) inventories (non-current) Warehouse stores and materials (at cost) 2012 US$m 2011 US$m 94 2,328 2,422 20 21 41 2012 US$m 2011 US$m 94 2,328 2,422 20 21 41 2012 US$m 2011 US$m 449 122 2 1 574 339 328 2 - 669 2012 US$m 2011 US$m 1 106 63 71 241 1 3 119 72 195 7 18 Woodside Petroleum Ltd. | Financial Report 95 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 2012 US$m 2011 US$m 10 4 18 32 1 - 30 - 33 64 9 7 - 16 3 5 30 10 38 86 2012 US$m 2011 US$m 17 3 20 1 2 3 41 52 93 1 2 3 10. Other financial assets (a) Other financial assets (current) Derivative instruments (at fair value)(1) Embedded derivatives (at fair value)(2) Cash held in reserve (b) Other financial assets (non-current) Other investments (available-for-sale) Listed (at fair value) Unlisted (at cost) Cash held in reserve(3) Derivative instruments (at fair value)(1) Embedded derivatives (at fair value)(2) (1) Details regarding derivative instruments are contained in Note 25(f). (2) Embedded derivatives relate to sales contracts. (3) Represents restricted cash associated with JBIC facility, refer to Note 25(e). 11. Other assets (a) Other assets (current) Prepayments Other (b) Other assets (non-current) Other Investment in associates 96 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION12. Exploration and evaluation assets (a) Reconciliations of the carrying amounts of exploration and evaluation assets Carrying amount at 1 January Additions Disposals at written down value(1) Amortisation of licence acquisition costs Expensed (previously capitalised): Exploration Evaluation Impairment loss Transferred exploration and evaluation carrying amount at 31 December (b) carrying amounts of exploration and evaluation assets Regions Australia Browse Basin Carnarvon Basin Bonaparte Basin The Americas Gulf of Mexico Brazil Asia Korea 2012 US$m 2011 US$m 2,235 389 (1,311) (26) (38) (91) (26) (12) 1,120 1,801 816 (10) (28) (147) (29) (14) (154) 2,235 2012 US$m 2011 US$m 87 773 147 111 2 1,200 712 136 155 26 - 6 1,120 2,235 (1) On 18 September 2012, the Group sold a 14.7% interest in the Browse LNG permits on an assumed unitised basis to Japan Australia LNG (MIMI Browse) Pty Ltd (MIMI) for US$2 billion. The proceeds were treated as a reimbursement of previously incurred costs and credited against the exploration and evaluation assets. The excess was recognised as a gain on sale. Woodside Petroleum Ltd. | Financial Report 97 Notes to and forming part of the Financial ReportFor the year ended 31 December 201213. Oil and gas properties Land and buildings Transferred exploration and evaluation Plant and equipment Marine vessels and carriers Projects in development Total US$m US$m US$m US$m US$m US$m Year ended 31 December 2012 Carrying amount at 1 January 2012 Additions Disposals at written down value Depreciation and amortisation Impairment loss Completions and transfers carrying amount at 31 December 2012 at 31 December 2012 Historical cost Accumulated depreciation and impairment net carrying amount Year ended 31 December 2011 304 - - (41) - 522 785 1,106 (321) 785 120 4,314 126 - - (42) - 444 522 845 (323) 522 93 (1) (1,084) (82) 13,585 16,825 23,014 (6,189) 16,825 - - (6) - - 120 373 (253) 120 Carrying amount at 1 January 2011 338 141 3,827 132 Additions Disposals at written down value Depreciation and amortisation Impairment reversal Completions and transfers Carrying amount at 31 December 2011 At 31 December 2011 Historical cost Accumulated depreciation and impairment Net carrying amount - - (7) - (27) 304 574 (270) 304 - - (21) - - 332 (61) (581) 17 780 - - (6) - - 120 4,314 126 14,425 1,289 (3) - (49) (14,539) 1,123 1,172 (49) 1,123 12,079 2,955 (10) - - (599) 14,425 19,289 1,382 (4) (1,173) (131) 12 19,375 26,510 (7,135) 19,375 16,517 3,287 (71) (615) 17 154 19,289 402 (282) 120 9,384 (5,070) 4,314 373 (247) 126 14,425 - 14,425 25,158 (5,869) 19,289 Borrowing costs capitalised in oil and gas properties during the year were US$101 million (2011: US$200 million) at a weighted average interest rate of 3.4% (2011: 3.3%). 98 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION14. Other plant and equipment (a) Other plant and equipment Plant and equipment Less: Accumulated depreciation (b) Reconciliation of the carrying amounts of other plant and equipment at the beginning and end of the financial year Carrying amount at 1 January Additions Depreciation carrying amount at 31 December 15. Payables (a) Payables (current) Trade payables(1) Other payables(1) Interest payable(2) (b) Payables (non-current) Trade payables Loan payables(3) (1) Trade and other payables are interest-free and normally settled on 30 day terms. (2) Details regarding interest-bearing liabilities are contained in Note 25(e). (3) Loan payables are unsecured, interest-free and have a repayment period of 10 years. 2012 US$m 2011 US$m 170 (110) 60 62 9 (11) 60 161 (99) 62 72 2 (12) 62 2012 US$m 2011 US$m 268 517 44 829 2 194 196 343 827 44 1,214 - 215 215 Woodside Petroleum Ltd. | Financial Report 99 Notes to and forming part of the Financial ReportFor the year ended 31 December 201216. interest-bearing liabilities (a) interest-bearing liabilities (current)(1) Bonds Debt facilities (b) interest-bearing liabilities (non-current)(1) Bonds Debt facilities (1) Details regarding interest-bearing liabilities are contained in Note 25(e). 17. Tax payable PRRT payable Income tax payable 18. Other financial liabilities Other financial liabilities (non-current) Other financial liability 2012 US$m 2011 US$m 250 325 575 - 770 770 2,386 1,379 3,765 2,626 1,706 4,332 2012 US$m 2011 US$m 116 531 647 (10) 84 74 2012 US$m 2011 US$m 7 7 6 6 100 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 19. Other liabilities (a) Other liabilities (current) Unearned revenue Gas purchase commitments (b) Other liabilities (non-current) Unearned revenue Gas purchase commitments Defined benefit superannuation plan 20. Provisions Year ended 31 December 2012 At 1 January 2012 Change in provision Unwinding of present value discount at 31 December 2012 at 31 December 2012 Current Non-current Year ended 31 December 2011 At 1 January 2011 Change in provision Unwinding of present value discount At 31 December 2011 At 31 December 2011 Current Non-current 2012 US$m 2011 US$m 21 3 24 118 17 30 165 24 3 27 134 17 30 181 Restoration of operating locations(1) Employee benefits(2) Other Total US$m US$m US$m US$m 899 115 24 1,038 9 1,029 1,038 581 295 23 899 26 873 899 175 25 - 200 153 47 200 156 19 - 175 134 41 175 244 (75) - 169 128 41 169 11 233 - 244 167 77 244 1,318 65 24 1,407 290 1,117 1,407 748 547 23 1,318 327 991 1,318 (1) Details regarding restoration of operating locations are contained in Note 1(l) and 1(ae). (2) Details regarding employee benefits are contained in Note 1(v) and 27. Woodside Petroleum Ltd. | Financial Report 101 Notes to and forming part of the Financial ReportFor the year ended 31 December 201221. contributed equity (a) issued and fully paid shares 823,910,657 (2011: 805,671,604) ordinary shares(1) (b) Shares reserved for employee share plans 961,799 (2011: 1,298,284) ordinary shares(2) 2012 US$m 2011 US$m 6,547 5,880 (44) (67) (1) All shares are a single class with equal rights to dividends, capital distributions and voting. The company does not have authorised capital nor par value in respect of its issued shares. (2) Information relating to the number of Woodside Petroleum Ltd shares reserved for employee share plans can be found in Note 27(a) and (b). 2012 Shares 2011 Shares 2012 US$m 2011 US$m (c) Movements in issued and fully paid shares At 1 January 805,671,604 783,401,631 5,880 5,036 Dividend reinvestment plan: 2010 final dividend(1) 2011 interim dividend(2) 2011 final dividend(3) Employee share plans: 2012 employee equity plan(4) Balance at the end of the period - - 11,639,053 9,828,189 12,441,784 - 6,600,000 - 823,910,657 805,671,604 - - 431 236 6,547 440 404 - - 5,880 (1) 7,397,386 ordinary shares issued at A$43.80 and 2,430,803 ordinary shares issued at A$42.32. (2) 9,507,762 ordinary shares issued at A$33.43 and 2,934,022 ordinary shares issued at A$33.49. (3) 2,924,534 ordinary shares issued at A$34.88 and 8,714,519 ordinary shares issued at A$35.40. (4) 6,600,000 ordinary shares issued at A$34.71. 102 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION22. Other reserves Year ended 31 December 2012 At 1 January 2012 Share-based payments Share plan redemptions Available-for-sale financial assets Companies voluntarily liquidated at 31 December 2012 Year ended 31 December 2011 At 1 January 2011 Share-based payments Share plan redemptions Available-for-sale financial assets Companies voluntarily liquidated At 31 December 2011 nature and purpose of reserves Employee benefits reserve Employee benefits reserve Foreign currency translation reserve Hedge of net investment reserve investment fair value reserve Total US$m US$m US$m US$m US$m 303 68 (270) - - 101 192 111 - - - 303 663 - - - - 663 679 - - - (16) 663 110 - - - - 110 110 - - - - 110 (13) - - (2) - (15) (10) - - (3) - (13) 1,063 68 (270) (2) - 859 971 111 - (3) (16) 1,063 Used to record share-based payments associated with the employee share plans. Foreign currency translation reserve Used to record foreign exchange differences arising from the translation of the financial statements of foreign entities from their functional currency to the Group’s presentation currency. Hedge of net investment reserve Used to record gains and losses on hedges of net investments in foreign operations. Investment fair value reserve Used to record changes in the fair value of the Group’s available-for-sale financial assets. Woodside Petroleum Ltd. | Financial Report 103 Notes to and forming part of the Financial ReportFor the year ended 31 December 201223. Retained earnings At 1 January Net profit for the year Dividends at 31 December 24. Parent entity information information relating to Woodside Petroleum Ltd Current assets Total assets Current liabilities Total liabilities net assets Issued and fully paid shares Share reserved for employee share plans Employee benefits reserve Foreign currency translation reserve Retained earnings Total shareholders’ equity Profit of the parent entity Total comprehensive income of the parent entity Guarantees 2012 US$m 5,782 2,983 (979) 7,786 2011 US$m 5,141 1,507 (866) 5,782 2012 US$m 2011 US$m 31 7,800 (427) (934) 6,866 6,547 (44) 79 303 (19) 6,866 965 965 - 6,800 (131) (426) 6,374 5,880 (67) 264 303 (6) 6,374 885 885 Woodside Petroleum Ltd and Woodside Energy Ltd (a subsidiary company) are parties to a Deed of Cross Guarantee as disclosed in Note 35(b). The effect of the Deed is that Woodside Petroleum Ltd has guaranteed to pay any deficiency in the event of winding up of the subsidiary company under certain provisions of the Corporations Act 2001. The subsidiary company has also given a similar guarantee in the event that Woodside Petroleum Ltd is wound up. Woodside Petroleum Ltd has guaranteed the discharge by a subsidiary company of its financial obligations under debt facilities disclosed in Note 25(e). 25. Financial and capital risk management (a) Financial risk management objectives and policies The Group’s principal financial instruments, other than derivatives, comprise interest-bearing debt, cash and short-term deposits. Other financial instruments include trade receivables and trade payables, which arise directly from operations. Market (including foreign exchange, commodity price and interest rate risk), liquidity and credit risks arise in the normal course of the Group’s business. Primary responsibility for identification and control of financial risk rests with a central treasury department (Treasury) under directives approved by the Board. The Group’s management of financial risk is aimed at ensuring net cash flows are sufficient to: • meet all its financial commitments as and when they fall due; • maintain the capacity to fund its committed project developments; • pay a reasonable dividend; and • maintain a long-term credit rating of not less than ‘investment grade’. The Group monitors and tests its forecast financial position against these criteria and, in general, will undertake hedging activity only when necessary to ensure that these objectives are achieved. Other circumstances that may lead to hedging activities include the purchase of reserves and the underpinning of the economics of a new project. 104 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION25. Financial and capital risk management (continued) (a) Financial risk management objectives and policies (continued) It is, and has been throughout the period, the Group Treasury policy that no speculative trading in financial instruments shall be undertaken. The Group’s forecast financial risk position with respect to key financial objectives and compliance with Treasury policy is regularly reported to the Board. The Audit & Risk Committee oversees the internal auditor review of the treasury function. (b) Market risk (i) Foreign exchange risk Foreign exchange risk arises from future commitments, assets and liabilities that are denominated in a currency that is not the functional currency in which they are measured. The functional currency of all entities within the Group is US dollars. Currency exposure relates to transactions and balances in currencies other than US dollars. The majority of the operations’ revenue is denominated in US dollars whereas the majority of operating expenditure and capital expenditure is incurred in currencies other than US dollars (including Australian dollars). As a result, most operations within the Group are exposed to foreign currency risk arising from Australian dollars. Monetary items denominated in currencies other than the functional currency are translated into US dollar equivalents and any associated gain or loss is taken to the income statement. Measuring the exposure to foreign exchange risk is achieved by regularly monitoring and performing sensitivity analysis on the Group’s financial position. Currently there are no foreign exchange hedge programs in place. Group Treasury manages the purchase of foreign currency to meet operational requirements. The following table shows financial instruments by currency. The Group is principally exposed to foreign exchange risk on those financial instruments denominated in Australian dollars. 