ANNUAL REPORT INCORPORATING APPENDIX 4E About this report This Annual Report 2017 is a summary of Woodside’s operations and activities for the 12-month period ended 31 December 2017 and financial position as at 31 December 2017. Woodside Petroleum Ltd (ABN 55 004 898 962) is the ultimate holding company of the Woodside group of companies. In this report, unless otherwise stated, references to ‘Woodside’ and the ‘Group’, the ‘company’, ‘we’, ‘us’ and ‘our’ refer to Woodside Petroleum Ltd and its controlled entities, as a whole. The text does not distinguish between the activities of the ultimate holding company and those of its controlled entities. In this report, references to a year are to the calendar and financial year ended 31 December 2017 unless otherwise stated. All dollar figures are expressed in US currency, Woodside share, unless otherwise stated. Additional information We have indicated where additional information is available online and in other sections of this report like this: Refer to the Glossary section on pages 143–144 for key terms, units of measurement and conversion factors. Refer to Woodside’s website for more information (www.woodside.com.au). Forward-looking statements This report contains forward-looking statements. Please refer to page 142, which contains a notice in respect of these statements. We are working with Green ReportsTM on an initiative ensuring that communications minimise environmental impact and create a more sustainable future for the community. Sustainable Development Report 2017 A summary of Woodside’s sustainability approach, actions and performance for the 12-month period ended 31 December 2017 is included in our Sustainable Development Report 2017. This report will be available on 8 March 2018. On the cover An aerial image of Murujuga (the Burrup Peninsula), home to our landmark North West Shelf Project and Pluto LNG facility. CONTENTS Overview About Woodside Performance highlights Chairman’s Report Chief Executive Officer’s Report Executive management Our areas of activity Operating and Financial Review Financial summary LNG market Strategy and capital allocation Our business model Exploration Projects and developments Operations Marketing and shipping Sustainability Corporate Governance Woodside Board Corporate Governance Statement Directors’ Report Remuneration Report Financial statements Shareholder information Shareholder statistics Business directory Key announcements 2017 Events calendar 2018 Glossary, units of measure and conversion factors Asset facts Summary charts Ten-year comparative data summary 70 73 74 76 96 138 140 142 142 143 146 147 148 2 4 10 12 14 16 20 22 24 26 28 32 41 47 50 61 Appendix 4E Results for announcement to the market Revenue from ordinary activities Profit from ordinary activities after tax attributable to members Net profit from the period attributable to members decreased 4.1% to US$3,908m increased 18.0% to US$1,024m increased 18.0% to US$1,024m Dividends Final dividend (US cents per share) Interim dividend (US cents per share) None of the dividends are foreign sourced. Previous corresponding period: Final dividend (US cents per share) Amount per security Franked amount per security Ordinary 49¢ Ordinary 49¢ Ordinary 49¢ Ordinary 49¢ Ordinary 49¢ Ordinary 49¢ Interim dividend (US cents per share) Ordinary 34¢ Ordinary 34¢ Ex-dividend date Record date for determining entitlements to the final dividend Payment date for the final dividend 22 February 2018 23 February 2018 22 March 2018 Net tangible asset per security 31 December 2017 31 December 2016 US$17.86 US$17.61 Woodside Petroleum Ltd | Overview 1 Woodside demonstrates strong safety and environmental performance in all its operations. We are committed to upholding our values of integrity, respect, working sustainably, discipline, excellence and working together. Our success is driven by our people, and we aim to attract, develop and retain a diverse, high-performing workforce. We recognise that long-term, meaningful relationships with communities are fundamental to maintaining our licence to operate. We help create stronger communities through programs that improve knowledge, build resilience and create shared opportunities. Our proven track record and distinctive capabilities are underpinned by more than 60 years of experience, making us a partner of choice. Our producing assets include the landmark North West Shelf (NWS) Project, Pluto LNG and non-operated Wheatstone LNG. Our operated assets are renowned for their safety, reliability and efficiency. As Australia’s leading LNG operator, we produced 7% of global LNG supply, and operate a fleet of floating production storage and offloading (FPSO) facilities. We continue to expand our capabilities in marketing, trading and shipping and have enduring relationships that span more than 25 years with foundation customers throughout the Asia-Pacific region. Woodside continues to promote the use of LNG as a low-emissions and economically viable alternative fuel. Technology and innovation are essential to our long-term sustainability. We are working to bring down costs and find solutions to our business challenges. Today we are pioneering remote support and the application of artificial intelligence, embedding advanced analytics across our operations and making improvements in additive manufacturing. ABOUT WOODSIDE Woodside is Australia’s largest independent oil and gas company with a global portfolio, recognised for our world-class capabilities – as an explorer, a developer, a producer and a supplier of energy. We have a clear strategy to deliver superior shareholder returns across three distinct time horizons. These horizons are characterised by cash generation from 2017, unlocking value from 2022, and repeating our successes from 2027. Our global exploration portfolio is balanced across established, emerging and frontier provinces covering Australia and the Asia-Pacific region, the Atlantic margins and sub-Saharan Africa. Currently, we are focused on drilling to grow our resource volumes. We have significant equity interests in high-quality development opportunities in Australia (Wheatstone, Scarborough and Browse), Senegal (SNE), Myanmar and North America (Kitimat), and are pursuing new concepts and technology to enable cost-effective commercialisation of these resources. Karratha Gas Plant LNG loading jetty. 2 Woodside Petroleum Ltd | Annual Report 2017 We are an Australian company, OPERATING 7% OF GLOBAL LNG SUPPLY, with more than 60 years of experience. Over the past five years we have DISTRIBUTED $8.10 PER SHARE TO SHAREHOLDERS DELIVERED 1,570 LNG CARGOES1 PAID ~$4.8 BILLION IN TAXES AND ROYALTIES IN AUSTRALIA2 1. Includes partial cargoes (100% project). 2. Paid in Australian currency (A$5.6 billion) to the Federal and State Governments of Australia. Woodside Petroleum Ltd | Overview 3 PERFORMANCE PERFORMANCE HIGHLIGHTS HIGHLIGHTS Increased net profit after tax by 18% Generated free cash flow of $832million Maintained low unit production cost of $5.2 /boe Decreased total recordable injury rate by 21% 4 Woodside Petroleum Ltd | Annual Report 2017 In 2017, we progressed five major priorities HORIZON I 2017–2021 CASH GENERATION Image courtesy of Chevron Australia WHEATSTONE Delivered first LNG PLUTO LNG Developed expansion options SENEGAL Achieved concept select for SNE HORIZON II 2022–2026 VALUE UNLOCKED MYANMAR Made third gas discovery BROWSE Progressed Browse to NWS concept HORIZON III 2027+ SUCCESS REPEATED Woodside Petroleum Ltd | Overview 5 Extracted value from our outstanding base business PRODUCTION AND OTHER COSTS $9.4/boe GROSS MARGIN $23.0/boe DEPRECIATION AND AMORTISATION $13.8/boe Leading to $1,024 million net profit after tax 6 Woodside Petroleum Ltd | Annual Report 2017 Delivered strong shareholder returns 122 US CENTS EARNINGS PER SHARE 98 US CENTS FULL-YEAR DIVIDEND 5.4% DIVIDEND YIELD Woodside Petroleum Ltd | Overview 7 Our business priorities in 2018 are to Deliver near-term production growth from committed projects Commence Greater Enfield drilling campaign Commission Greater Western Flank-2 infrastructure FIRST PRODUCTION IN 2019 Wheatstone LNG At full production capacity, Wheatstone will contribute per annum Focusing on delivering Train 2 and domestic gas production, and optimising performance Progress major developments Image courtesy of Chevron Australia SNE-Phase 1 FID 2019 Scarborough FID Ready 2020 Browse FID Ready 2021 Advance our Myanmar growth opportunity 8 Woodside Petroleum Ltd | Annual Report 2017 Unlock the Burrup Hub and maximise the value of existing infrastructure Pluto-NWS Interconnector Browse to NWS Scarborough to Burrup Our share of Browse and Scarborough resources (2C)¹ 1.5bboe Pluto domestic gas and LNG trucking And maintain base business excellence RELIABILITY96% 1. As at 31 December 2017. UNIT PRODUCTION COST3.6/boe Pluto and NWS 2016–2017 average Woodside Petroleum Ltd | Overview 9 CHAIRMAN’S REPORT Michael Chaney, AO Chairman HIGHLIGHTS AS CHAIRMAN + Development of the Pluto Project + Expansion of the NWS + Commencement of exploration in Senegal and Myanmar MILESTONES IN 2017 + Increased profit by 18% to $1,024 million + Full-year dividend of 98 cents per share, up from 83 cents in 2016 + Shell departure from register of shareholders 10 Woodside Petroleum Ltd | Annual Report 2017 It is a great privilege for me to report once more on an excellent performance by your company as I move on from a role that has capped off my 46-year association with Woodside. When I joined the company as a geologist in 1972, it was a junior explorer with a market capitalisation of A$12 million. Since then, Woodside has grown into Australia’s largest independent oil and gas producer, with a market value of A$28 billion, and the pioneering spirit that enabled the development of the North West Shelf and our other projects is still strong. The 2017 results show the company is well-positioned for growth, achieving an 18% increase in profit, to $1,024 million, while maintaining low unit production costs and lifting gross margins to $23 per barrel of oil equivalent. In reflecting on Woodside’s success, it is clear to me that it has been achieved through a combination of discipline and vision. We have maintained high shareholder distributions, paying a full-year dividend of 98 cents per share, up from 83 cents last year. Your company has continued to demonstrate discipline on spending and balance sheet management while looking for opportunities to grow. We have identified one such opportunity in the acquisition of an increased interest in the Scarborough resource and its cost-effective development through an existing facility. In conjunction with this, we have announced a A$2.5 billion rights issue, which maintains our prudent financial position and ensures we are well-placed to develop not only Scarborough but also other planned projects that will help meet rising global demand for LNG and deliver significant returns to shareholders. Predicting oil prices with any reliability is impossible, but Woodside has shown over the years that a low cost producer can survive and indeed prosper in any conditions. Against the backdrop of oil price volatility and, at times in the past decade, global financial stress, your company was able to maintain profits and pay dividends. We were also in a position to consider new opportunities as they arose and grow our portfolio when this presented value for shareholders. In 2017, oil prices stabilised and then firmed, supporting higher average realised prices. LNG spot prices fluctuated, increasing significantly in the second half of the year, primarily due to increased Asian demand and seasonal variations. Investment in new LNG globally has not kept up with growth in demand: in 2017, global LNG demand increased by around 30 mtpa but only one new LNG project, for 3.4 mtpa, was approved. It is clear that new projects will be needed. Against this backdrop your company is ready to deliver and we have outlined to investors our plans for future projects that are timed to take advantage of this opportunity. We are progressing towards a sensible outcome for the development of the plentiful gas resources off Western Australia. As operator of the Browse, North West Shelf and Pluto Joint Ventures, Woodside is in a unique position to deliver on plans for the Burrup Hub in northern Western Australia, ensuring Australia’s resources are developed in the most efficient way. This builds on developments that have progressed during the decade when I have been privileged to serve as Chairman. Highlights from this time include the development of the Pluto Project, expansion of the North West Shelf and commencement of ongoing exploration and appraisal programs in Senegal and Myanmar. A further sign of your company’s evolution came in 2017, as we farewelled Shell from our register of shareholders, reinforcing Woodside’s independence. We have appreciated the support provided by Shell over the years, as a long-term shareholder and Joint Venture participant, participant in our Board and, in earlier days, through the secondment of staff. Amid increasing global competition for capital, it is vital that governments are mindful that their decisions shape business conditions. We have had to confront a number of concerning issues in Australia in this regard over the last year. The first has been the refusal of the Federal Opposition and minor parties to support the Commonwealth Government’s proposal to reduce the corporate tax rate for all companies. It is obvious to anyone involved in corporate life that if Australia has a company tax rate which is out of kilter with that in other countries, investment dollars and jobs will leave our shores. Additionally, over the course of 2017, the Australian Government gave consideration to imposing increased taxes on our industry. It is encouraging that on this matter the Government seems to have taken a rational approach thus far. Any changes, particularly retrospective changes, which jeopardised future exploration and development would be very short-sighted. Thirdly, we have seen changes to immigration rules, particularly with respect to 457 visas, which have made it harder to bring experienced professionals to Australia. At a time when skill shortages are occurring in many fields, this has been very counter-productive. Finally, we are hearing promises by the Federal Opposition to increase regulation and costs in the employment market – moves which would run directly counter to the need for increased flexibility in this disruptive world. In reflecting on Woodside’s success, it is clear to me that it has been achieved through a combination of discipline and vision. I know that the commitment to delivering value for shareholders will continue under the chairmanship of Richard Goyder. In the interests of a smooth transition, Richard joined the Board in August 2017 as a non-executive Director and Chairman-elect. I take this opportunity to thank the outstanding directors I have been privileged to work with over the last twelve years. Each has given generously of his or her time and in every case has put the interests of the company and its shareholders first. Finally, I thank Peter Coleman and his executive team for their astute management and hard work. Woodside is positioned well under their stewardship to continue delivering value to shareholders and energy to customers around the world. Michael Chaney, AO Chairman 14 February 2018 Woodside Petroleum Ltd | Overview 11 Peter Coleman Chief Executive Officer and Managing Director 2017 HIGHLIGHTS 2018 ACTIVITIES + Supported start-up of Wheatstone + Maintain base business excellence from operations to + Browse and NWS Joint Ventures in negotiations on tariff structure for processing third-party gas + Deliver and optimise Wheatstone committed projects + Total recordable injury rate at record low + Unlock the Burrup Hub through the Pluto-NWS Interconnector, Browse to NWS and Scarborough to Burrup + Outlined to investors growth plans for the next decade and beyond + Enter SNE-Phase 1 FEED in Senegal + Progress drilling in Myanmar 12 Woodside Petroleum Ltd | Annual Report 2017 CHIEF EXECUTIVE OFFICER’S REPORT Woodside delivered strong financial results in 2017, increasing both profit and free cash flow, while continuing to invest in growth. Our discipline on costs and capital spending has strengthened our balance sheet and allowed us to deliver strong returns to shareholders. Looking to 2018, our budget is set to break-even at an oil price of $35 per barrel,1 well below recent pricing. Oil prices firmed from the second half of 2017. There are now signs that a global LNG supply gap is looming in the early 2020s amid robust demand from Asian markets. We have forecast for some time that rising global demand for LNG will require investment in new supply and have spent the past three years rebuilding and diversifying our portfolio. We are taking steps to ensure we can make the most of the market shift, increasing our interest in the world-class Scarborough resource to provide greater certainty, alignment and control, and preparing our finances to support the next stage of growth. We expect 2018 to offer substantial opportunity for Woodside. Those opportunities are within grasp, in part because of external conditions, but also because we have identified the changing circumstances and prepared for them. We have made commitments and delivered on them. At the start of the year, we laid out our priorities for our assets in Australia, Africa and Asia, and we have made excellent progress on all of them. The commissioning of Wheatstone is a significant step. The delays in achieving this were disappointing, but we are working with the operator to ensure that relevant lessons are learned so that the start-up of Train 2 progresses smoothly. Wheatstone will be an important part of our portfolio for years to come, but there are also other promising developments on the horizon. In 2017, we outlined to investors how our portfolio of projects would align with market movements over the next decade and beyond. This includes our vision for developing the Burrup Hub, to ensure efficient use of the facilities of the Pluto and North West Shelf Projects and the timely and cost-effective development of resources. On the Burrup Hub, Woodside is in the valuable position of having equity in both the gas and the world-class infrastructure to develop it. The Browse and NWS Joint Ventures have made good headway in discussions on the tariff structure for bringing Browse gas through the Karratha Gas Plant. We expect to conclude these negotiations in 2018 with a view to Browse being final investment decision-ready in 2021. At Pluto, we have done thorough groundwork on options for expanding production, which we are now able to use in our development planning for Scarborough, taking account of our increased equity and the certainty this delivers. In Senegal, for the SNE field, we anticipate a development plan going to FID in 2019. We have progressed our drilling program in Myanmar and are actively working with governments, Myanmarese partners, community groups and non-government organisations to ensure our activities in no way compromise our values, including our commitment to upholding human rights. Even when gas seemed so plentiful globally in recent years, we were confident demand was growing and the world would need more LNG. Overall, it is fair to say that the year presented some challenges for operations. Our production performance was affected by significant rains early in the year together with disruptions from cyclones and unplanned power outages at the Karratha Gas Plant and at Pluto. Nevertheless, our commitment to operational excellence has been evident in the fact we maintained low unit production costs while setting new safety records. The delivery of the Persephone Project under budget and ahead of schedule is just one example of our robust and disciplined approach. We are developing new markets for our product and new uses, including providing LNG as a low emissions alternative fuel to diesel for land and marine transport and remote power generation in northern Western Australia. As the world responds to the challenge of climate change, our product can contribute to emissions reductions by providing a cleaner burning energy source, particularly in growing Asian markets. Within Woodside’s operations, we continue to invest in technologies to reduce emissions and promote energy efficiency. Our commitment to sustainability was recognised by the Dow Jones Sustainability Index ranking us in the top 3% of companies in the sector. We were recognised by APPEA for our Safety and Environmental performance, and the World Petroleum Council for our innovative STEM program in schools. Even when gas seemed so plentiful globally in recent years, we were confident demand was growing and the world would need more LNG. We have been working diligently to prepare for this, using the strength of our balance sheet to make strategic acquisitions. I thank Woodside staff for their hard work and would also like to thank Michael Chaney for the support, guidance and mentorship he has shown during his years as Chairman and express a warm welcome to his successor, Richard Goyder. Peter Coleman Chief Executive Officer and Managing Director 14 February 2018 1. Dated Brent price at which cash flow from operating activities equals cash flow from investing activities (pre-dividend and excluding the acquisition of ExxonMobil’s interest in the Scarborough gas field). Woodside Petroleum Ltd | Overview 13 EXECUTIVE MANAGEMENT Peter Coleman BEng, MBA, FTSE Chief Executive Officer and Managing Director Phil Loader BSc (Geology), MBA, MSc, DIC Executive Vice President Global Exploration Robert Edwardes BSc (Engineering), PhD Executive Vice President Development Michael Utsler BSc (Petroleum Engineering) Executive Vice President and Chief Operations Officer Reinhardt Matisons BEng, MBA, MIE Aust, CPEng, CPA Executive Vice President Marketing, Trading and Shipping Exploration Geoscience Engineering Projects Production Marketing Drilling and Completions Power and New Markets International Exploration Offices Phil Loader will cease being a member of the Key Management Personnel in February 2018. Shaun Gregory will be appointed Executive Vice President Exploration and Technology, effective 1 March 2018. Sherry Duhe BS (Accounting), MBA Executive Vice President and Chief Financial Officer Finance, Tax, Treasury and Insurance Commercial Business Development and Growth Contracting and Procurement Investor Relations Strategy Planning and Analysis Performance Excellence Developments Logistics International Development Offices Health, Safety, Environment and Quality Global Operations Planning and Performance Reservoir Management Subsea and Pipelines Shipping Trading International Marketing Offices Shaun Gregory BSc (Hons), MBT Senior Vice President and Chief Technology Officer Michael Abbott BJuris, LLB, BA, MBA Senior Vice President Corporate and Legal Jacky Connolly BCom, MOHS Vice President People and Global Capability Development Planning Audit People and Capability Information Solutions and Services Business Climate and Energy Outlook Employee Engagement Science Subsurface Technology Corporate Affairs Legal and Secretariat Risk and Compliance Security and Emergency Management Global Property and Workplace 14 Woodside Petroleum Ltd | Annual Report 2017 The Siem Thiima LNG-powered marine support vessel arriving at the King Bay Supply Facility. Woodside Petroleum Ltd | Overview 15 OUR AREAS OF ACTIVITY GLOBAL CANADA KITIMAT LNG USA PORT ARTHUR LNG IRELAND MOROCCO SENEGAL GABON PERU Singapore* SUNRISE LNG AUSTRALIA Beijing* Seoul* Tokyo* MYANMAR NEW ZEALAND Product type Phase Gas Oil Producing assets Projects and developments Gas or oil Appraisal and exploration 16 Woodside Petroleum Ltd | Annual Report 2017 *Denotes marketing office WESTERN AUSTRALIA NORTH WEST SHELF PROJECT1 PLUTO LNG SCARBOROUGH WHEATSTONE LNG AUSTRALIA OIL GREATER ENFIELD PROJECT BROWSE DEVELOPMENT Broome Karratha PLUTO LNG NORTH WEST SHELF PROJECT Onslow WHEATSTONE LNG WESTERN AUSTRALIA Production contribution Perth Woodside Headquarters 73% LNG 18% LIQUIDS 9% OTHER 1. Production from the Okha FPSO is now reported as part of our Australia Oil operations. Woodside Petroleum Ltd | Overview 17 Fin fan deck at the Karratha Gas Plant. EXPLORATION D N A G N I T A R E P O W E I V E R L A I C N A N I F FINANCIAL FINANCIAL SUMMARY SUMMARY Strong performance by our base business and improved market conditions have generated strong cash flows and contributed to increased profit. We continue to fund growth from cash generated by our operations, while maintaining strong returns to shareholders. Key metrics $ million Operating revenue EBITDA EBIT NPAT Underlying NPAT¹ Net cash from operating activities Investment expenditure Capital investment expenditure² Exploration expenditure³ Free cash flow Dividends paid Key ratios Return on equity ROACE Earnings Gearing Effective income tax rate Sales volumes Gas Liquids % % (US cps) % % (MMboe) (MMboe) 2017 3,908 2,854 1,650 1,024 1,024 2,400 1,563 1,268 295 832 826 6.8 7.1 122 24 34 68.3 14.5 2016 4,075 2,734 1,388 868 868 2,587 2,459 2,153 306 114 640 5.8 6.2 104 24 36 78.8 16.2 NPAT reconciliation 258 (392) 868 n o i l l i m $ T A P N 6 1 0 2 e c i r p : e u n e v e r l s e a S e m u o v l : e u n e v e r l s e a S 29 s t s o c n o i t c u d o r P 103 (94) 1,024 120 132 i n o i t a c e r p e D l e s a e e r n o i s i v o r P n o i t a u a v e l d n a n o i t a r o p x E l r e h t O T A P N 7 1 0 2 Key NPAT differences Sales revenue: price Price variances positively impacted sales revenue by $258 million as our average realised price increased by approximately 10% to $44/boe. Average realised price NWS LNG Pluto LNG Wheatstone LNG Pipeline gas Condensate LPG Oil Volume weighted average realised prices Brent average price JCC (lagged 3 months) 2017 $/boe 38 47 48 20 54 57 56 44 54 51 2016 $/boe 33 48 - 21 45 45 44 40 45 42 Variance % 15 (2) - (5) 20 27 27 10 20 21 Impact $m 117 (23) - (1) 76 7 82 258 Sales revenue: volume Lower sales volume negatively impacted sales revenue by $392 million. This was predominantly due to lower NWS pipeline gas volumes following a change in venture equity share⁴, lower LNG production due to turnaround activity and unplanned outages, combined with 2017 LNG inventory build. Production costs A reduction in total production costs of $29 million was predominantly due to a change in venture equity share in the NWS pipeline gas venture and some oil operations that were discontinued in 2016, partially offset by Wheatstone production commencement and higher Pluto maintenance and studies costs. Depreciation A reduction of $132 million was predominantly due to positive reserves movements, causing a reduction in depreciation per unit of production, and lower production volume. This was partially offset by commencement of Wheatstone depreciation following start-up in 2017. Provision release A $120 million provision related to the Balnaves FPSO lease, terminated in 2016, was released. Exploration and evaluation A decrease of $103 million in exploration and evaluation expense was predominantly due to reduced seismic activity, a reduction in general permit costs and a higher proportion of exploration expenditure capitalised relative to 2016. Other Other NPAT differences include the impact of a positive 2016 NWS price review payment, lower Petroleum Resource Rent Tax benefit, higher income tax expense, higher finance costs, higher shipping and direct sales costs and lower gains on disposals. These are partially offset by favourable movement in net trading margin, lower general, administrative and other costs, favourable inventory movement and favourable foreign exchange movements. 