2012 2011 USD aUD Other Total USD AUD US$m US$m US$m US$m US$m US$m Other US$m Total US$m 2,366 474 38 2,878 224 4,366 7 4,597 37 98 58 193 770 - - 770 19 2 - 21 31 - - 31 2,422 574 96 3,092 1,025 4,366 7 5,398 16 555 48 619 475 5,136 6 5,617 22 114 54 190 915 - - 915 3 - - 3 39 - - 39 41 669 102 812 1,429 5,136 6 6,571 Financial assets Cash Receivables Other financial assets Financial liabilities Payables Interest-bearing liabilities(1) Other financial liabilities (1) Excludes transaction costs. Woodside Petroleum Ltd. | Financial Report 105 Notes to and forming part of the Financial ReportFor the year ended 31 December 201225. Financial and capital risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) The following table summarises the sensitivity of the balance of financial instruments held at the reporting date to movement in the exchange rate of the US dollar to the Australian dollar, with all other variables held constant. The 12% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding five-year period. Judgements of reasonably possible movements Post tax profits (decrease)/increase Other comprehensive income (decrease)/increase 2012 US$m 2011 US$m 2012 US$m 2011 US$m US$:A$ +12% (2011:+15%) US$:A$ -12% (2011:-15%) 43 (55) 66 (89) - - - - (ii) Commodity price risk The Group’s revenue is exposed to commodity price fluctuations, in particular oil and gas prices. As at reporting date, the Group had no financial instruments with material exposure to commodity price risk. Group Treasury measures exposure to commodity price risk by monitoring and stress testing the Group’s forecast financial position to sustained periods of low oil and gas prices. This analysis is regularly performed on the Group’s portfolio and, as required, for discrete projects and acquisitions. (iii) Interest rate risk Interest rate risk is the risk that the Group’s financial position will fluctuate due to changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to financial instruments with floating interest rates including long-term debt obligations and cash and short-term deposits. The Group aims to manage its interest rate risk by maintaining an appropriate mix of fixed and floating rate debt. To manage the ratio of fixed rate debt to floating rate debt, the Group may enter into interest rate swaps. Derivatives are entered into against specific rate exposures only, as disclosed in Note 25(f). No hedging programs were placed during 2012 (2011: nil). Cash and short-term deposits are short term in nature and are therefore monitored by Group Treasury to achieve the optimal outcome. At reporting date, the Group had the following mix of financial assets and liabilities exposed to various benchmark interest rates that were not designated in cash flow hedges: 2012 US$m 2011 US$m 2,422 10 2,432 (1,717) (250) (1,967) 41 19 60 (2,487) (250) (2,737) Financial assets Cash and cash equivalents Other financial assets Financial liabilities Interest-bearing liabilities(1) Derivative instruments (1) Excludes transaction costs. 106 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION25. Financial and capital risk management (continued) (b) Market risk (continued) (iii) Interest rate risk (continued) The following table summarises the sensitivity of the balance of financial instruments held at the reporting date, following a movement to London Interbank Offered Rate (LIBOR), with all other variables held constant. The LIBOR +1.8%/- 0.5% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding five-year period, bound by a lower limit of 0%. Judgements of reasonably possible movements LIBOR +1.8% (2011: +1.5%) LIBOR -0.5% (2011: -1.5%) Post tax profits (decrease)/increase Other comprehensive income (decrease)/increase 2012 US$m 2011(2) US$m 2012 US$m 2011 US$m 16 (5) (5) 5 - - - - (2) Excludes impact of sensitivities on interest-bearing liabilities where borrowing costs are capitalised to qualifying assets. For 2011 no interest bearing liabilities were considered as all borrowing costs were capitalised. Significantly higher cash and cash equivalents at 31 December 2012 has favourably impacted net profit sensitivity (for an increase in LIBOR). (c) Liquidity risk Liquidity risk arises from financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay financial liabilities as and when they fall due. The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet its financial commitments in a timely and cost-effective manner. Group Treasury continually reviews the Group’s liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. At 31 December 2012, the Group has a total of US$4,122 million available undrawn facilities and cash at its disposal. Financing facilities available to the Group are disclosed in Note 25(e). Refer to Note 25(g) for details of the repayment obligations in respect of the amount of facilities drawndown. 2012 Payables maturity analysis 2011 Payables maturity analysis < 30 days 30-60 days > 60 days Total < 30 days 30-60 days > 60 days Total US$m US$m US$m US$m US$m US$m US$m US$m Trade payables Other payables Loan payables Interest payable Total payables 182 490 - 6 678 6 3 - - 9 82 24 194 38 338 270 517 194 44 255 827 - 6 1,025 1,088 6 - - - 6 82 - 215 38 335 343 827 215 44 1,429 Woodside Petroleum Ltd. | Financial Report 107 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 25. Financial and capital risk management (continued) (d) credit risk Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument, resulting in a financial loss to the Group. Credit risk arises from the financial assets of the Group, which comprise trade and other receivables and deposits with banks and financial institutions. The Group manages its credit risk on trade receivables and financial instruments by predominantly dealing with counterparties with an investment grade credit rating. Customers who wish to trade on unsecured credit terms are subject to credit verification procedures. Receivable balances are monitored on an ongoing basis. As a result, the Group’s exposure to bad debts is not significant. The Group’s maximum credit risk is limited to the carrying amount of its financial assets. At the reporting date, the Group held $2,422 million in cash on deposit with 10 financial institutions. The amounts held with these institutions are within the counterparty limits as approved by the Chief Financial Officer and the Board approved Group Treasury Policy. 2012 2011 Receivables maturity analysis Receivables maturity analysis < 30 days 30-60 days > 60 days Total < 30 days 30-60 days > 60 days Total US$m US$m US$m US$m US$m US$m US$m US$m Trade receivables Other receivables Dividends receivable Interest receivable Total receivables 449 119 2 1 571 - 1 - - 1 - 2 - - 2 449 122 2 1 574 339 323 2 - 664 - 1 - - 1 - 4 - - 4 339 328 2 - 669 (e) Financing facilities 364-day revolving credit facilities The Group has three dual currency (US and Australian dollars) 364-day revolving credit facilities totalling US$200 million. Interest rates are based on LIBOR and are fixed at the commencement of the drawdown period. Interest is paid at the end of the drawdown period. The 364-day revolving credit facilities are subject to various covenants and a negative pledge restricting future secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledges have been breached at any time during the reporting year. Bi-lateral loan facilities The Group has 12 bi-lateral loan facilities totalling US$950 million. Details of bi-lateral loan facilities at the reporting date are as follows: number of facilities Term (years) 6 2 1 1 1 1 5 5 5 4 3 4 currency AUD, USD Multiple USD AUD, USD AUD, USD USD Extension option Evergreen Evergreen Not evergreen Evergreen Evergreen Evergreen Interest rates are based on LIBOR and are fixed at the commencement of the drawdown period. Interest is paid at the end of the drawdown period. Evergreen facilities may be extended continually by a year subject to the bank’s agreement. The bi-lateral loan facilities are subject to various covenants and a negative pledge restricting future secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledges have been breached at any time during the reporting year. 108 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION25. Financial and capital risk management (continued) (e) Financing facilities (continued) Bonds The Group has five unsecured bonds issued to ‘qualified institutional buyers’ in the United States of America as defined in Rule 144A of the US Securities Act 1933. These bonds include: • The 2013 US$250 million bond has a fixed rate coupon of 5.00% p.a. and matures on 15 November 2013; • The 2014 US$400 million bond has a fixed rate coupon of 8.125% p.a. and matures on 1 March 2014; • The 2014 US$700 million bond has a fixed rate coupon of 4.50% p.a. and matures on 10 November 2014; • The 2019 US$600 million bond has a fixed rate coupon of 8.75% p.a. and matures on 1 March 2019; and • The 2021 US$700 million bond has a fixed rate coupon of 4.60% p.a. and matures on 10 May 2021. Interest on the bonds is payable semi-annually in arrears. The bonds are subject to various covenants and a negative pledge restricting future secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledges have been breached at any time during the reporting year. Japan Bank for International Cooperation (JBIC) Facility On 24 June 2008, the Group entered into a committed loan facility totalling US$1,500 million (JBIC Facility). The JBIC Facility comprises a 15-year, US$1,000 million tranche with JBIC (JBIC Tranche), and a five-year, US$500 million commercial tranche with a syndicate of eight Australian and international banks arranged by The Bank of Tokyo- Mitsubishi UFJ, Ltd (Commercial Tranche). There is a prepayment option for both the Commercial Tranche and the JBIC Tranche. Interest rates are based on LIBOR. Interest is payable semi-annually in arrears on the JBIC Tranche and with a choice of one, two, three, six, nine or twelve months in arrears on the Commercial Tranche. Both tranches amortise on a straight-line basis, with equal instalments of principal due on each interest payment date (every six months) starting on 7 January 2012. Under the JBIC Facility, 90% of the receivables from designated Pluto LNG Project Sale and Purchase Agreements, are secured in favour of the lenders through a trust structure, with a required reserve amount of US$30 million. To the extent that this reserve amount remains fully funded and no default notice or acceleration notice has been given, the revenue from the Pluto LNG Project continues to flow directly to the Group from the trust account. The JBIC Facility is subject to various covenants and a negative pledge restricting future secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledge has been breached at any time during the reporting year. Asian syndicated facility On 8 December 2010, the Group executed a five-year US$1,100 million syndicated loan facility with 34 banks. Funds from the loan were used to repay the US$1,100 million syndicated loan facility executed in May 2009. Australia and New Zealand Banking Group Limited and The Bank of Tokyo-Mitsubishi UFJ, Ltd were joint-mandated lead arrangers of the syndicated loan. The loan is composed of a US$550 million term facility (Facility A) and a US$550 million revolving facility (Facility B). Interest rates are based on LIBOR for both facilities and are fixed at the commencement of the drawdown period. Interest is paid at the end of the drawdown period. The syndicated loan is subject to various covenants, including a negative pledge restricting future secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledge has been breached at any time during the reporting year. Woodside Petroleum Ltd. | Financial Report 109 Notes to and forming part of the Financial ReportFor the year ended 31 December 201225. Financial and capital risk management (continued) (f) Hedging and derivatives Interest rates The Group manages its exposure to interest rate risk by maintaining a mix of fixed rate and floating rate debt. In general, the fixed rate debt and floating rate debt ratio is managed through an appropriate choice of debt instrument. The Group may enter into interest rate swaps to manage the ratio of fixed rate debt to floating rate debt. instrument notional amount Interest rate swaps US$250 million Rate Expiry Hedge type Receive 5% fixed 2013 Pay LIBOR less 0.10% Fair value hedge in 2006 - designated to swap the 2013 US$250 million bond from a fixed rate to floating rate exposure. De-designated as a fair value hedge on 1 January 2007. (g) Maturity profile of interest-bearing liabilities The maturity profile of the Group’s interest-bearing liabilities are as follows: Fair value 2012 US$m 2011 US$m 10 19 Due for payment in 1 year or less 1-2 years 2-3 years 3-4 years 4-5 years More than Total 5 years US$m US$m US$m US$m US$m US$m US$m 2012 Interest-bearing liabilities(1) (757) (1,335) (736) (172) (172) (1,987) (5,159) 2011 Interest-bearing liabilities(1) (952) (761) (1,339) (740) (174) (2,167) (6,133) (1) Excludes deferred transaction costs. The amounts disclosed in the tables above are the contractual undiscounted cash flows, representing principal and interest, and hence will not necessarily reconcile with the amounts disclosed in the consolidated statement of financial position. 110 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION25. Financial and capital risk management (continued) (h) Fair values The Group uses various methods in estimating the fair value of a financial instrument. These methods and financial instruments to which the method applies are as follows: • Level 1 - the fair value of listed equity instruments is based on quoted market prices in active markets at reporting date. • Level 2 - the fair value is estimated using valuation techniques comparable to similar instruments such as present value techniques for which market observable prices exist. Financial instruments that use valuation techniques with only observable market inputs, that are not significant to the overall valuation, include interest rate swaps and forward commodity contracts. • Level 3 - the fair value is estimated using inputs for the asset or liability that are not based on observable market data. This methodology applies to the fair value measurement of embedded derivatives. The fair values of receivables, payables, interest-bearing liabilities and other financial assets and liabilities which are not measured at fair value approximate their carrying amounts. The fair values of financial instruments are as follows: 2012 2011 Total Quoted market price (Level 1) Valuation technique - market observable inputs (Level 2) Valuation technique - non-market observable inputs (Level 3) Quoted market price (Level 1) Valuation technique - market observable inputs (Level 2) Valuation technique - non-market observable inputs (Level 3) Total US$m US$m US$m US$m US$m US$m US$m US$m - - 1 - - 10 - - - - - - - 4 33 10 - 1 4 33 - - 3 - - 9 10 - - - - - - 7 38 9 10 3 7 38 Financial assets Derivative instruments Current Non-current Other investments (available-for-sale): Listed entity investments Embedded derivatives: Current Non-current Woodside Petroleum Ltd. | Financial Report 111 Notes to and forming part of the Financial ReportFor the year ended 31 December 201225. Financial and capital risk management (continued) (h) Fair values (continued) Transfer between categories There were no transfers between Level 1 and Level 2 during the year. Reconciliation of Level 3 fair value movements At 1 January Amortisation recognised in the income statement At 31 December Total amortisation stated in the above table for assets held at the end of the financial year (i) capital management 2012 US$m 2011 US$m 45 (7) 38 (7) 54 (9) 45 (9) Group Treasury is responsible for the Group’s capital management including cash, debt and equity. Capital management is undertaken to ensure that a secure, cost-effective and flexible supply of funds is available to meet the Group’s operating and capital expenditure requirements. This involves the use of corporate forecasting models, which facilitates analysis of the Group’s financial position including cash flow forecasts to determine the future capital management requirements. Group Treasury maintains a stable capital base from which the Group can pursue its growth aspirations, whilst maintaining a flexible capital structure that allows access to a range of debt and equity markets to both draw upon and repay capital. An example of the Group’s capital management is the activation of the Dividend Reinvestment Plan (DRP) during a period of high capital expenditure. The DRP was approved by shareholders at the Annual General Meeting in 2003 for activation as required to fund future growth. The Group announced the activation of the DRP in December 2006 to manage capital requirements. The DRP was activated with the 2006 final dividend and deactivated for the 2007 final dividend. The DRP was reactivated in 2008, and remained in force up to and including the 2012 interim dividend. The DRP will be deactivated for the 2012 final dividend. Group Treasury monitors a range of financial metrics, including gearing, and treasury policy breaches and exceptions. The gearing ratio which is net debt divided by total equity (excluding non controlling interest) plus net debt is 11% (2011: 29%) at reporting date. 112 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION26. Expenditure commitments (a) Operating lease commitments Rentals payable on non-cancellable operating leases, due Within one year After one year but not more than five years Later than five years 2012 US$m 2011 US$m 241 572 619 411 482 337 1,432 1,230 The Group leases assets for operations including floating production, storage and off-take vessels, helicopters, supply vessels, cranes, land, mobile offshore drilling units, office premises and computers. There are no restrictions placed upon the lessee by entering into these leases. Renewals are at the option of the specific entity that holds the lease. Certain leases contain a clause enabling upward revision of the rental charge on an annual basis based on the consumer price index. The Group made payments under operating leases of US$487 million during the year (2011: US$540 million). A portion of this amount relates to arrangements containing non-lease elements, which are not practicable to separate. (b) capital expenditure commitments The Group has capital expenditure commitments contracted for but not provided for in the Financial Report of US$174 million (2011:US$568 million). (c) Exploration commitments The Group has exploration obligations for the following regions which are contracted for but not provided for in the Financial Report: Australia Browse Basin Canning Offshore Basin Carnarvon Basin The Americas Gulf of Mexico Peru Asia Korea Middle East & Africa Canary Islands 2012 US$m 2011 US$m 4 238 185 86 16 - 140 669 18 187 153 11 2 72 - 443 These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Group. Woodside Petroleum Ltd. | Financial Report 113 Notes to and forming part of the Financial ReportFor the year ended 31 December 201227. Employee benefits (a) Woodside employee share plans (i) Woodside share purchase plan The Woodside Share Purchase Plan (WSPP) was introduced in April 2007 and was available to all employees, including executives up to March 2009. The plan was suspended in May 2009 due to uncertainty regarding the future operation of the plan created by proposed taxation legislation changes announced in the 2009 Federal budget. The WSPP provided eligible employees with an opportunity to acquire Woodside shares and to share in the growth of the company. The WSPP year was based on a 1 July to 30 June period (WSPP Year). Participants in the WSPP elected to salary sacrifice an amount of base salary and this amount was applied by the WSPP Trustee to purchase shares in Woodside Petroleum Ltd. Additional shares were granted (matching shares) at a fixed annual ratio of the shares awarded for the salary sacrifice amount. In the 2008/09 WSPP Year, the ratio was one for one and a half; the ratio for the 2007/08 WSPP Year was one for one. Conditions applied in order for employees to become entitled to the matching shares. Share acquisitions under the WSPP for the employee sacrificed amounts were made quarterly in arrears. The shares were purchased by the Trustee on market by dividing the sacrificed amount by the volume weighted average price paid for all the shares purchased for participating employees. The sacrificed amount is rounded down to the nearest whole share. Any amount not used was carried forward and applied to the sacrificed amount for the next quarter. Any balance at the end of the specified sacrifice period (normally 12 months) was paid to the participant or carried over to the next sacrifice period if the employee elected to participate. If employment ceased (for whatever reason) during a quarter or after the end of a quarter, but before any shares had been purchased in respect of the quarter, no shares were transferred to the participant in relation to that quarter. In order for the matching shares to beneficially vest to the participating employees in the WSPP, the employee was required to hold shares purchased through the sacrificed amount for three years and remain employed at the end of that qualification period. Matching shares were purchased on a quarterly basis at the same time as the shares were purchased using the employee’s sacrificed amount. If employment ceased because of resignation or termination before the end of the three-year qualification period, the participants forfeited their interests in any matching shares. Shares acquired using any sacrificed amount were released to the participant. The WSPP vested in April 2012 and had 39 employees participating as at 31 December 2012. Matching shares acquired under the WSPP were accounted for as share-based payments to employees for services provided and were measured at fair value, being the share price on acquisition date. 114 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION27. Employee benefits (continued) (a) Woodside employee share plans (continued) (ii) Woodside employee equity plan In July 2009 Woodside introduced the Woodside Petroleum Ltd 2009 - 2012 Employee Equity Plan (EEP) which was available to all employees including executives, other than the CEO. The EEP was intended to provide a retention mechanism for participating employees as well as provide an opportunity to share in the growth of the company. The Equity Rights (ERs) are a form of remuneration that is not dependent on employee's individual performance or Woodside's performance. Eligible participants were entitled to receive an allocation of ERs. Each ER entitled the participants to receive a Woodside share on vesting. The ERs vested on 1 August 2012 and unrestricted possession (full entitlement) of these shares was transferred to employees. Shares were issued by the company to satisfy vesting ER entitlements. The number of ERs that vested was adjusted for any interruptions to an employee's service. Participants in the EEP could not dispose of or otherwise deal with an ER and did not receive any dividends or have voting rights in respect of an ER. Allocations of ERs to participants were adjusted when the company made a bonus issue of shares. As a consequence of the renounceable rights issue by Woodside in December 2009, the Board resolved to issue additional ERs under the EEP to maintain the value of the ERs held by participating employees. An additional allocation of ERs was granted to each participant in early 2010. The same terms and conditions which apply to existing ERs apply to these additional ERs. The EEP was accounted for as a share-based payment to employees for services provided. The fair value of the benefit provided was estimated using the Black-Scholes option pricing technique. The number of ERs and movements in each EEP offer was as follows: 2012 Grant date On issue at beginning of year Granted during the year Vested during the year(1) Forfeited/lapsed during the year On issue at end of year 29 February 2012 16 December 2011 16 September 2011 10 June 2011 18 March 2011 17 December 2010 24 September 2010 25 June 2010 30 April 2010 19 March 2010 30 December 2009 31 October 2009 - 82,602 83,605 98,387 115,098 186,549 207,563 296,414 39,352 232,567 194,013 5,235,377 6,771,527 69,644 - - - - - - - - - - - 69,644 (67,404) (81,581) (80,228) (92,845) (111,412) (178,871) (193,317) (286,726) (37,222) (223,569) (186,899) (4,994,681) (6,534,755) (2,240) (1,021) (3,377) (5,542) (3,686) (7,678) (14,246) (9,688) (2,130) (8,998) (7,114) (240,696) (306,416) (1) Amount includes 93,867 rights that were settled in cash. 2011 - - - - - - - - - - - - - Grant date On issue at beginning of year Granted during the year Vested during the year Forfeited/lapsed during the year On issue at end of year 16 December 2011 16 September 2011 10 June 2011 18 March 2011 17 December 2010 24 September 2010 25 June 2010 30 April 2010 19 March 2010 30 December 2009 31 October 2009 - - - - 192,851 227,999 323,173 41,677 257,654 202,176 5,568,584 6,814,114 82,602 83,605 104,048 125,477 - - - - - - - 395,732 - - - - - - - - - (241) (2,975) (3,216) - - (5,661) (10,379) (6,302) (20,436) (26,759) (2,325) (25,087) (7,922) (330,232) (435,103) 82,602 83,605 98,387 115,098 186,549 207,563 296,414 39,352 232,567 194,013 5,235,377 6,771,527 Woodside Petroleum Ltd. | Financial Report 115 Notes to and forming part of the Financial ReportFor the year ended 31 December 201227. Employee benefits (continued) (a) Woodside employee share plans (continued) (ii) Woodside employee equity plan (continued) The following table lists the inputs to the Black-Scholes option pricing technique used for the years ended 31 December 2012, 31 December 2011, 31 December 2010 and 31 December 2009: Grant date Vesting date Share price at grant date (a$/share) Employee benefit fair value (US$/ER) Expected dividend return (%) Expected life (years) Valuation assumptions 29 February 2012 16 December 2011 16 September 2011 10 June 2011 18 March 2011 17 December 2010 24 September 2010 25 June 2010 30 April 2010 19 March 2010 30 December 2009 31 October 2009 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 1 August 2012 37.24 31.30 34.25 43.55 44.41 43.17 44.48 43.28 45.40 46.73 47.35 47.70 32.46 30.59 32.50 39.79 42.17 40.81 40.51 35.71 39.83 40.53 39.68 39.81 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 0.42 0.63 0.88 1.15 1.38 1.62 1.85 2.10 2.26 2.37 2.59 2.75 (iii) Woodside equity plan In November 2011 Woodside introduced the Woodside Petroleum Ltd - Woodside Equity Plan (WEP) which is available to all Australian based permanent employees including executives, other than the CEO and executive directors. Woodside’s intention is to enable eligible employees to build up a holding of equity in the company as they progress through their career at Woodside. The number of Equity Rights (ERs) offered to each eligible employee is calculated with reference to salary and performance. The linking of performance to an allocation allows Woodside to recognise and reward eligible employees for high performance. The WEP is intended to provide an opportunity to share in the growth of the company as well as provide a retention mechanism for participating employees. Participants do not make any payment in respect of the ERs at grant or at vesting. Eligible participants receive an allocation of ERs. Each ER entitles the participant to receive a Woodside share on the vesting date three years after the effective date. ERs may vest prior to the vesting date on a change of control or on a pro rata basis, at the discretion of the CEO, limited to the following circumstances; redundancy, retirement (after six months participation), death, termination due to medical illness or incapacity or total and permanent disablement of a participating employee. An employee whose employment is terminated by resignation or for cause prior to the vesting date will forfeit all of their ERs. Shares will either be issued by Woodside or acquired on market to satisfy vesting ER entitlements. The number of ERs that vest may be adjusted for any interruptions to an employee’s service. Eligible participants who are on an international assignment may receive a cash amount subject to Board discretion. Participants in the WEP cannot dispose of or otherwise deal with an ER and do not receive any dividends or have voting rights in respect of an ER. Allocations of ERs to participants will be adjusted in the event of Woodside making a bonus issue of shares or upon reconstruction of the company’s share capital. The WEP is accounted for as a share-based payment to employees for services provided. The fair value of the benefit provided will be estimated using the Black-Scholes option pricing technique. 