1. No adjustments were made to the calculation of underlying NPAT for 2017. 2. Excluding exploration capitalised, includes restoration and rehabilitation spend and evaluation expense. 3. Item excludes prior period expenditure written off and permit amortisation. 4. Woodside equity share of NWS domestic gas and associated condensate was 50% in the DGJV. The DGJV applied to the first 414 TJ/d, with contractual flexibilities allowing up to 517.5 TJ/d. The DGJV production entitlement was fulfilled on 8 May 2017. Woodside’s share of domestic gas and associated condensate following fulfilment of the DGJV production entitlement is 16.67%. 20 Woodside Petroleum Ltd | Annual Report 2017 Capital allocation In 2017 we generated $832 million free cash flow, a $718 million increase from 2016. Strong operating cash flow of $2,400 million contributed to this result. Balance sheet, liquidity and debt service During 2017, we maintained our strong balance sheet and ended the year with gearing of 24%, well within our target range of 10% to 30%. We continue to fund investment in line with our strategy, with $1,563 million invested in capital and exploration expenditure. Our capital expenditure of $1,268 million decreased by $885 million relative to 2016, predominantly due to the Senegal oil and Scarborough gas interests acquisitions in 2016. Approximately 70% of our 2017 capital expenditure was invested in the Wheatstone LNG project, the Greater Enfield oil project and the NWS subsea tieback projects, which are underpinning targeted production of approximately 100 MMboe in 2020.¹ Wheatstone Train 1 commenced LNG production in Q4 2017, with Train 2 expected to commence in Q2 2018. We continue to invest in exploration, with $295 million invested and wells drilled in Myanmar, Senegal, Gabon and Australia during 2017. In 2017, we declared $826 million of dividends, equivalent to 98 cents per share (cps). This represents a dividend payout ratio of 80% of underlying NPAT. Our dividends are fully franked for Australian taxation purposes, and our gross dividend yield for 2017 was 5.4%. Unit production cost, cash costs and margins Total unit production costs increased by 4% to $5.2 per boe. Gas unit production costs increased by 14% to $4.0 per boe due to the impact of a Pluto minor turnaround on production volumes and higher associated costs, higher than average unit production costs for Wheatstone as production commenced in Q4 and the impact of NWS pipeline gas venture equity reduction. Oil unit production costs improved by 21% to $18.4 per boe. This was predominantly due to the increase in Okha FPSO production volume, combined with lower maintenance costs, following the completion of the 2016 dry dock. Operations discontinued in 2016 also contributed to the reduction. Gross margin increased by 19% from $19.4 to $23.0 per boe, and our break-even cash cost of sales remains very competitive at $10.0 per boe. Our high margin, low cost operations continue to support both strong cash flows and increased profit. Our strong investment grade credit ratings of Baa1 and BBB+ were re-affirmed in 2017 by both Moody’s and S&P Global respectively. We continue to actively manage our debt portfolio, minimising near-term maturities and maintaining a low cost of debt. The average term to maturity of our debt is 4.7 years, and our portfolio cost of debt remains competitive at 3.7%. We are well supported by both bank and debt capital markets. During 2017, the following new and refinanced facilities were executed: + $800 million US 144A 10.5-year 3.70% corporate bond; + $800 million revolving bilateral debt facility agreement extensions; and + $800 million unsecured syndicated debt facility, with extended maturities following the amendment and extension of the existing $1.2 billion syndicated facility. We ended 2017 with net debt of $4,747 million and with strong liquidity of $2,942 million, comprising $318 million in cash and $2,624 million in available undrawn debt facilities. 2018 outlook Total 2018 investment expenditure, including the acquisition of ExxonMobil’s interest in the Scarborough gas field, is expected to be between $2,000 million to $2,050 million. Relative to 2017, our Wheatstone LNG investment will reduce due to the completion of Train 1. Investment will continue on Train 2 and domestic gas processing. Greater Enfield investment will increase as subsea installation and drilling activities commence. Our break-even oil price, excluding the Scarborough acquisition, is $35 per barrel.² For 2018, the expected impact on NPAT of a $1 movement in the Brent oil price is $26 million, and the expected impact of a $0.01 movement in the AUD/USD exchange rate on NPAT is $5 million. 1. Based on current project schedules of Wheatstone LNG, the Greater Enfield Project and Greater Western Flank Phase-2. 2. Dated Brent price at which cash flow from operating activities equals cash flow from investing activities (pre-dividend and excluding the acquisition of ExxonMobil’s interest in the Scarborough gas field). Investment expenditure 2,000 n o i l l i m $ 1,000 Base business¹ Greater Enfield Wheatstone Growth2 Exploration Scarborough acquisition Liquidity 6,000 n o i l l i m $ 3,000 2,685 0 2,400 (1,568) Cash Undrawn debt (826) 317 (66) 2,942 0 2017 2018E 1. Base business includes Pluto, NWS, Australia Oil and Corporate. 2. Growth includes Scarborough, Pluto LNG expansion, Browse, Senegal, Myanmar, i y t i d u q L 6 1 0 2 i g n i t a r e p O w o fl h s a c w o fl h s a c t n e m t s e v n I s d n e d v D i i t n e m e v o m s e i t i l i c a f t b e D w o fl h s a c i g n c n a n fi r e h t O i y t i d u q L 7 1 0 2 i Kitimat and other spend. Production costs 800 400 0 n o i l l i m $ Debt maturity 9 1,500 Total (LHS) Unit (RHS) Drawn debt Undrawn debt facilities 4.5 e o b / $ 750 n o i l l i m $ 0 0 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 2 0 2 5 2 0 2 6 2 0 2 7 2 0 2 8 2 0 2 Woodside Petroleum Ltd | Operating and Financial Review 21 2013 2014 2015 2016 2017 LNG MARKET The LNG market is in a period of rapid expansion of supply. Strong global economic growth and demand for cleaner fuels have also driven very rapid growth in LNG demand. Earlier expectations of an extended period of oversupply are giving way to a recognition that an LNG supply shortfall could emerge by the early 2020s. Meeting this shortfall requires near-term commitment from both LNG suppliers and buyers to develop new resources. China, India, Pakistan, South Korea and South-East Asia have all shown recent signs of LNG demand upside, supported by GDP growth and strong policy support. In China, policy moves to increase gas use in the recent Five Year Plan are starting to take effect. New Chinese energy policies targeting urban air pollution, coal power retirements and reliability for renewables are expected to create additional natural gas and LNG demand upside. LNG imports have filled over 50% of gas demand growth in China over the last two years, and this is expected to continue until the pipeline from Russia and domestic supply comes online in the early 2020s. The Chinese Government targets gas having a 15% share of the energy mix by 2030, up from 6% in 2017. Much of this growth is likely to come from LNG imports, with new contracting expected to begin imminently. In South Korea, policy shifts away from coal and nuclear power have caused a surge in LNG demand. In India, LNG import capacity is expected to increase rapidly through to 2021, removing potential logistical constraints on demand growth. Seasonal price spikes, particularly in the northern hemisphere winter, continue to expose buyers to significant price risk. Recent spot prices of over $11/MMBtu in north-east Asia may further incentivise buyers to add duration to portfolios. New technologies and operating models such as floating storage regasification units (FSRUs) are also continuing to open new markets and shortening time to first LNG imports, particularly in emerging markets such as Pakistan and South- East Asia. With emergent demand upside and potential delays for new projects under construction, the market could tighten earlier than some forecasters anticipate. New FIDs will need to be taken by 2020 to ensure that the market remains adequately supplied from 2023. Woodside is well positioned to respond, with a significant portfolio of gas resources that can be delivered at globally competitive prices. Global LNG demand Emerging market demand a p t m 600 500 400 300 200 100 0 a t p m 200 150 100 50 0 2010 2015 2020 2025 2030 2035 2015 2020 2025 2030 2035 Demand Contracted demand China India South-East Asia Source: Wood Mackenzie LTD; Q4 2017. South-East Asia includes Indonesia, Malaysia, Philippines, Thailand and Vietnam. Source: Wood Mackenzie LTD, Q4 2017. 22 Woodside Petroleum Ltd | Annual Report 2017 TRENDS SUPPORTING DEMAND GROWTH Gas displaces coal As demand for clean and lower-carbon energy increases, gas for power generation is expected to grow. Asia needs gas to meet growing energy needs Demand growth is strongest in Asia. By the late 2020s, China is expected to be the world’s second largest gas market. Gas provides reliable power that supports renewables The anticipated growth of renewable sources of energy creates a growing intermittency gap, which gas can fill. Increasing electrification Supports growth in lower emissions fuels. Gas and LNG play an important role in lowering the carbon intensity of economic growth As demand for energy grows, gas plays an increasingly important role in lowering carbon intensity. Gas demand grows; LNG demand grows faster Demand for LNG is forecast to more than double by 2040. LNG as a share of global gas demand is similarly expected to increase. Inadequate domestic resources in importing countries, geopolitics and the desire for diversification of supply further support this. Gas fuels ships and trucks Competitive costs and lower emissions make gas increasingly attractive in heavy duty trucking and as a maritime fuel. International maritime regulations have set sulphur limits to control airborne ship emissions from 1 January 2020, which makes LNG well positioned to grow maritime fuel market share. LNG demand in Asia will continue to remain high. Woodside Petroleum Ltd | Operating and Financial Review 23 STRATEGY AND CAPITAL ALLOCATION We have a clear strategy to deliver superior shareholder returns across three distinct time horizons. These horizons are characterised by cash generation (2017–2021), unlocking value (2022–2026) and repeating our successes (2027+). As a low-cost and high-margin producer, Woodside is uniquely positioned as the global LNG market rebalances and grows in the future. HORIZON I 2017–2021 CASH GENERATION + Lower capital intensity developments + New growth platforms through exploration + New revenue streams + Preparing for Horizon II growth and acquisitions + Expanding the LNG market Horizon I is focused on delivering committed growth projects and being investment ready for significant LNG projects. We have committed growth from Wheatstone LNG, Greater Enfield and the NWS subsea tiebacks which are underpinning targeted production of approximately 100 MMboe in 2020.¹ We are targeting additional production from the expansion of Pluto LNG and being decision ready for developing our resources in Senegal and the Carnarvon Basin. S S E N I S U B E S A B G N D N A T S T U O I Y G R E N E E L B A N I A T S U S HORIZON II 2022–2026 + Developments leveraging existing infrastructure + Growth funded by base business and Horizon I growth The cash generated from Horizon I growth underpins the development of capital-efficient LNG developments required to meet the projected LNG supply shortfall in Horizon II. VALUE UNLOCKED + Monetise exploration and acquisition success + Increase supply to new and traditional markets The establishment of a hub on the Burrup Peninsula is a key feature of Horizon II. HORIZON III 2027+ SUCCESS REPEATED + Capital-efficient developments + Unlock new major hubs Horizon III will target repeating the success of previous horizons. Development of the high quality Kitimat and Sunrise resources and new exploration opportunities are targeted for development within this horizon. 1. Based on current project schedules of Wheatstone LNG, the Greater Enfield Project and Greater Western Flank Phase-2. 24 Woodside Petroleum Ltd | Annual Report 2017 Growth across the horizons will continue to be underpinned by our outstanding base business, a focus on creating sustainable energy solutions and a disciplined capital allocation framework. Outstanding base business Our outstanding base business is underpinned by world-class LNG and FPSO reliability, cost discipline and strong safety and environmental performance. We will continue to secure value by developing and deploying industry-leading technology across our portfolio of assets. Sustainable energy Woodside is focused on providing sustainable energy solutions that deliver enduring value to shareholders, partners, communities and governments. We continue to promote LNG as a lower emissions fuel and have committed to developing LNG as a transport fuel. As global demand grows, we will be ready to meet it, building our growth across the next decade and beyond. Capital allocation Woodside’s capital allocation framework provides management choice to optimise returns and risk in a range of macroeconomic scenarios. Our priorities are: + Debt service, to ensure that we continue to have access to premium debt markets at a competitive cost to support our growth activities. We continue to seek to manage average debt to maturity on our debt portfolio. Our gearing target is between 10% and 30%. We continue to target maintaining an investment-grade credit rating. + Investment expenditure, to sustain and grow our business. Woodside seeks to build its portfolio through the disciplined allocation of capital to exploration, acquisition and development opportunities that complement existing positions and capabilities. Our developments will seek to prioritise lower capital intensity, faster to market, capital-efficient opportunities that utilise existing infrastructure where possible. Through Horizon I, we plan to invest in LNG projects that will be required to meet a projected LNG supply shortfall in Horizon II. + Shareholder distributions, governed by our Dividend Policy, which specifies that we will pay a minimum of 50% of underlying net profit after tax in dividends. We currently pay an 80% dividend payout ratio and target maintaining this subject to market conditions. Our strong shareholder distributions will be funded from our high margin base business and committed growth. + Returning surplus cash to shareholders, by either special dividends or stock buy-backs, is an option retained and considered by Woodside. INVESTMENT CRITERIA Our investment criteria target investment decisions which deliver returns on capital that exceed our cost of capital. + The economic criteria we use are set independently of project decisions + We apply a suite of target metrics that are aimed at delivering superior shareholder returns from our investment decisions + We test the robustness of our investments against a range of low-outcome scenarios + We set higher target metrics for investments with increased complexity and risk, and seek to preserve any upside potential + A typical metric required for investment is a target ungeared internal rate of return of 12%–15% Woodside Petroleum Ltd | Operating and Financial Review 25 OUR BUSINESS MODEL ACQUIRE AND EXPLORE DEVELOP Woodside’s business model seeks to maximise the value of its portfolio across the value chain. This is achieved by prioritising competitive development opportunities; by leveraging the value of Woodside’s operational, development and drilling capabilities; and by deepening relationships in LNG markets with strong demand growth. We do this with the objective of generating superior shareholder returns across the horizons. We grow our portfolio through exploration and acquisitions, based on a disciplined approach to increasing shareholder value and appropriately managing risk. We look for material positions in world-class assets and basins that are aligned with our capabilities and complement our existing portfolio. Our Exploration division conducts high- impact exploration activities in our three regional focus areas to deliver material oil and gas discoveries that support sustained growth. We apply a disciplined approach to assessing acquisition opportunities that complement our discovered and undiscovered resource base and routinely review our process to learn from our experiences. We draw on our organisation’s extensive experience in screening and high-grading opportunities. Image courtesy of Chevron Australia Our North West Shelf, Pluto and oil assets in remote Western Australia showcase more than 30 years of our company’s development expertise. We are building on this experience by investing in development opportunities in Australia, Senegal and North America. We are in the business of creating value- adding development solutions and only approve investments in opportunities that, after prudent assessment, meet our investment criteria. During the development phase, we maximise value by selecting the most competitive concept for extracting, processing and delivering hydrocarbon products to market. Once the value of the development is confirmed, and approvals are received, the development is approved and project delivery and construction commence. 