116 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION27. Employee benefits (continued) (a) Woodside employee share plans (continued) (iii) Woodside equity plan (continued) The WEP had 3,144 employees participating at 31 December 2012. The number of equity rights and movements in each WEP offer are as follows: 2012 Grant date On issue at beginning of year Granted during the year Vested during the year Forfeited/lapsed during the year On issue at end of year 1 October 2012 30 November 2011 - 1,664,607 1,664,607 1,912,965 9,960 1,922,925 - (2,940) (2,940) - (150,265) (150,265) 1,912,965 1,521,362 3,434,327 Grant date On issue at beginning of year Granted during the year Vested during the year Forfeited/lapsed during the year On issue at end of year 30 November 2011 - 1,669,427 - (4,820) 1,664,607 2011 The following table lists the inputs to the Black-Scholes option pricing technique used for the years ended 31 December 2012 and 31 December 2011. Grant date Vesting date Share price at grant date (a$/share) Employee benefit fair value (US$/ER) Expected dividend return (%) Expected life (years) 1 October 2012 30 November 2011 30 November 2014 1 October 2015 33.20 32.80 31.99 30.49 2.5 2.5 3 3 Valuation assumptions (b) Executive share plans The Executive Incentive Plan (EIP) and Pay Rights (PR) Plans became effective 1 January 2005 and 15 March 2007 respectively. For further details regarding the EIP, PR Plans and the Group’s remuneration structure for the CEO and senior executives refer to the Remuneration Report included in the 2012 Directors’ Report. The following table illustrates the number and weighted average prices of shares reserved and acquired during the year by the plan. 2012 2011 number of shares Weighted average price (a$/share) Opening balance Purchases during the year Vested during the year Shares reserved for executives under EIP/PR 562,830 300,000 (172,823) 690,007 42.61 35.54 34.77 33.35 cost US$m 18 11 (6) 23 Number of shares Weighted average price (A$/share) 503,244 200,000 (140,414) 562,830 46.88 35.50 47.80 42.61 Cost US$m 18 7 (7) 18 Woodside Petroleum Ltd. | Financial Report 117 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 27. Employee benefits (continued) (b) Executive share plans (continued) Equity rights are granted on 1 January of each performance year. The EIP is accounted for as a share based payment to employees for services provided. The fair value of the benefit provided was estimated using the Binomial or Black-Scholes option pricing technique combined with a Monte Carlo simulation methodology, where relevant. Historical volatility has been used to estimate the volatility of the share price. On 7 December, the Board approved a modification to the EIP rules for equity rights granted for the 2012 performance year. The modifications effected both the Short Term Award (STA) and Long Term Award (LTA). For the 2012 performance year, the STA deferred equity component will be delivered in the form of restricted shares. Participants will receive any dividends paid on their restricted shares after they have been allocated. The LTA award for the 2012 performance year is granted in the form of Variable Pay Rights (VPRs), the vesting of which is linked to service and Relative Total Shareholder Return (RTSR). The vesting of RTSR-tested VPRs is conditional on satisfactory ranking of Woodside’s RTSR, as calculated under the EIP rules, over a four or five year period in comparison with an international peer group and separately the ASX top 50. The international oil and gas LTA Peer Group for grant of the RTSR-tested VPRs for the 2012 performance year is set out in Table 8 of the Remuneration Report. This peer group has a weighting of 67%. The ASX 50 Index as at 7 December 2012, the plan modification date, was taken as the second peer group. The selection of the ASX 50 as a second peer group with a weighting of 33% was made in order to reflect Woodside’s performance against similar organisations traded on the Australian Securities Exchange. The RTSR in respect of Woodside and both peer groups is calculated by an external advisor in accordance with the EIP rules on the fourth anniversary of the allocation of these RTSR-tested VPRs. The outcome of the test is measured against the schedule shown in Table 5 of the Remuneration Report. Any RTSR-tested VPRs which do not vest at this time are subject to a second RTSR test on the fifth anniversary of the allocation date. Any RTSR-tested VPRs that do not vest on the fifth anniversary lapse. For further details regarding the 2008 to 2011 plans, refer to the Remuneration Report included in the 2012 Directors’ Report. As a consequence of the rule modifications, the fair value of the benefit provided was revalued at modification date. EIP Time-tested variable pay rights (VPRs)/restricted shares Fair value of the original equity right at 1 January, 2012 Fair value of modified equity right at 7 December, 2012 Less: Fair value of original equity right at 7 December, 2012 Incremental value of modified equity right at 7 December, 2012 Valuation assumptions t a e c i r P e r a h S e t a d t n a r g d l e i y d n e d i v i d d e t c e p x E t fi e n e b e e y o p m E l e u l a v r i a f (US$/VPR) (a$/share) (%) 28.22 35.95 (33.19) 2.76 30.62 34.22 34.22 2.5 - 2.5 EIP relative total shareholder return (RTSR) tested VPRs Valuation assumptions e u l a v r i a f t fi e n e b e e y o p m E l t a e c i r P e r a h S e t a d t n a r g (US$/VPR) (a$/share) Fair value of the original equity right at 1 January, 2012 Weighted average of fair value equity right at 7 December, 2012 Less: Fair value of original equity right at 7 December, 2012 Decrement in value of modified equity right at 7 December, 2012 15.90 20.64 (21.68) (1.04) 30.62 34.22 34.22 t s e r e t n i e e r f k s i R e t a r (%) 3.9 2.7 3.2 d l e i y d n e d i v i d d e t c e p x E (%) 2.5 3.4 2.5 d e t c e p x E y t i l i t a l o v (%) 36 22 24 118 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 27. Employee benefits (continued) (b) Executive share plans (continued) EIP Time-tested variable pay rights (VPRs)/restricted shares Performance year Grant date Vesting date On issue at beginning of year Granted during the year Vested during the year Forfeited/ lapsed during the year On issue at end of year Share price at grant date Employee benefit fair value Expected dividend yield (a$/share) (US$/VPR) (%) Restricted shares 2012 1 January 2012 22 February 2016 - 191,848 - - 191,848 30.62 30.98(1) - Valuation assumption Variable pay rights 2011 2010 2009 2008 1 January 2011 25 February 2015 133,469 1 January 2010 25 February 2014 1 January 2009 5 March 2013 1 January 2008 27 February 2012 67,985 79,765 59,974 - - - - (11,058) (7,986) 114,425 (7,078) (9,476) (59,974)(2) (5,898) (6,824) - 55,009 63,465 42.56 47.20 36.70 - 50.39 38.87 38.32 29.57 39.81 2.5 2.5 2.5 3.0 (1) Fair value of restricted shares is represented by the sum of the grant date fair value of $28.22 and the incremental benefit on modification date amounting to $2.76. (2) Amount includes 13,951 shares that were settled with a fair value of $31.26. EIP Time-tested VPRs - additional allocation following renounceable rights issue As a consequence of the renounceable rights issue by the Group in December 2009, the Board exercised its discretion under the EIP plan rules to adjust the number of VPRs held by participants to maintain the value equivalence of the unvested VPR awards made for the 2008 performance year. Performance year Grant date Vesting date On issue at beginning of year Granted during the year Vested during the year Forfeited/ lapsed during the year On issue at end of year Share price at grant date Employee benefit fair value Expected dividend yield (a$/share) (US$/VPR) (%) 2008 13 December 2009 27 February 2012 513 - (498)(3) (15) - 47.18 39.92 2.5 (3) Amount includes 116 shares that were settled in cash with a fair value of $31.26. Valuation assumption Woodside Petroleum Ltd. | Financial Report 119 Notes to and forming part of the Financial ReportFor the year ended 31 December 201227. Employee benefits (continued) (b) Executive share plans (continued) EIP relative total shareholder return (RTSR) tested VPRs r a e y e c n a m r o f r e P e t a d t n a r G s e t a d g n i t s e V t a e u s s i n O r a e y f o g n n n g e b i i g n i r u d d e t n a r G r a e y e h t e h t g n i r u d d e t s e V r a e y d e s p a l / d e t i e f r o F r a e y e h t g n i r u d d n e t a e u s s i n O r a e y f o t a e c i r p e r a h S e t a d t n a r g t fi e n e b e e y o p m E l ) 2 ( e u l a v r i a f Valuation assumptions ) 2 ( y t i l i t a l o v d e t c e p x E e t a r t s e r e t n i e e r f k s i R d l e i y d n e d i v i d d e t c e p x E 2012 1 January 2012 2011 1 January 2011 22 February 2017 22 February 2018 25 February 2015 25 February 2016 - 597,680 337,524 2010 1 January 2010 25 February 2014 211,740 2009 1 January 2009 5 March 2013 165,640 25 February 2015 2008 19 February 2008 27 February 2012 81,606 5 March 2014 - - - - - - - - - 2008 1 January 2008 27 February 2012 226,580 - (113,299)(1) (113,281) 2007 1 January 2007 4 March 2012 150,345 - - (150,345) (1) Amount includes 15,183 shares that were settled with cash with a fair value of $7.44. (a$/ share) (US$/ VPR) (%) (%) (%) - 597,680 30.62 15.90 (17,956) 319,568 42.56 21.36 36 36 3.9 5.7 2.5 2.5 (12,338) 199,402 47.20 20.02 38 5.3 2.5 (7,911) 157,729 36.70 14.82 36 3.6 2.5 (81,606) - - - 51.26 50.39 38.11 19.90 19.08 14.36 29 26 25 4.5 6.6 6.0 3.0 3.0 3.0 (2) A review of the RTSR valuation model was conducted to ensure it accurately reflects the EIP rules. Prior year fair values have been appropriately restated to reflect the changes. EIP RTSR tested - additional allocation following renounceable rights issue As a consequence of the renounceable rights issue by the Group in December 2009, the Board exercised its discretion under the EIP plan rules to adjust the number of VPRs held by participants to maintain the value equivalence of the unvested VPR awards made for the 2007 and 2008 performance years. Valuation assumptions r a e y e c n a m r o f r e P e t a d t n a r G s e t a d g n i t s e V t a e u s s i n O r a e y f o g n n n g e b i i g n i r u d d e t n a r G r a e y e h t e h t g n i r u d d e t s e V r a e y d e s p a l / d e t i e f r o F r a e y e h t g n i r u d d n e t a e u s s i n O r a e y f o t a e c i r p e r a h S e t a d t n a r g t fi e n e b e e y o p m E l l ) 3 ( e u a v r i a f t s e r e t n i e e r f k s i R e t a r d e t c e p x E d e t c e p x E ) 3 ( y t i l i t a o v l d l e i y d n e d v d i i 2008 13 December 2009 27 February 2012 1,882 2008 13 December 2009 31 March 2012 2007 13 December 2009 14 March 2012 678 1,245 - - - (941)(4) - - (941) (678) (1,245) - - - 47.18 47.18 47.18 25.53 23.07 22.94 44 47 48 5.0 5.3 4.7 2.5 2.5 2.5 (3) A review of the RTSR valuation model was conducted to ensure it accurately reflects the EIP rules. Prior year fair values have been appropriately restated to reflect the changes. (4) Amount includes 253 shares that were settled with cash with a fair value of $7.46. (a$/ share) (US$/ VPR) (%) (%) (%) 120 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 27. Employee benefits (continued) (b) Executive share plans (continued) Pay rights Pay rights are accounted for as a share-based payment, with fair value estimated using the Binomial or Black Scholes option pricing technique combined with a Monte Carlo simulation methodology, where relevant. Historical volatility has been used to estimate the volatility of the share price. Valuation assumptions ) 2 ( y t i l i t a l o v d e t c e p x E (%) 41 ) 2 ( e t a r t s e r e t n i e e r f k s i R (%) 4.5 ) 2 ( d l e i y d n e d i v i d d e t c e p x E (%) 2.5 e c n a m r o f r e P ) 1 ( r a e y e t a d t n a r G g n i t s e V s e t a d t a e u s s i n O r a e y f o g n n n g e b i i g n i r u d d e t n a r G r a e y e h t g n i r u d d e t s e V r a e y e h t d e s p a l / d e t i e f r o F r a e y e h t g n i r u d d n e t a e u s s i n O r a e y f o t a e c i r p e r a h S e t a d t n a r g t fi e n e b e e y o p m E l ) 2 ( e u l a v r i a f (a$/share) (US$/VPR) (5,674) 11,348 43.59 21.25 2010 1 June 2010 15 March 2012 17,022 15 March 2013 15 March 2014 2008 5 May 2008 5 March 2012 11,972 - - - - (11,972) - 59.22 26.48 31 6.5 