2017 HIGHLIGHTS THIRD GAS DISCOVERY OFFSHORE MYANMAR DELIVERED THE $1 BILLION PERSEPHONE PROJECT 30% UNDER BUDGET AND SIX MONTHS AHEAD OF SCHEDULE 26 Woodside Petroleum Ltd | Annual Report 2017 OPERATE MARKET DECOMMISSION AND DIVEST We are Australia’s leading LNG operator and operate a fleet of FPSO facilities. Our dedication to operational excellence – sustaining safe, reliable and low-cost operations – is demonstrated by our record in operating some of the world’s premier oil and gas facilities. By adopting a continuous improvement mindset and an efficient, well-planned, cost-competitive operating model, we have been able to reduce operating costs, increase production rates and improve safety performance to maximise the value of our assets. With a focus on applying leading- edge technology, data analytics and cognitive computing, we are able to take advantage of opportunities that are at the forefront of the industry and gain valuable productivity benefits. Our marketing, shipping and trading capabilities have long been central to our role as a leading supplier of energy. Our shipping and trading capabilities are utilised to maximise the value of our operational activities. Our relationships with customers in major energy markets have been maintained through a track record of reliable delivery and expertise across contracting, marketing and trading. In addition to existing long-term LNG sales, we are pursuing near-term value accretive arrangements through LNG spot and mid-term sales and LNG shipping transactions. Our marketing and trading strategy is to continue to build a diverse supply portfolio and pursue additional sales agreements, underpinned by reliable Australian LNG and supplemented by globally sourced volumes. Individual assets within our portfolio have a finite life. Decommissioning is integrated into project planning, from the earliest stages of development through to the end of field life, to reflect this reality. At appropriate intervals, we consider opportunities to divest ourselves of assets to maximise the value of our portfolio. Otherwise, our decommissioning planning is implemented at the appropriate time. Through working together with our partners, shareholders and technical experts, we are able to identify the most sustainable and beneficial post-closure options that minimise financial, social and environmental impact. Our approach helps to maintain a positive reputation and uphold our licence to operate. ACHIEVED RECORD DAILY PRODUCTION RATES AT PLUTO LNG EXECUTED LONG-TERM LNG SUPPLY AGREEMENT WITH PERTAMINA CONTRIBUTED TO NEW STATE GOVERNMENT DECOMMISSIONING GUIDELINES Woodside Petroleum Ltd | Operating and Financial Review 27 N O I T A R O L P X E Drilling rig and support vessel side-by-side during Woodside’s Myanmar drilling campaign. 28 Woodside Petroleum Ltd | Annual Report 2017 EXPLORATION 2017 HIGHLIGHTS + Completed the drilling campaign in Myanmar ahead of schedule and under budget + Made a third gas discovery in Myanmar + Completed the five well exploration and appraisal drilling campaign in Senegal ahead of schedule and under budget + Added acreage in Myanmar, Gabon and Australia + Farmed-in to the Likuale (F14) Block¹ in Gabon and spudded the Boudji-1 exploration well 2018 ACTIVITIES + Drill the Ferrand exploration well in Australia to target prospectivity, close to existing Woodside discoveries + Drill three exploration wells in Myanmar to inform development planning + Drill two exploration wells in Gabon (Ivela-1 and Boudji-1) plus wells in Morocco (Rabat Deep) and Peru (Boca Satipo East) Australia and Asia-Pacific Australia The Swell-1A exploration well in WA-483-P spudded in August and intersected a gross gas column of approximately 450 m. Wireline logging confirmed low gas mobility and poor reservoir quality such that it is considered not commercially recoverable. The Ferrand exploration well in WA-404-P is scheduled to commence drilling in early Q2 2018. Ferrand is targeting a large Triassic structure, which is in the same permit as existing Woodside discoveries at Martin-1, Martell-1, Noblige-1, Larsen-1, Larsen Deep-1 and Remy-1. A Ferrand discovery could be developed with existing discovered WA-404-P gas by a tieback to Pluto LNG. Woodside acquired interests in five exploration permits in the Carnarvon Basin, adding significant inventory to our Carnarvon Basin portfolio. We continue to build a portfolio of high-quality prospects and are executing high-impact drilling to deliver value in our key exploration hubs. Woodside progressed its exploration strategy by targeting growth in three focus areas - Australia and Asia-Pacific, Atlantic Margins and Sub-Saharan Africa. In 2017, we focused on drilling prospects across a re-balanced portfolio that has increased exposure to emerging basins and improved risk profiles. We also acquired seismic data across a range of locations either through participation in multi-client surveys or by obtaining existing survey data to support a pipeline of exploration opportunities. Since 2013 we have acquired 43 permits and relinquished 115. Over this period, our gross acreage has increased by 10%, but our net risked prospect portfolio volume² has increased 800%. Exploration success is key to Woodside’s future growth. In 2018, we will actively pursue exploration opportunities to support value delivery in Horizons II and III. WA-404-P Ferrand-1 Proposed wells Gas field 0 20 Kilometers Pluto platform Location of the Ferrand-1 exploration well and its proximity to the Pluto production platform. 1. Completion of acquisition remains subject to satisfaction of conditions precedent. 2. Net risked portfolio volume is the sum of the mean recoverable estimates in the case of exploration success from all identified prospects in the exploration portfolio. Woodside Petroleum Ltd | Exploration 29 Australia and Asia-Pacific (continued) Myanmar The 2017 exploration and appraisal drilling campaign was successfully completed ahead of schedule and under budget. The campaign tested multiple play types, helping to refine portfolio understanding and inform future drilling priorities. Woodside’s farm-in to Blocks AD-1, AD-6 and AD-8 expands our position in Myanmar and provides further exploration prospects to support our northern gas hub development concept close to existing infrastructure and major growing gas markets. During 2017, Woodside re-entered Thalin-1A and drilled an additional appraisal well, Thalin-2, in Block AD-7 to better understand the 2016 Thalin discovery. The Thalin-1A re-entry was spudded as Thalin-1B. Core and wireline logs were successfully acquired over the objective reservoir interval. Drill stem testing demonstrated strong flow rates and high reservoir deliverability. The Thalin-2 appraisal well was drilled to test the north-eastern end of the Thalin Field and encountered similar quality reservoir to Thalin-1B, although with a shallower gas/water contact indicating the existence of intra-field complexity. Information acquired from the two appraisal wells is being analysed and will be used to inform future activities. In August, Woodside made the Pyi Thit gas discovery in Block A-6, adding to the Thalin and Shwe Yee Htun discoveries announced in 2016. The discovery builds our understanding of the potential resources in the region and further informs our consideration of development options. The Pyi Thit-1 well intersected a gross gas column of approximately 65 m. A net gas pay of approximately 36 m is interpreted within the primary target sandstone reservoirs. Core and wireline logs were acquired over the target zone. A drill stem test confirmed strong flow rates with strong reservoir pressure support. Two other exploration wells were drilled in Myanmar. The Pyi Tharyar-1 well in Block A-6 intersected a thin gas column which is unlikely to be commercially recoverable. The Khayang Swal-1 well in Block AD-7 intersected water-wet sands in the target interval. Our 2018 Myanmar exploration drilling campaign is scheduled to commence in Q2 2018 with the drilling of a well in Block AD-1. This will be followed by the drilling of a prospect in Block A-7. Both are large volume prospects and are similar play types as previous discoveries. The drilling of a further exploration/ appraisal well in Block A-6 remains subject to necessary joint venture and government approvals. Woodside continues to evaluate development concepts for existing discoveries including potential aggregation opportunities or development as a tieback to existing infrastructure. We remain on track for consideration of concept selection in the southern Rakhine Basin hub by the end of 2018. Thalin-2 AD-6 Thalin-1 Khayang Swal-1 Shwe Platform AD-7 ! AD-8 AD-1 Bay of Benegal AD-2 A-4 Naypyitaw Myanmar-China Gas Pipeiine Myanmar 0 30 kilometres Pyi Tharyar-1 Pyi Thit-1 A-6 Shwe Yee Htun Yangon AD-5 ! A-7 Yadana Platform Overview of Woodside’s acreage in Myanmar. Atlantic Margins Senegal The 2017 drilling campaign was successfully completed with five exploration and appraisal wells drilled ahead of schedule and under budget. Data from the campaign is currently being analysed to inform future activities. The SNE-5 well completed two drill stem tests in the upper reservoir (S400 series) units over gross intervals of 18 m and 8.5 m, providing further understanding of the more complex upper reservoir. The SNE-6 well provided insight into the level of connectivity in the upper reservoir by an interference test with SNE-5. The Vega Regulus-1 (VR-1) exploration well was drilled in March 2017 following the SNE-5 appraisal well. VR-1 appraised the western extent of the SNE field and encountered the lower (S500 series) reservoirs in the SNE field within the oil column as anticipated. The well was deepened to test a carbonate exploration target. There were indications of hydrocarbons at the base of the well in tight formation that are not currently viewed as commercially recoverable. The FAN South-1 exploration well was drilled to test a Cretaceous prospect with multiple reservoir targets in the basin oil play in the Sangomar Deep Block. The well encountered oil-bearing reservoirs, and an oil sample was obtained. Although not meeting pre-drill estimates, the well results are being evaluated and integrated with the FAN-1 results to assess the impact on the greater FAN-1 complex and to further the understanding of the basin oil play. The SNE North-1 exploration well was drilled in August. Gas and condensate were encountered at the primary target and oil in a separate and deeper reservoir than the SNE field. 30 Woodside Petroleum Ltd | Annual Report 2017 Further work is being undertaken to establish the potential commerciality of this discovery and to integrate the results with the block-wide information. The well result has positive implications for further hydrocarbon potential to the north of the structural trend containing the SNE field and the SNE North-1 well, as well as for broader exploration potential within the permits. The joint venture is reviewing potential 2018 drilling opportunities, including a prospect in the shallow water Rufisque offshore block. Morocco Drilling of the Rabat Deep-1 well in Q1 2018 is planned to test the JP1 prospect; a large, four-way dip closed structure in an area considered to have oil potential. ENI Maroc B.V. has assumed operatorship of the acreage, acquiring a 40% equity interest. 0 30 kilometres Sangomar Deep FAN FAN-1 Peru Drilling of the Boca Satipo East well in Q3 2018 is planned and is targeting a large prospect with oil potential in Cretaceous reservoirs. Vega Regulus-1 FAN South-1 SNE SNE-5 SNE-6 Overview of Woodside’s acreage in Senegal. Dakar Senegal Rufisque Sangomar Offshore SNE North-1 Drilled Wells Woodside Titles Extensions, Leads and Prospects Gas Cap Oil Fields Sub-Saharan Africa Gabon Processing of the second azimuth of multi-client 3D seismic data for the Doukou Dak (F15) Block has been completed. Woodside has completed its farm-in to acquire a 40% interest in the Luna Muetse (E13) Block. Activities to support drilling the Ivela-1 prospect in the Luna Muetse Block are underway. Drilling is expected in Q1 2018. Woodside’s farm-in to acquire a 21.25% interest in the Diaba Block has completed. Woodside has also acquired a 30% non-operated participating interest in the Likuale (F14) Block.1 The Boudji-1 exploration well in the Likuale (F14) Block, the first well in the permit, was spudded in October 2017 and reached target depth in January 2018. Well results continue to be evaluated. 1. Completion of acquisition remains subject to satisfaction of conditions precedent. 2018–2019 drilling activities1 Myanmar Northern Hub Myanmar Southern Hub Australia Senegal Morocco Gabon Peru Block AD-1 Block AD-1 appraisal Blocks AD-8 Block A-6 exploration/appraisal3 Block A-7 Block A-7 appraisal WA-404-P: Ferrand-1 WA-404-P WA-28-P: Achernar-1 WA-49-L Rufisque Offshore Rabat Deep Offshore: Rabat Deep-1 Likuale (F14) Block: Boudji-1⁴ Luna Muetse (E13) Block: Ivela-1 Block 108: Boca Satipo East Block 108 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Target Size2 Large Appraisal Large Large Large Appraisal Large Large Large Medium Medium Large Large Large Large Large Firm Gas Oil Contingent Gas Oil 1. This is a forecast activity plan subject to change due to final approvals, weather conditions and other external circumstances. 2. Target size: unrisked gross mean success volume 100%. Medium >20 MMboe and <100 MMboe and large >100 MMboe. 3. Subject to Government and joint venture approval. 4. Completion of acquisition remains subject to satisfaction of conditions precedent. The well spudded in October 2017. Woodside Petroleum Ltd | Exploration 31 D N A S T C E J O R P S T N E M P O L E V E D Employees onsite at Pluto LNG. WHEATSTONE LNG 2017 HIGHLIGHTS + Start-up of the Brunello field + First LNG production from Train 1 + First LNG cargo delivered + Safe commissioning shutdown completed 2018 ACTIVITIES + LNG production from Train 2 + Start-up of the domestic gas plant + Enter front-end engineering and design phase for the Julimar Project Wheatstone LNG Train 1 commenced production in October 2017. Wheatstone LNG, comprising the Wheatstone and Julimar-Brunello Projects, is a world-class asset, which will make a significant contribution to Woodside’s annual production. Production commenced from LNG Train 1, with the first LNG cargo delivered to Japan on 12 November 2017. As part of the commissioning process for Train 1, a shutdown to replace the start-up strainers was carried out in December 2017. Prior to the scheduled shutdown, the plant achieved rates of approximately 13 kt/d (100% project). Construction of LNG Train 2 is progressing to schedule, with completion expected in early 2018. The commissioning and start-up phase will follow and is targeting start-up for LNG Train 2 production in Q2 2018. The domestic gas plant, with capacity to produce 200 TJ per day, is scheduled for start-up in Q3 2018. Domestic gas sales will be transported by pipeline to the Dampier to Bunbury Natural Gas Pipeline. Woodside is the operator of the Julimar-Brunello Project, with a 65% interest in the Julimar and Brunello fields. These fields supply 20% of Wheatstone LNG’s foundation capacity of natural gas. The Julimar-Brunello Project Phase I began with the tie-in of the Brunello field in 2016. Phase II of the development will tie-back the Julimar field to the existing Brunello subsea infrastructure. The development is currently in concept definition phase and is targeting entry to front-end engineering and design (FEED) phase in 2018. A final investment decision (FID) is targeted for 2019. Wheatstone LNG Woodside interest: 13% Julimar-Brunello Project Woodside interest: 65% Image courtesy of Chevron Australia Woodside Petroleum Ltd | Projects and developments 33 SUBSEA TIEBACKS Greater Enfield Project Persephone Project The Greater Enfield Project is a subsea tieback to the existing Ngujima-Yin FPSO, which is currently producing from the Vincent oil field. The project is estimated to initially produce more than 40,000 bbl/d (100% project). At the end of 2017, the project was 43% complete, and it remains on budget and on schedule for expected first oil in mid-2019. The Persephone Project was a two-well subsea tieback to the North Rankin Complex, extending the NWS Project’s LNG production plateau. Building on our proven capabilities and significant experience in delivering major subsea tiebacks, the project achieved start-up in July 2017, six months ahead of schedule and more than $300 million under budget (100% project). The progress of FPSO design and equipment manufacture in 2017 has ensured that the shipyard activities remain on schedule for commencement in Q2 2018. The two wells are performing to expectation, achieving a total combined flow rate of 475 mmscf/d in support of production requirements. The first two of 12 subsea Xmas trees were delivered on schedule into Australia, in Q4 2017. Throughout the year, focus continued on preparations for in-field drilling, subsea installation, and securing relevant regulatory approvals. The Greater Enfield drilling campaign is expected to commence in Q1 2018 and take two years to complete. The subsea installation will also commence in Q1 2018, starting with pipelay activities. Woodside interest: 60% The ENSCO DPS-1 (formerly Atwood Condor) mobile offshore drilling unit preparing to leave Singapore for the Greater Enfield Project drilling campaign. Woodside interest: 16.67% Greater Western Flank Phase 2 (GWF-2) Project The GWF-2 Project involves eight production wells tied back to the existing Goodwyn A platform by a 35 km subsea pipeline. Significant progress was made in 2017 and, at the end of the year, the project was 74% complete. The project is on schedule for start-up in the first half of 2019. Drilling and completion activities were successfully completed in 2017 at the Lady Nora, Pemberton, Sculptor and Rankin fields and continue at Keast and Dockrell. Excellent overall performance has enabled the project to consolidate from a two-phase well completion campaign to a single campaign, and target a single RFSU (ready for start-up), reducing estimated project cost and schedule. The manufacture of subsea production equipment remains on schedule, and offshore construction activities are planned to commence in the first half of 2018. Subsea installation and commissioning of infrastructure is expected to commence in the second half of 2018 and will take approximately