3.0 (1) Pay rights granted on 5 May 2008 and 1 June 2010 are RTSR-tested. (2) Valuation assumptions and employee benefit fair values are based on weighted averages. Pay rights - additional allocation following renounceable rights issue As a consequence of the renounceable rights issue by the Group in December 2009, the Board exercised its discretion under the Pay Rights Plan rules to adjust the number of VPRs held by participants to maintain the value equivalence of the unvested VPR awards for the 2008 performance year. Valuation assumptions e c n a m r o f r e P r a e y e t a d t n a r G g n i t s e V s e t a d t a e u s s i n O r a e y f o g n n n g e b i i g n i r u d d e t n a r G r a e y e h t e h t g n i r u d d e t s e V r a e y d e s p a l / d e t i e f r o F r a e y e h t g n i r u d d n e t a e u s s i n O r a e y f o t a e c i r p e r a h S e t a d t n a r g t fi e n e b e e y o p m E l ) 3 ( e u l a v r i a f ) 3 ( y t i l i t a l o v d e t c e p x E ) 3 ( e t a r t s e r e t n i e e r f k s i R (a$/share) (US$/VPR) (%) (%) 2008 13 December 2009 5 March 2012 98 - - (98) - 47.18 28.35 40 4.3 (3) Valuation assumptions and employee benefit fair values are based on weighted averages. ) 3 ( d l e i y d n e d i v i d d e t c e p x E (%) 2.5 Woodside Petroleum Ltd. | Financial Report 121 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 27. Employee benefits (continued) (c) cEO sign-on incentive shares Mr Coleman gave up certain rights with his former employer to join Woodside as CEO. To recognise these interests, he was paid a one off sign-on incentive. Woodside acquired Woodside Shares to the value of $3 million to be held in trust for Mr Coleman. One third of these shares will vest each anniversary after the date of his appointment (in the absence of any accelerating event, including a change of control, in which case all shares will vest on the date of the control event). Any unvested entitlements will be forfeited if Mr Coleman’s employment is terminated for cause or by his resignation. Mr Coleman cannot dispose of or deal with any restricted shares until such restricted shares vest. In the event bonus shares are allotted in respect of the sign-on shares, the bonus shares will be allotted to the Trustee and held for Mr Coleman on the same terms and conditions as the underlying restricted shares. The number of equity rights and movements in the CEO Sign-On Incentive share offer was as follows: Year Grant date On issue at beginning of year Granted during the year Vested during the year Forfeited/lapsed during the year On issue at end of year 2012 2011 30 May 2011 30 May 2011 66,004 - - 66,004 (22,002) - - - 44,002 66,004 The following table lists the inputs to the Black-Scholes option pricing technique used for the year ended 31 December 2012. Valuation assumptions Grant date Vesting date Share price at grant date (a$/share) Employee benefit fair value (US$/ER) Expected dividend return (%) Expected life (years) 30 May 2011 30 May 2011 30 May 2011 30 May 2012 30 May 2013 30 May 2014 45.97 45.97 45.97 49.19 49.19 49.19 - - - 1 2 3 (d) Superannuation plan Employees of the Group may be entitled to superannuation benefits on retirement, disability, death or withdrawal under the Group’s Superannuation Plan. The Group has one funded plan with a defined benefit section and a defined contribution section. The defined benefit section of the plan is closed to new members. All new members receive accumulation only benefits. The defined contribution section receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. Defined benefit superannuation plan The Group has a legal obligation to settle defined benefit plan deficits, however, these do not need to be settled with an immediate contribution or additional one-off contribution. Any defined benefit plan surplus may only be used to reduce future contributions from the Group. The present value of the defined benefit obligation has been determined using the projected unit credit method. Employer contributions Employer contributions to the defined benefit section of the plan are based on recommendations by the plan’s actuary. Actuarial assessments are made at no more than yearly intervals and the last such assessment was made as at 31 December 2012. Funding method The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding benefits known as the attained age normal method. This funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members’ salaries over their working lifetimes. Using the funding method described above, in October 2008 the actuary recommended that the payment of employer contributions to the fund recommence. The Group recommenced contributions to the defined benefit section of the plan based on actuary recommended contribution rates for the respective groups of employees from 1 November 2008. Total employer contributions paid by Group companies for the year ending 31 December 2012 were US$17 million (2011: US$20 million). 122 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION27. Employee benefits (continued) (d) Superannuation plan (continued) Defined benefit plan asset/(liability) included in the statement of financial position Present value of the defined benefit obligation Fair value of defined benefit plan assets net defined benefit liability - non-current Defined benefit plan categories of plan assets Cash Australian equity International equity Fixed income Property Other Defined benefit plan reconciliations Reconciliation of the present value of the defined benefit obligation, which is fully funded At 1 January Current service cost Interest on obligation Actuarial (loss)/gain Plan participants’ contributions Benefits, administrative expenses, premiums and tax paid Currency translation differences at 31 December Reconciliation of the fair value of plan assets At 1 January Expected return on plan assets Actuarial gain/(loss) Employer contributions Plan participants’ contributions Benefits, administrative expenses, premiums and tax paid Currency translation differences at 31 December Defined benefit plan amounts recognised in the income statement Current service cost Interest on obligation Expected return on plan assets Net actuarial loss Defined benefit plan expense 2012 US$m 2011 US$m (211) 181 (30) 2012 % 7 26 29 18 15 5 100 (184) 154 (30) 2011 % 8 28 29 14 16 5 100 2012 US$m 2011 US$m (184) (12) (7) (17) (3) 14 (2) (211) 154 11 8 17 3 (14) 2 181 14 9 (13) 10 20 (160) (10) (9) (13) (3) 14 (3) (184) 146 10 (13) 20 3 (14) 2 154 7 7 (8) 21 27 Woodside Petroleum Ltd. | Financial Report 123 Notes to and forming part of the Financial ReportFor the year ended 31 December 201227. Employee benefits (continued) (d) Superannuation plan (continued) Defined benefit plan principal actuarial assumptions The principal actuarial assumptions used as at the reporting date for the purpose of calculating the present value of the defined benefit obligation are as follows: Discount rate – active members Discount rate – pensioners Expected salary increase rate Financial year 2012 2011 3.10% p.a. 3.10% p.a. 5.00% p.a. 3.70% p.a. 3.70% p.a. 5.00% p.a. The expected rate of return on plan assets is determined by weighting the expected long-term return for each asset class by the benchmark allocation of assets to each class. The returns for each asset class are net of investment tax and investment fees. Defined benefit plan historical information Financial year 2012 US$m 2011 US$m 2010 US$m (211) 181 (30) 8 (7) (184) 154 (30) (13) 3 (160) 146 (14) (3) 3 Restated 2009 US$m Restated 2008 US$m (133) 119 (14) 7 4 (115) 83 (32) (43) (1) 2012 US$m 265 26 20 311 2011 US$m 191 18 27 236 2012 US$ 2011 US$ 12,828,321 12,346,879 458,505 632,747 3,418,775 6,060,666 - 355,266 (533,441) 986,775 17,060,867 19,493,626 Present value of defined benefit obligation(1) Fair value of plan assets (Deficit)/surplus in plan Experience adjustments gain/(loss) - plan assets Experience adjustments (loss)/gain - plan liabilities (1) Includes any provision for contribution tax on plan surplus or deficit. (e) Employee benefits expense Employee benefits Defined contribution plan costs Defined benefit plan expense 28. Key management personnel compensation (a) compensation of key management personnel Key management personnel (KMP) compensation for the financial year is as follows: Short-term employee benefits Post employment benefits Share-based payments Long-term employee benefits Termination benefits 124 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION28. Key management personnel compensation (continued) (b) Key management personnel shareholdings Details of shares held by KMP including their personally related entities(1) for the financial year are as follows: i g n n e p O i ) 2 ( g n d o h l non-executive directors M A Chaney E Fraunschiel A Jamieson P J M H Jungels(4) D I McEvoy M Cilento C Haynes(5) S Ryan(6) Executives P Coleman(7) L Tremaine R Cole V Santostefano 20,000 81,930 3,000 9,205 7,924 1,382 186 - 66,004 2,224 15,174 28,051 L Della Martina(8) 54,884 P Moore F Ahmed G Roder(9) R Edwardes(10) 6,190 2,500 - - 2012 / n o i t i s i u q c a ) l a s o p s i d ( - e g n a h c t e n r e h t o g n i s o c l i g n d o h l i g n n e p O i ) 2 ( g n d o h l - - - - - - - - - - - (9,205) - - - - 20,000 81,930 4,235 - 8,040 2,086 1,333 - 20,000 81,930 3,000 9,205 7,702 613 - - ) 3 ( P S D E n - - 1,235 - 116 704 1,147 - - - - - - - - - - (11,000) 3,748 13,328 10,113 - - - - 55,004 5,972 28,502 38,164 - 1,354 13,403 19,846 5,739 (60,623) - 53,193 6,959 4,386 - - - - - 543 13,149 6,886 - 543 5,436 2,500 - - ) 3 ( P S D E N - - - - 222 769 186 - - - - - - - - - - 2011 / n o i t i s u q c A i ) 4 ( ) l a s o p s d ( i - e g n a h c t e N r e h t o i g n s o C l i g n d o h l - - - - - - - - 66,004 870 1,771 8,205 1,691 754 - - - - - - - - - - - 20,000 81,930 3,000 9,205 7,924 1,382 186 - - - - - 66,004 2,224 15,174 28,051 - 54,884 - - - - 6,190 2,500 - - (1) Personally related entities include a KMP’s spouse, dependants or entities over which they have direct control or significant influence. (2) Opening holding represents amounts carried forward in respect of KMP (6) Dr Ryan was appointed a non-exectutive director of Woodside on 6 December 2012. (7) Mr Coleman was appointed as CEO on 30 May 2011. Prior to this or amounts held by KMP who commenced during the year. Mr Coleman was not employed by the Group. (3) Relates to participation in the Non-Executive Directors’ Share Plan (NEDSP). (4) Dr Jungels departed Woodside on 7 December 2012. (5) Dr Haynes was appointed a non-executive director of Woodside on 1 June 2011. (8) Mr Della Martina departed Woodside on 10 May 2012. (9) Mr Roder became a KMP on 27 October 2011. (10) Mr Edwardes became a KMP on 7 May 2012. Woodside Petroleum Ltd. | Financial Report 125 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 28. Key management personnel compensation (continued) (c) Executives’ interests in variable pay rights (VPR), pay rights (PR) and equity rights (ER) VPR, PR and ER holdings of key management personnel 2012 name P Coleman(1) L Tremaine R Cole V Santostefano L Della Martina(2) P Moore F Ahmed(3) G Roder (4) R Edwardes(5) 2011 Name P Coleman L Tremaine R Cole V Santostefano L Della Martina P Moore F Ahmed G Roder at 1 January 2012 allocated in 2012 Vested in 2012 net change - other at 31 December 2012 - 20,400 47,153 36,157 34,032 24,379 37,197 - - 66,560 14,034 16,962 16,785 12,268 11,040 14,098 - - - - (6,748) (13,328) (10,113) (5,739) (6,959) (11,811) - - (2,569) (9,263) (6,287) (40,561) (2,772) (6,220) - - 66,560 25,117 41,524 36,542 - 25,688 33,264 - - At 1 January 2011 Allocated in 2011 Vested in 2011 Net change - other At 31 December 2011 - 14,673 35,266 27,059 25,120 16,873 30,790 - - - 7,961 13,658 10,781 10,603 8,260 9,457 (870) (1,771) (1,683) (1,691) (754) (1,003) - - - (1,364) - - - - (2,047) - - 20,400 47,153 36,157 34,032 24,379 37,197 - (1) Mr Coleman was appointed as CEO on 30 May 2011. Prior to this Mr Coleman was not employed by the Group. (2) Mr Della Martina departed Woodside on 10 May 2012. (3) Amount includes 3,272, 4,119 and 34 shares that were settled in cash with a fair value of $31.36, $7.44 and $7.46 respectively. (4) Mr Roder became a KMP on 27 October 2011. (5) Mr Edwardes became a KMP on 7 May 2012. 126 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION28. Key management personnel compensation (continued) (d) Summary of Executives’ interests in shares under the Woodside Share Purchase Plan (WSPP) name Year Opening balance Shares purchased under WSPP Matching shares Shares vested net change - other closing balance P Coleman(1) L Tremaine R Cole V Santostefano L Della Martina(2) P Moore F Ahmed G Roder(3) R Edwardes(4) 2012 2011 2012 2011 2012 2011 2010 2009 2008 2007 2012 2011 2010 2009 2008 2007 2012 2011 2010 2009 2008 2012 2011 2010 2012 2011 2010 2009 2012 2011 2012 - - - - 395 769 893 498 124 - 395 769 893 498 124 - 395 769 893 498 124 - 234 358 - - - - - - - - - - - - - - 158 173 62 - - - 158 173 62 - - - 158 173 - - - - - - - - - - - - - - - - - 237 201 62 - - - 237 201 62 - - - 237 201 - - - - - - - - - - - - - - (395) (374) (124) - - - (395) (374) (124) - - - (395) (374) (124) - - - (234) (124) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 395 769 893 498 124 - 395 769 893 498 124 - 395 769 893 498 - - 234 - - - - - - - (1) Mr Coleman was appointed as CEO on 30 May 2011. Prior to this Mr Coleman was not employed by the Group. (2) Mr Della Martina departed Woodside on 10 May 2012. (3) Mr Roder became a KMP on 27 October 2011. (4) Mr Edwardes became a KMP on 7 May 2012. Woodside Petroleum Ltd. | Financial Report 127 Notes to and forming part of the Financial ReportFor the year ended 31 December 201229. Events after the end of the reporting period Dividends Since the reporting date, the directors have declared a fully franked dividend of US$0.65 (2011: US$0.55), payable on 3 April 2013. The amount of this dividend will be US$536 million (2011: US$443 million). No provision has been made for this dividend in the Financial Report as the dividend was not declared or determined by the directors on or before the end of the financial year. 30. Related party disclosures (a) Transactions with related parties The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year: Sales to related parties Purchases from related parties US$m US$m Outstanding balances receivable from/ (payable to) related parties US$m commitments US$m Entities with significant influence over the Group Royal Dutch Shell Group (Shell Group) Shell Company of Australia Ltd - purchases of goods Other members of Shell Group - purchases of services Other members of Shell Group - sales of goods 2012 2011 2012 2011 2012 2011 - - - - 313 467 70 108 27 18 - - (1) - - 1 6 - - - 12 14 - - Shell Energy Holdings Australia Ltd is deemed a related party through its 23.1% (2011: 23.6%) interest of 190,119,364 ordinary shares (2011: 190,119,364 ordinary shares) in the shareholding of the Group. The Group and Shell have common interests in joint ventures (refer to Note 33(a)). (b) Terms and conditions of transaction with related parties Sales to and purchases from related parties are made at arm’s length on normal market prices and on normal commercial terms. Applicable insurance premiums are negotiated at arm’s length with lead insurers via Woodside’s insurance brokers with Solen Versicherungen AG following the terms set by the lead insurers. Outstanding balances at year end are unsecured, interest-free and settlement occurs in cash. No guarantees are provided or received for any related party receivables or payables. No provision for doubtful debts has been recognised on any outstanding balances and no expense has been recognised in respect of bad or doubtful debts due from related parties. (c) Transactions with directors No transactions with directors occurred outside of their normal Board and committee duties in 2012 (2011: nil). 128 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 31. contingent liabilities and contingent assets contingent liabilities at the reporting date Not otherwise provided for in the Financial Report Contingent liabilities(1) Guarantees(2) 2012 US$m 2011 US$m 17 7 24 15 5 20 (1) Contingent liabilities relate predominately to actual or potential litigation of the Group for which amounts are reasonably estimated but the liability is not probable and therefore the Group has not provided for such amounts in this Financial Report. Additionally, there are a number of other claims and possible claims that have arisen in the course of business against entities in the Group, the outcome of which cannot be foreseen at present, and for which no amounts have been included in the table above. (2) The Group has issued guarantees relating to workers compensation liabilities. 32. auditor remuneration Fees of the auditors of the company for: Audit and review of financial reports Ernst & Young Audit Non-audit services Ernst & Young Other assurance/advisory services Other services 2012 US$’000 2011 US$’000 1,731 1,731 1,463 1,463 1,960 30 1,990 839 27 866 Woodside Petroleum Ltd. | Financial Report 129 Notes to and forming part of the Financial ReportFor the year ended 31 December 2012 33. Joint ventures (a) Joint venture interests The Group's interests in joint venture assets as at 31 December 2012 is detailed below. Exploration, development and production of hydrocarbons are the principal activities performed across these assets. Related party interests are indicated where applicable (refer to Note 30). Joint venture assets australasia Producing and Developing Assets North West Shelf Joint Venture Enfield and Vincent Laminaria–Corallina Mutineer–Exeter Stybarrow Pluto Exploration and Evaluation Assets Browse Basin Carnarvon Basin Bonaparte Basin Canning Offshore Basin Middle East and africa Exploration and Evaluation Assets Canary Islands The americas Producing and Developing Assets Gulf of Mexico Exploration and Evaluation Assets Gulf of Mexico Brazil Peru asia Exploration and Evaluation Assets Republic of Korea Group interest % Related party interest % 12.5 - 50.0 60.0 59.9 - 66.7 8.2 50.0 90.0 17.0 - 75.0 15.8 - 90.0 26.7 - 35.0 55.0 30.0 20.0 10.0 - 65.0 12.5 20.0 50.0 8.3 - 16.7 - - - - - 25.0 - 35.0 15.8 25.0 - 33.3 45.0 - - - - - - 130 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION33. Joint ventures (continued) (b) Jointly controlled assets The aggregate of the Group’s interest in all jointly controlled assets is as follows: current assets Receivables Inventories Other assets non-current assets Inventories Exploration and evaluation assets Oil and gas properties (c) commitments through jointly controlled assets The aggregate of the Group’s commitments through jointly controlled assets is as follows: Capital Exploration commitments (d) Jointly controlled entities Interests in jointly controlled entities are as follows: Entity Principal activity country of incorporation North West Shelf Gas Pty Ltd North West Shelf Liaison Company Pty Ltd North West Shelf Australia LNG Pty Ltd Marketing services for venturers in the sale of gas to the domestic market. Liaison for venturers in the sale of LNG to the Japanese market. Marketing services for venturers in the sale of LNG to international markets. North West Shelf Shipping Service Company Pty Ltd LNG vessel fleet advisor. Australia Australia Australia Australia 2012 US$m 2011 US$m 14 48 5 67 9 652 9,640 10,301 10,368 2012 US$m 153 534 687 30 50 15 95 10 1,582 9,409 11,001 11,096 2011 US$m 316 384 700 Group interest % 2012 16.67 16.67 16.67 16.67 2011 16.67 16.67 16.67 16.67 These entities exist as integrated components of the overall North West Shelf Joint Venture structure and are held proportionately with the other venturers. There have been no changes to the investment in these entities during the year. 34. associated entities Entity Principal activity International Gas Transportation Company Ltd(1) LNG vessel fleet management. (1) The associate is incorporated in Bermuda. Group interest % 2012 16.67 2011 16.67 Woodside Petroleum Ltd. | Financial Report 131 Notes to and forming part of the Financial ReportFor the year ended 31 December 201235. Subsidiaries (a) Subsidiaries name of entity Parent entity Woodside Petroleum Ltd Subsidiaries Woodside Energy Ltd Woodside Energy Holdings Pty Ltd Woodside Energy Holdings (USA), Inc Woodside Energy (USA), Inc Gryphon Exploration Company Gander, Inc (formerly ATS, Inc) Woodside Offshore LLC Woodside Natural Gas, Inc Avilla 8 LLC Woodside Energy (Peru) Pty Ltd Woodside Energy (Myanmar) Pte Ltd Woodside Energy (Algeria) Pty Ltd Woodside Technical Services Pty Ltd Metasource Pty Ltd Woodside Guangdong Shipping (One) Pty Ltd Woodside Guangdong Shipping (Two) Pty Ltd Woodside Mauritania Investments Pty Ltd Woodside Energy Holdings (UK) Pty Ltd Woodside Energy (UK) Ltd Woodside Energy Iberia S.A. Woodside Energy (N.A.) Ltd Woodside Energy (Kenya) Pty Ltd Woodside Energy (Carbon Capture) Pty Ltd Woodside Energy (SL) Pty Ltd Woodside West Africa Pty Ltd Woodside Energy Technologies Pty Ltd Woodside Energy (Norway) Pty Ltd Woodside Energy (M.E.) Pty Ltd Woodside Energy Middle East and Africa Pty Ltd Woodside Browse Pty Ltd Woodside Burrup Pty Ltd Pluto LNG Pty Ltd Burrup Facilities Company Pty Ltd Burrup Train 1 Pty Ltd Woodside Energy Australia Asia Holdings Pte Ltd WelCap Insurance Pte Ltd Woodside Energy (Korea) Pte Ltd Woodside Energy Holdings (South America) Pty Ltd Woodside Energia (Brasil) Investimento em Exploração de Petróleo Ltda. Woodside Finance Ltd Woodside Petroleum Holdings Pty Ltd Woodside Petroleum (Timor Sea 19) Pty Ltd Woodside Petroleum (Timor Sea 20) Pty Ltd Mermaid Sound Port and Marine Services Pty Ltd Woodside Group Staff Superannuation Pty Ltd Woodside Petroleum (Northern Operations) Pty Ltd Woodside Petroleum (W.A. Oil) Pty Ltd notes country of incorporation (1,2,3) Australia (2,3,4) (2,4) (4) (4) (4) (4,7) (4,8) (4) (4,9) (2,4) (10) (2,4) (2,4,6) (2,4) (2,4) (2,4) (2,4,6) (2,4) (4) (4) (4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (5) (5) (5) (4) (4) (4) (2,4) (4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4,6) (2,4) (2,4) Australia Australia USA USA USA USA USA USA USA Australia Singapore Australia Australia Australia Australia Australia Australia Australia UK Spain UK Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Singapore Singapore Australia Brazil Australia Australia Australia Australia Australia Australia Australia Australia (1) Woodside Petroleum Ltd is the ultimate holding company and the head entity within the tax consolidated group. (2) These companies were members of the tax consolidated group at 31 December 2012. (3) Pursuant to ASIC Class Order 98/1418, relief has been granted to the controlled entity, Woodside Energy Ltd from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. As a condition of the Class Order, Woodside Petroleum Ltd and Woodside Energy Ltd are parties to a Deed of Cross Guarantee. (4) All subsidiaries are wholly owned except for those listed in Note 5 below. (5) Kansai Electric Power Australia Pty Ltd and Tokyo Gas Pluto Pty Ltd each have 5% of the shares in these companies. (6) These companies were deregistered on 7 August 2012. (7) The dissolution of Gander Inc was effective on 5 December 2012. (8) The dissolution of Woodside Offshore LLC was effective on 1 November 2012. (9) The dissolution of Avila 8 LLC was effective on 7 January 2011 and formally notified to the authorities on 10 October 2012. (10) Woodside Energy (Myanmar) Pte Ltd was incorporated on 5 December 2012. 132 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION 35. Subsidiaries (continued) (b) Deed of cross Guarantee and closed group Woodside Petroleum Ltd and Woodside Energy Ltd are parties to a Deed of Cross Guarantee under which each company guarantees the debts of the other. By entering into the Deed, the entities have been granted relief from the Corporations Act 2001 requirements for the preparation, audit and publication of accounts, pursuant to Australian Securities and Investment Commission (ASIC) Class Order 98/1418. The two entities represent a Closed Group for the purposes of the Class Order. The consolidated income statement and statement of financial position of the members of the Closed Group are set out below. closed Group consolidated income statement Profit before tax Taxes Profit after tax Retained earnings at the beginning of the financial year Dividends Retained earnings at the end of the financial year 2012 US$m 2,325 (1,129) 1,196 6,932 (979) 7,149 2011 US$m 2,723 (1,042) 1,681 6,117 (866) 6,932 Woodside Petroleum Ltd. | Financial Report 133 Notes to and forming part of the Financial ReportFor the year ended 31 December 201235. Subsidiaries (continued) (b) Deed of cross Guarantee and closed group (continued) closed Group consolidated statement of financial position 2012 US$m 2011 US$m current assets Cash and cash equivalents Receivables Inventories Other financial assets Other assets Total current assets non-current assets Inventories Other financial assets Other assets Exploration and evaluation assets Oil and gas properties Other plant and equipment Deferred tax assets Total non-current assets Total assets current liabilities Payables Tax payable Other financial liabilities Other liabilities Provisions Total current liabilities non-current liabilities Payables Deferred tax liabilities Other financial liabilities Other liabilities Provisions Total non-current liabilities Total liabilities net assets Equity Issued and fully paid shares Shares reserved for employee share plans Other reserves Retained earnings Total equity 34 500 187 4 13 738 6 17,809 1 777 4,870 59 14 23,536 24,274 520 542 26 24 166 1,278 6,844 767 7 165 812 8,595 9,873 14,401 6,547 (44) 749 7,149 14,401 (61)(1) 700 177 7 65 888 7 16,549 1 697 5,119 61 - 22,434 23,322 744 72 23 27 158 1,024 6,974 758 6 181 682 8,601 9,625 13,697 5,880 (67) 952 6,932 13,697 (1) Excess joint venture funds were put on deposit in interest- bearing accounts in Woodside Finance Ltd. 36. corporate information Woodside Petroleum Ltd is a company limited by shares incorporated and domiciled in Australia. Its shares are publicly traded on the Australian Securities Exchange. 134 Woodside Petroleum Ltd. | 2012 annual Report Notes to and forming part of the Financial ReportFor the year ended 31 December 2012OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONDirectors’ declaration In accordance with a resolution of directors of Woodside Petroleum Ltd, we state that: 1. In the opinion of the directors: (a) the financial statements and notes thereto, and the disclosures included in the audited 2012 Remuneration Report, comply with Australian Accounting Standards and the Corporations Act 2001; (b) the financial statements and notes thereto give a true and fair view of the financial position of the Group as at 31 December 2012 and of the performance of the Group for the financial year ended 31 December 2012; (c) the financial statements and notes thereto also comply with International Financial Reporting Standards as disclosed in Note 1(b); (d) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (e) there are reasonable grounds to believe that the members of the Closed Group identified in Note 35 will be able to meet any obligations or liabilities which they are or may become subject to, by virtue of the Deed of Cross Guarantee. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the year ended 31 December 2012. For and on behalf of the Board M a chaney, aO Chairman Perth, Western Australia P J coleman Chief Executive Officer and Managing Director Perth, Western Australia 20 February 2013 20 February 2013 Woodside Petroleum Ltd. | Financial Report 135 Independent audit report independent auditor’s report to the members of Woodside Petroleum Ltd Report on the financial report We have audited the accompanying financial report of Woodside Petroleum Ltd, which comprises the consolidated statement of financial position as at 31 December 2012, and the consolidated income statement, consolidated statement of comprehensive income, statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the Directors’ Declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the Directors’ Report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Opinion In our opinion: a. the financial report of Woodside Petroleum Ltd is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the consolidated entity’s financial position as at 31 December 2012 and of its performance for the year ended on that date; and ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the remuneration report We have audited the Remuneration Report included in pages 53 to 65 of the Directors’ Report for the year ended 31 December 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Woodside Petroleum Ltd for the year ended 31 December 2012, complies with section 300A of the Corporations Act 2001. Ernst & Young 136 Woodside Petroleum Ltd. | 2012 annual Report R J curtin, Partner Perth, Western Australia 20 February 2013 Liability limited by a scheme approved under Professional Standards Legislation. OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONshAReholdeR infoRmAtion As at 12 February 2013 number of shareholdings There were 208,277 shareholders. All issued shares carry voting rights on a one for one basis. distribution of shareholdings size of shareholding number of holders 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over total unmarketable parcels 152,552 49,436 4,247 1,934 108 208,277 There were 3,204 members holding less than a marketable parcel of shares in the company. twenty largest shareholders shareholder Shell Energy Holdings Australia Limited HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited JP Morgan Nominees Australia Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited AMP Life Limited UBS Wealth Management Australia Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Australian Foundation Investment Company Limited Pacific Custodians Pty Limited BNP Paribas Noms Pty Ltd BNP Paribas Noms Pty Ltd Perpetual Trustee Company Limited Argo Investments Limited Navigator Australia Ltd QIC Limited Nulis Nominees (Australia) Limited number of shares % of issued capital 58,711,412 98,611,429 29,221,449 40,041,409 597,324,958 823,910,657 7.13 11.97 3.55 4.86 72.50 100.00 shares held % of issued capital 190,119,364 123,613,279 83,140,887 80,836,852 25,403,171 12,772,531 9,728,129 7,733,468 5,682,812 5,364,039 3,687,376 3,182,886 2,960,376 2,928,814 2,769,981 2,082,481 1,700,873 1,510,929 1,289,143 1,047,257 23.08 15.00 10.09 9.81 3.08 1.55 1.18 0.94 0.69 0.65 0.45 0.39 0.36 0.36 0.34 0.25 0.21 0.18 0.16 0.13 total 567,554,648 68.89 Substantial shareholders as disclosed in substantial shareholder notices given to the company are as follows: Shell Energy Holdings Australia Limited 190,119,364 23.26* *Since Shell Energy Holdings Australia Ltd’s most recent notice of change of interests of substantial shareholder was given on 4 April 2012, its interest in Woodside’s issued capital has reduced to 23.08%, as a result of additional shares being issued by Woodside. Woodside Petroleum Ltd. | shareholder information 137 Annual General meeting The 2013 AGM of Woodside Petroleum Ltd will be held at 10 am (AWST) on 24 April 2013, at the Perth Convention Exhibition Centre, 21 Mounts Bay Road, Perth, Western Australia. Details of the business of the meeting will be provided in the AGM notice. The AGM will be webcast live on the internet. An archive version of the webcast will be placed on the Woodside website to enable the proceedings to be viewed at a later time. Copies of the Chairman’s and CEO’s speeches will be available on the company’s website. share registry: enquiries Investors seeking information about their shareholdings should contact the company’s share registry: computershare investor services pty limited Level 2, 45 St Georges Terrace Perth, Western Australia 6000 Postal address: GPO Box D182 Perth, Western Australia 6840 Telephone: 1300 558 507 (within Australia) +61 3 9415 4632 (outside Australia) Facsimile: +61 8 9323 2033 Email: web.queries@computershare.com.au Website: www.investorcentre.com/wpl The share registry can assist with queries on share transfers, dividend payments, the dividend reinvestment plan, notification of tax file numbers and changes of name, address or bank account details. Details of shareholdings can be checked conveniently and simply by visiting the share registry website at www.investorcentre.com/wpl. For security reasons you will need your Security Reference Number (SRN) or Holder Identification Number (HIN) when communicating with the share registry. The share registry website allows shareholders to make changes to address and banking details online. dividend payments Woodside declares its dividends in US dollars as it is our functional and presentation currency. Woodside pays its dividends in Australian dollars unless a shareholder’s registered address is in the United Kingdom where they are paid in UK pounds sterling, or in the United States where they are paid in US dollars. Shareholders who reside outside of the United States can elect to receive their dividend in US dollars. Shareholders must make an election to alter their dividend currency by the record date for the dividend by contacting the share registry on 1300 558 507 (within Australia) or +61 3 9415 4632 (outside Australia). Shareholders may have their Australian dollar dividends paid directly into any bank or building society account within Australia. Payments are electronically credited on the dividend payment date and confirmed by payment advice. To request direct crediting of dividend payments please contact the share registry or visit the share registry website (www.investorcentre.com/wpl). The history of dividends paid by the company can be found on the company’s website. dividend reinvestment plan Woodside’s Dividend Reinvestment Plan (DRP) was suspended by the Board in February 2013 until further notice. However, shareholders with registered addresses in Australia and New Zealand can still elect to participate in the DRP, pending a decision by the Board to recommence the DRP at some future date. If the DRP is recommenced in the future, the ASX will be notified via an announcement lodged with the ASX Market Announcements Platform. If the DRP is recommenced, shareholders who have elected to participate in the DRP will have the dividends on some or all of their shares automatically reinvested in additional shares. Information on the DRP is available on the company’s website. Election forms are available from the company’s website or from the share registry. change of address or banking details Shareholders should immediately notify the share registry of any change to their address or banking arrangements for dividends electronically credited to a bank account. Changes can be made online at the share registry website www.investorcentre.com/wpl. Australian securities exchange listing Woodside Petroleum Ltd securities are listed on the Australian Securities Exchange (ASX) under the code WPL. Share price information can be accessed on the company’s website. American depositary Receipts The Bank of New York Mellon Corporation sponsors a level one American Depositary Receipts (ADR) program in the United States of America. One Woodside share equals one ADR and trades over the counter under the symbol ‘WOPEY’. ADR holders should deal directly with the Bank of New York Mellon Corporation on all matters related to their ADRs. Enquiries should be directed to: The BNY Mellon Shareowner Services P.O Box 358516 Pittsburgh, PA 15252-8516 USA Toll Free Number: 1-888-269-2377 Number for international callers: +1 201-680-6825 Email: shrrelations@bnymellon.com Website: www.adrbnymellon.com investor Relations: enquiries Requests for specific information on the company can be directed to Investor Relations at: Investor Relations Woodside Petroleum Ltd Woodside Plaza 240 St Georges Terrace, Perth, WA 6000 Postal address: GPO Box D188 Perth, WA 6840 Telephone: +61 8 9348 4000 Facsimile: +61 8 9214 2777 Email: investor@woodside.com.au Website: www.woodside.com.au 138 Woodside Petroleum Ltd. | 2012 Annual Report OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONbusiness directory Key announcements 2012 Registered office perth Woodside Petroleum Ltd 240 St Georges Terrace, Perth, WA 6000 Telephone: +61 8 9348 4000 Postal address: GPO Box D188 Perth, WA 6840 broome 29 Coghlan Street, Broome, WA 6725 Telephone: 1800 036 654 Karratha Burrup Peninsula, Karratha, WA 6714 Telephone: 1800 634 988 houston (usA) Woodside Energy (USA) Inc. Sage Plaza 5151 San Felipe, Suite 1200 Houston, TX 77056, USA Telephone: +1 713 401 0000 february Appointment of Executive Director march April Pluto LNG Project achieves ready for start-up Variation to Browse Basin retention leases approved Pluto begins LNG production Offer for sale of Browse equity and LNG volumes August Equity changes in Browse Joint Ventures Woodside reports 2012 half-year profit of $812 million september Sale of Browse equity completed october Farm-in offer accepted for offshore Myanmar PSC Speculation regarding Israeli petroleum licences Changes to Board of Directors december Woodside enters major gas discovery offshore Israel Changes to Board of Directors events calendar 2013 Key calendar dates for Woodside shareholders in 2013. Please note dates are subject to review. january 17 Fourth quarter 2012 report february 20 2012 full-year result and final dividend announcement 25 Ex-dividend date for final dividend march April 1 Record date for final dividend 3 Payment date for final dividend 18 First quarter 2013 report 22 AGM proxy returns close at 10.00 am (AWST) june july 24 Annual General Meeting 30 Woodside half-year end 18 Second quarter 2013 report August 21 2013 half-year result and interim dividend announcement TBA Ex-dividend date for interim dividend TBA Record date for interim dividend october TBA Payment date for interim dividend 17 Third quarter 2013 report december 31 Woodside year end Woodside Petroleum Ltd. | shareholder information 139 units, conversion factors and glossary units bbl Bcf boe kPa Mcf barrel billion cubic feet barrel of oil equivalent thousands of Pascals thousand cubic feet MMbbl million barrels MMboe million barrels of oil equivalent MMBtu million British thermal units mtpa million tonnes per annum psi t Tcf TJ pounds per square inch tonnes trillion cubic feet terajoules conversion factors product factor conversion factors* Domestic Gas 1TJ 163.6 boe Liquefied Natural Gas (LNG) 1 tonne 8.9055 boe Condensate Oil 1 bbl 1 bbl 1.000 boe 1.000 boe Liquefied Petroleum Gas (LPG) Gulf of Mexico Gas 1 tonne 8.1876 boe 1 MMBtu 0.1724 boe * Minor changes to some conversion factors can occur over time due to gradual changes in the process stream. 140 Woodside Petroleum Ltd. | Glossary Glossary $, $m 1H, 2H APPEA Appraisal well ASEAN Basis of design Brent Brownfield Condensate Crude oil CWLH Development well DRP EEP EIP EIS EPA EPS ER Front-end engineering and design (FEED) FID Flaring FPSO Gearing GoM Greenfield GWF Infill well ISO JV KGP KPI LIBOR LNG LPG LTA Net debt NPAT NRB NR2 NWS PRRT PSC Q1, Q2, Q3, Q4 RAP Return on equity ROACE RTSR, TSR STA TRCF TSR Unit production costs USD VAR VPR VWAP WEP WSPP US dollars unless otherwise stated, millions of dollars Halves of the calendar year (i.e. 1H is 1 January to 30 June, 2H is 1 July to 31 December) Australian Petroleum Production and Exploration Association A well drilled to follow up a discovery and evaluate its commercial potential Association of Southeast Asian Nations Specification of owner's requirements Intercontinental Exchange (ICE) Brent Crude deliverable futures contract (oil price) An exploration or development project located within an existing province which can share infrastructure and management with an existing operation Hydrocarbons, which are gaseous in a reservoir, but which condense to form liquids as they rise to the surface Oil that is produced from a reservoir after any associated gas has been removed Cossack Wanaea Lambert Hermes A well drilled for the purpose of recovering hydrocarbons Dividend reinvestment plan Employee equity plan Executive incentive plan Environmental Impact Statement Enviromental Protection Authority Earnings per share Equity rights Preliminary design and cost and schedule confirmation before a final investment decision Final investment decision Flaring is the term used to describe the controlled burning of gas found in oil and gas reservoirs. Floating production storage and offloading vessel Net debt divided by (net debt + equity) Gulf of Mexico Development or exploration located outside the area of influence of existing operations/infrastructure Greater Western Flank Drilled for the purpose of increasing production International Organisation for Standardisation Joint Venture Karratha Gas Plant Key performance indicator London Inter-Bank Offer Rate Liquefied natural gas Liquefied petroleum gas Long-term award Total debt less cash and cash equivalents Net profit after tax North Rankin B platform North Rankin Redevelopment Project North West Shelf Project Petroleum Resources Rent Tax Production Sharing Contract Quarters of the calendar year (i.e. Q1 is 1 January to 31 March, Q2 is 1 April to 30 June,Q3 is 1 July to 30 September, Q4 is 1 October to 31 December) Woodside’s Reconciliation Action Plan A measure of company performance calculated as equity attributable to shareholders (excluding non-controlling interests) divided by reported NPAT (excluding non-controlling interests) expressed as a percentage Return on average capital employed is calculated as net profit after tax and net finance costs (after tax) divided by average debt and equity Relative total shareholder return, total shareholder return Short-term award Total recordable case frequency (per million hours worked) Total shareholder return Production costs ($ million) divided by production volume (MMboe) US dollars Variable annual reward Variable pay rights Volume weighted average price Woodside’s equity plan Woodside share purchase plan OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATIONindex A American depository receipts Angel platform Annual General Meeting, 2013 Notice Anti-bribery and corruption Australia Oil b Balance sheet Board of Directors Brazil Brent Browse LNG c Canary Islands Carbon tax, Clean Energy Legislation CEO remuneration CEO report CFO report Chairman’s report Cimatti Committees of the Board Compass (workplace culture) Compliance Contingent resources Conversion factors Corporate governance d Darwin LNG Directors’ declaration Diversity Dividend Dividend Policy Dividend Reinvestment Plan e Emissions Employees Enfield Environmental report Environmental incidents Events calendar 2013 Exchange rate Executives Exploration review External auditor relationship f Financial report Flare gas and intensity Floating LNG Franking credit balance Funding G Gearing Global LNG demand Goodwyn A Graduates Greater Exmouth Greater Western Flank Gulf of Mexico (GoM) h Health and safety Henry Hub i Income tax Independent audit report Indigenous Israel j James Price Point K Karratha Gas Plant l Laminaria–Corallina Laverda Leviathan LNG market LNG Train 2 LNG Train 4 London Benchmarking Group Long-term award 138 3, 24 138 11 28, 29 7, 8, 31, 143 5, 36, 37, 39, 143 iii, 34,35 3, 9, 29, 140, 142 iii, 2, 3, 5- 9, 13, 15-17, 21, 30, 31 iii, 35 13, 44, 45, 83 57 6, 7 8, 9 4, 5 7, 29 43 iii, 7 ii, 11, 20, 43, 46-49, 52 3, 16, 17, 30, 32 140 38-52 33 135 7, 10, 49, 50 1, 2-4, 8, 52, 138 4, 8, 9 138 13, 45, 56 10 6, 9, 28, 29 13 13 139 9, 59 21 18, 19 48, 49 67-134 13 33 94 9 2, 143 14 13, 24, 25 7, 10, 49, 50 16, 17, 19 4, 6, 15, 25 iii, 18, 19, 34, 35 6, 7, 11, 20, 45, 48, 56 15 8, 9, 52 136 10, 26, 27, 31, 49 iii, 3, 5, 7, 9, 18, 19, 34, 35, 139 5, 13, 31 iii, 24, 25 9, 28, 29 7, 19, 28, 29 iii, 1, 3, 5-7, 9, 15, 19, 34, 35 14, 15 24, 25 25 12 54-57 m Mission MODEC Venture II FPSO Mutineer–Exeter Myanmmar n Native Title Agreement Neptune Net profit after tax Nganhurra FPSO Ngujima-Yin FPSO North American LNG, US LNG North Rankin A North Rankin B North Rankin Redevelopment Project North West Shelf Project NWS Oil Redevelopment Project Northern Endeavour FPSO o Ohanet Risk Sharing Contract Oil spill response plan Okha FPSO Outer Canning Basin p Payout ratio, dividend Petroleum Resource Rent Tax (PRRT) Performance summary Peru Pluto LNG Pluto LNG expansion Power Play Price out of range Production Proved plus Probable reserves Proved reserves Production Sharing Contract R Realised prices (average) Reconciliation Action Plan Remuneration report Republic of Korea Reserves statement Reserves replacement ratio Retention lease Retention (of employees) Return on equity Risk management, policy, system s Sales revenue Security Securities Dealing Policy Sensitivities Share plans Share price performance Share registry: enquiries Shareholders: twenty largest Shareholdings: distribution Short-term award Strategy, Woodside Stybarrow Venture FPSO Social investment contributions Sunrise LNG t Technology Tension leg platform Timor-Leste Total shareholder return TRCF (total recordable case frequency) Turnover (employees) u United States Unit production cost v Values Vincent Vision Volunteering W Whale research WPL X Xena ii, iii, 7, 46 29 9, 28, 29 iii, 1, 3, 5-7, 9, 15, 18, 19, 34, 35 31 8, 34, 35 2-4, 8, 9, 54 13, 28, 29 28,29 5, 14, 15 4, 22, 24, 25 iii, 4, 22-25 iii, 7, 22, 25 iii, 7, 12, 24, 25, 44 25 13, 29 8, 34, 89 11 13, 24, 25 iii, 18, 19 4, 9, 143 8, 9 2, 3 iii, 18, 19, 35 ii, iii, 2,4, 6-11, 13-16, 22, 26, 27 27 35 15 2-4, 6-9, 14-17, 24-29, 34, 35, 142, 143 3, 16, 17, 24, 26, 28, 34, 142 3, 16, 17 5, 6, 9, 35 8 7, 10, 45, 49 53-65 18, 19, 35 16, 17 16 31 10, 44, 50, 55, 58, 64 2 11, 20, 47, 48, 104-112 2, 3, 6-8, 24, 25, 28, 29, 34 11 59 9 55, 57, 64 3 138 137 137 54-58, 61 iii, 4-7 28, 29 12, 27, 33 5-7, 12, 32, 33 iii, 7, 19 35 5, 7, 32, 33 3, 6, 55-57 3, 7, 11 10 16, 17, 59, 138, 142 9 ii, iii, 7, 11, 39, 46 8, 9, 28, 29 ii, iii, 7, 46 12 31 3, 6, 137, 138 6, 26, 27 For our areas of activity refer to page iv. Woodside Petroleum Ltd. | shareholder information 141 2012 summary charts product view investment Gas and condensate* Oil* Exploration and other * Indicative only as some assets produce oil and gas 2012 2011 85% 75% 14% 12% <2% 13% Regional view investment Australia United States Rest of World 2012 2011 98% 99% 2% <1% 0% <1% The majority of our investment expenditure was directed towards our LNG projects including North West Shelf, Pluto LNG and the proposed Browse LNG Development. Capital expenditure in the north-west of Australia continues to dominate regional investment. production Natural gas* Oil Condensate * Includes LNG, LPG and pipeline gas 2012 2011 69% 60% 20% 26% 11% 14% production Australia United States Rest of World 2012 2011 99% 95% 1% 2% 0% 3% With the start-up of Pluto LNG, the proportion of natural gas in Woodside’s portfolio mix has increased, while oil and condensate has decreased. The Australian projects provide the majority of Woodside’s production volumes. Refer to our areas of activity map on page iv, which shows the locations of our producing assets. Revenue Natural gas* Oil Condensate * Includes LNG, LPG and pipeline gas 2012 2011 53% 42% 32% 39% 15% 19% Revenue Australia United States Rest of World 2012 2011 99% 97% 1% 2% 0% 1% The revenue profile is largely derived from the increased gas streams following the Pluto start-up. While oil production in 2012 represented only 20% of Woodside’s total production volume, ongoing strong oil prices resulted in the oil portfolio contributing 32% to Woodside’s total revenue. Refer to page 3 to view the Brent oil price graph indexed over ten years. While the bulk of our revenue is currently derived from Australia, Woodside’s growth strategy seeks to capture new opportunities to broaden our portfolio. Refer to the CEO report on pages 6 and 7 for further information on our strategy. Reserves (proved plus probable) Reserves (proved plus probable) Natural gas* Oil Condensate * Includes LNG, LPG and pipeline gas 2012 2011 85% 85% 6% 7% 9% 8% Australia United States Rest of World 2012 2011 99% 99% <1% <1% <0.1% <0.1% With gas representing the larger portion of Woodside’s reserves, our focus is on commercialising the undeveloped volumes of the gas assets we hold, in order to maximise shareholder return. The majority of Woodside’s Proved plus Probable reserves are located in Australia, however we anticipate a greater diversity will result from the implimentation of our growth strategy. 142 Woodside Petroleum Ltd. | 2012 summary charts OVERVIEWBUSINESS REVIEWSGOVERNANCEFINANCIAL REPORTSHAREHOLDER INFORMATION10 year comparative data summary profit and loss (usdm)(1) operating Revenues Australia Pipeline Gas LNG LPG Condensate Oil LNG Processing Revenue Gulf of Mexico Algeria Mauritania total EBITDAX EBITDA EBIT2 Exploration and Evaluation Depreciation and Amortisation Finance Costs Tax Expense Non-controlling interest Reported NPAT Underlying NPAT Reported EPS (cents)3 Underlying EPS (cents)3 DPS (cents) Underlying payout ratio (%) EBITDA/Op Cash Flow (%) balance sheet (usdm)1 Total Assets Debt Net Debt Shareholder Equity cash flow (usdm) and capital expenditure (usdm) Cash Flow From Operations Investing Financing capital expenditure Exploration and Evaluation Oil and Gas Properties4 Ratios (%) Reported ROACE Underlying ROACE Reported Return on Shareholders Funds Underlying Return on Shareholders Funds Gearing volumes sales (million boe) Australia Pipeline Gas LNG LPG Condensate Oil Gulf of Mexico Mauritania Algeria Total (million boe) production (million boe) Australia Pipeline Gas LNG LPG Condensate Oil Gulf of Mexico Mauritania Algeria Total (million boe) other AsX data Reserves (Proved plus Probable) Gas (Tcf) Condensate (MMbbl) Oil (MMbbl) other Employees5 Shares High (A$) Low (A$) Close (A$) Number (000’s) No. Shareholders Market Capitalisation (USD equivalent at reporting date) Market Capitalisation (AUD equivalent at reporting date) Finding Costs ($/boe) (3 year average)6,7 Reported effective Income Tax Rate (%) Net Debt/Total Market Cap (%) 2012 2011 2010 2009 2008 2007 2006 2005 2004(8) (Restated) 2003 367 2,834 125 903 1,918 125 76 - - 6,348 5,371 4,979 3,795 392 1,184 137 614 61 2,983 2,061 366 253 130 51 143 375 1,509 127 860 1,795 - 93 43 - 4,802 3,426 2,839 2,212 587 627 26 677 2 1,507 1,655 190 209 110 53 127 309 1,310 115 708 1,579 - 117 55 - 4,193 3,334 3,005 2,256 329 749 (18) 697 2 1,575 1,418 204 183 105 57 143 378 769 94 571 1,496 - 124 55 - 3,487 3,308 3,055 2,303 253 752 12 823 (6) 1,474 1,052 210 150 95 64 206 320 1,007 112 669 2,685 - 197 55 - 5,045 3,885 3,584 2,852 301 732 19 1,287 - 1,546 1,823 225 266 100 38 111 24,810 4,340 1,918 15,148 23,231 5,102 5,061 12,658 20,196 17,753 10,317 2,044 4,939 1,946 3,732 4,633 8,812 4,915 3,952 11,091 227 619 92 577 1,521 - 133 55 137 3,361 2,541 2,101 1,560 440 541 8 687 - 864 948 128 141 91 64 101 8,515 903 782 4,458 182 614 75 512 1,062 - 119 56 252 2,872 2,339 2,021 1,684 318 337 20 590 - 1,075 1,030 163 157 98 63 139 7,072 1,435 1,188 3,313 185 548 70 480 736 - 21 55 - 2,095 1,685 1,452 1,238 234 213 7 387 - 844 791 128 120 70 58 138 5,107 826 656 2,565 177 360 44 342 586 - - 56 - 1,565 1,603 1,417 1,213 186 204 0 367 - 845 495 129 75 44 58 160 4,250 791 169 2,162 167 296 36 268 546 - - 5 - 1,318 905 712 558 193 154 17 197 - 344 344 51 51 33 64 91 3,596 803 670 1,830 3,475 161 (1,252) 2,242 (3,533) 362 2,104 (2,941) 608 1,483 (4,708) 4,207 3,224 (3,892) 684 2,082 (1,700) (522) 1,457 (1,432) 41 1,053 (1,152) (352) 883 (69) (259) 785 (484) (273) 383 1,145 778 2,651 703 2,933 273 3,992 418 4,031 447 1,965 376 1,091 210 993 77 480 74 250 16.5% 9.0% 10.5% 14.5% 25.9% 17.2% 26.8% 26.8% 11.8% 9.9% 9.5% 10.5% 29.6% 18.8% 26.0% 26.8% 19.7% 11.9% 14.2% 16.7% 33.4% 19.4% 32.5% 32.9% 14.5% 12.9% 13.0% 12.5% 37.1% 20.9% 31.5% 31.5% 11.2% 28.6% 26.3% 29.8% 29.6% 14.9% 26.4% 20.4% 30.3% 15.0% 18.9% 13.8% 39.1% 18.8% 27.3% 18.8% 7.2% 26.8% 13.9 42.6 1.1 8.6 16.8 0.8 - - 83.8 13.8 43.9 1.1 9.3 16.0 0.8 - - 84.9 14.0 22.4 1.1 7.8 15.7 1.1 - 1.8 63.9 14.0 22.6 1.2 7.9 16.0 1.1 - 1.8 64.6 14.8 22.7 1.3 9.1 19.8 2.2 - 2.3 72.2 14.8 23.2 1.4 9.1 19.7 2.2 - 2.3 72.7 18.4 21.3 1.5 9.7 24.3 3.2 - 2.3 80.7 18.4 21.5 1.5 9.5 24.5 3.2 - 2.3 80.9 18.9 17.0 1.2 7.9 29.8 3.1 - 2.3 80.2 18.9 17.4 1.2 7.9 30.5 3.1 - 2.3 81.3 16.4 17.0 1.2 7.8 20.4 2.6 2.0 2.3 69.7 16.4 17.4 1.2 8.0 20.5 2.6 2.2 2.3 70.6 15.5 17.3 1.2 8.0 16.5 2.6 4.3 2.3 67.7 15.6 17.4 1.2 8.0 16.4 2.6 4.4 2.3 67.9 16.6 17.0 1.2 8.7 13.3 0.4 - 2.3 59.5 16.6 17.2 1.2 8.6 13.4 0.4 - 2.3 59.7 16.5 13.3 1.0 8.8 14.7 - - 2.3 56.6 16.6 13.8 1.1 8.7 14.9 - - 2.3 57.4 18.0 11.9 1.1 9.7 19.8 - - 0.1 60.6 18.0 12.1 1.0 9.8 19.7 - - 0.1 60.7 7.51 130.90 95.90 7.80 138.70 108.50 8.02 154.74 117.50 7.79 147.80 136.10 7.90 151.40 168.80 7.80 152.10 170.20 6.90 144.60 221.10 4.67 129.70 294.50 5.11 138.00 258.80 4.65 145.70 341.50 3,124 70.51 26.81 36.70 3,650 49.28 40.56 42.56 3,856 50.85 29.76 30.62 3,219 53.87 31.19 47.20 2,981 56.66 34.81 50.39 3,997 38.16 30.09 33.88 2,888 49.80 34.81 38.11 2,508 39.39 19.87 39.19 823,911 805,672 783,402 748,599 698,553 688,331 666,667 666,667 83,829 208,277 205,868 201,134 175,257 141,035 131,460 119,003 19,146 20,033 31,567 28,983 26,127 25,407 35,334 27,914 14.09 3.95 2.47 5.71 27.2% 30.5% 25.2% 33.7% 32.6% 35.8% 35.4% 31.4% 6.6% 20.0% 11.6% 11.8% 11.0% 2.6% 5.9% 3.4% 30,353 34,685 3.60 33,745 33,342 6.12 17,717 25,637 3.35 25,287 24,670 12.67 2,528 21.48 14.11 20.10 2,219 15.10 10.00 14.80 666,667 666,667 69,491 7,420 9,867 1.18 30.3% 36.4% 1.6% 9.0% 72,267 10,456 13,400 1.43 1 Comparative financial information prior to 2010 has been converted on a consistent basis in accordance with Note 1(o) to the Financial Report. Cash flow and capital expenditure have been converted using a consistent approach adopted on a conversion of expenses. 2 EBIT is calculated as a profit before income tax, PRRT and net finance costs. 3 Earnings per share has been calculated using the following weighted average number of shares (2012: 814,751,356 ; 2011: 791,668,973 ; 2010: 773,388,154 ; 2009: 703,310,697 ; 2008: 685,179,496 ; 2007: 671,447,950 ; 2006: 657,178,947 ; 2005: 655,150,640 ; 2004: 653,790,795 ; Pre 2004: 666,666,667). 4 2005 Oil and Gas Properties capital expenditure includes acquitions through business combinations of A$415m, relating to the acquisition of Gryphon Exploration Company. 5 From 2005 employee numbers do not include third party contractors. Previous years have included third party contractors. 6 Finding cost for 2003 includes acquisitions of additional Scope for Recovery volumes. 7 Finding cost methodology has changed from 2004 to be in accordance with the FAS69/ SEC industry standard. 8 From 1 January 2005, Woodside prepares its financial statements in accordance with Australian equivalents to IFRS (AIFRS). To highlight the impact on previously reported data information provided for 2004 has been restated. Information pre 1 January 2004 has not been adjusted for the effect of AIFRS. Woodside Petroleum Ltd. | 10 year summary 143 2012 ANNUAl REpORT head office: Woodside Petroleum Ltd 240 St Georges Terrace Perth WA 6000 Australia postal Address: GPO Box D188 Perth WA 6840 Australia t: +61 8 9348 4000 f: +61 8 9214 2777 e: companyinfo@woodside.com.au Visit us at www.woodside.com.au i n g s e d o p x e 

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