five months to complete. Woodside interest: 16.67% 34 Woodside Petroleum Ltd | Annual Report 2017 AUSTRALIAN DEVELOPMENTS 2017 HIGHLIGHTS + High-rate production trials confirmed extra plant capacity + Studies completed on 0.7–3.3 mtpa LNG train plant expansion 2018 ACTIVITIES + Enter FEED for the Pluto to NWS pipeline interconnector + Progress discussions with third-party resource owners for processing gas + Commence domestic gas supply in H2 2018 + Start-up an LNG truck-loading facility in H2 2018 Schematic (not to scale) of the LNG truck-loading facility at Pluto LNG. Pluto LNG Planning continues for the expansion of Pluto LNG based on the acceleration of Pluto gas and the potential development of unallocated gas resources in the Carnarvon Basin. High-rate production trials were completed in 2017, confirming that the plant has additional pre-treatment capacity. Results from the trial are informing future decisions on Pluto LNG expansion options. Feasibility studies on a 0.7 to 3.3 mtpa LNG train were concluded in 2017, broadening the options available for Pluto expansion. The Pluto Joint Venture is engaging with third-party resource owners about the potential to process gas through Pluto infrastructure. Studies have commenced on a potential Pluto–NWS Interconnector, intended to unlock incremental value for both Pluto LNG and the North West Shelf Project. Subject to joint venture, regulatory and other approvals, developing a pipeline connection between the two plants could accelerate Pluto area gas reserves, and leverage existing Pluto offshore capacity and emerging NWS LNG ullage. Additional synergies between the two plants are also being considered. A pipeline interconnector may also support future commercial options to develop regional gas resources by facilitating the development of unallocated resources by utilising existing infrastructure. Development planning regarding the Pyxis resource continues. Pyxis provides supply diversity to meet plant capacity and offers potential acceleration for any Pluto expansion. We are progressing the supply of gas to the Dampier to Bunbury Natural Gas Pipeline (DBNGP). Subject to all required approvals, a compressor will be installed capable of delivering gas into the DBNGP at rates of 10–25 TJ/day. It is anticipated that gas will be supplied to customers in Western Australia from H2 2018. Preparations are underway for the first delivery of trucked LNG to customers in Western Australia by construction of a truck-loading facility at Pluto LNG. Primary approvals are progressing for construction, with start-up targeted in H2 2018. The facility will provide LNG for distribution in the Pilbara region of Western Australia. Woodside interest: 90% Woodside Petroleum Ltd | Projects and developments 35 2017 HIGHLIGHTS + Executed an agreement with the NWS Project to commence technical studies + Commenced evaluation of third-party processing options + Supported operator to complete FLNG concept optimisation studies 2018 ACTIVITIES + Complete the acquisition of an additional 50% interest in WA-1-R + Concept select in 2018 + Position for FEED entry in 2019 to support FID in 2020 Scarborough Development Woodside’s Scarborough area interests include the Scarborough, Thebe and Jupiter gas fields, which are estimated to contain gross (100%) contingent resources (2C) of 9.2 Tcf of dry gas. The estimate is based on a revised development scenario utilising existing Woodside-operated infrastructure on the Burrup Hub. On 14 February 2018, Woodside announced it had entered into a binding Sale and Purchase Agreement to acquire ExxonMobil’s 50% interest in WA-1-R, which contains the Scarborough gas field. Upon completion of the transaction, which is targeted by end Q1 2018, Woodside will have a 75% interest in WA-1-R and a 50% interest in WA-61-R, WA-62-R and WA-63-R.1 Completion of the transaction will increase Woodside’s net share of the contingent resources (2C) in the Scarborough area assets from 2.8 Tcf of dry gas to 6.4 Tcf of dry gas. By providing greater alignment between Woodside’s upstream resources and downstream infrastructure and greater control over and certainty of development, this acquisition supports Woodside’s strategy of unlocking shareholder value. This is expected to create a pathway to development of the material, unallocated Scarborough gas field through a lower-cost brownfield expansion of our high-reliability Pluto LNG facility. In 2017, the Scarborough Joint Venture commenced engagement with third-party infrastructure owners in Western Australia to explore options to process Scarborough gas and in December executed a Joint Technical Study Agreement with the NWS Project to determine the technical viability of processing gas through the NWS infrastructure. Woodside is targeting a Scarborough concept select decision in 2018, with FEED targeted in 2019 and FID in 2020. First production from the development is expected in 2025 to meet the expected global LNG supply gap. 1. Completion is subject to pre-emption rights and customary regulatory approvals, and is targeted by end Q1 2018. Woodside’s equity interest in the Scarborough area assets following completion of the acquisition announced on 14 February 2018. WA-63-R WA-530-P Legend Thebe WA-62-R Jupiter WA-61-R Karratha Exmouth Scarborough 0 20 kilometres 36 Woodside Petroleum Ltd | Annual Report 2017 WA-1-R 2017 HIGHLIGHTS + Joint venture alignment on Browse to NWS as the reference development concept + Received a non-binding tolling proposal from the NWS Project + Significant progress made on optimising Browse to NWS development concept 2018 ACTIVITIES + Finalise key commercial terms with the NWS Project to process Browse gas + Commence concept definition phase in H2 2018 Browse Development The Brecknock, Calliance and Torosa fields (collectively known as the Browse resources) are located offshore, 425 km north of Broome in Australia’s North West. The Browse resources are estimated to contain gross (100%) contingent resources (2C) of 16.0 Tcf of dry gas and 466 MMbbl of condensate. In 2017, the Browse Joint Venture made significant progress in narrowing alternative concepts for the development of the Browse resources and is aligned on Browse to NWS as the reference case. The Browse Joint Venture received a non-binding tolling proposal from the NWS Project to process Browse gas through existing infrastructure. Commercial discussions and joint technical studies are progressing between the two parties. A potential offshore development would be based on predominantly proven technologies and involve two gas floating production storage and offloading (gFPSO) facilities delivering around 10 mtpa of gas to NWS infrastructure by an approximately 900 km pipeline. The Browse Joint Venture is targeting commencement of the concept definition phase in the second half of 2018, enabled by alignment on commercial requirements with the NWS Project. Developing Browse through existing Woodside-operated infrastructure has the potential to deliver a globally competitive project to the benefit of titleholders, infrastructure owners, governments and the local community. Woodside interest: 30.6% Indicative gFPSO facilities for the Browse development (schematic not to scale). Woodside Petroleum Ltd | Projects and developments 37 INTERNATIONAL DEVELOPMENTS SNE Field Development-Phase 1 2017 HIGHLIGHTS + Transitioned to Development Lead + Achieved concept select 2018 ACTIVITIES + Invitations to tender for FPSO and subsea infrastructure to be issued in Q1 2018 + Operatorship transition + Submission of Exploitation Plan to the Government of Senegal for approval and enter FEED Woodside has been active in the offshore region of Senegal since 2016 when it acquired a material position in the SNE field. In 2017, Woodside became Development Lead for the SNE Field Development-Phase 1 and plans to transition to operator of the Rufisque, Sangomar, Sangomar Deep Offshore (RSSD) blocks in 2018. Appraisal drilling continued in 2017, improving our understanding of the reservoir and the optimal development plan. Refer to Exploration on page 30 for more information. For early commercialisation and ongoing optimisation of the development plan, a phased development is proposed, focusing first on the less complex lower reservoir units. Subsequent phases will target more complex reservoir units. Woodside achieved a concept select decision at the end of 2017 and entered concept definition. The Phase 1 development concept for the SNE field is a stand-alone FPSO facility with subsea infrastructure. It will be designed to allow subsequent SNE development phases, including options for potential gas export to shore and for future subsea tiebacks from other reservoirs and fields. Phase 1 will include oil production as well as gas and water injection wells. The expected FPSO oil production capacity is approximately 100,000 bbl/day. Gas sales opportunities are being explored to support incremental gas export to shore. 38 Woodside Petroleum Ltd | Annual Report 2017 Expressions of interest have been sought and subsequent engagement held with contractors and operators for subsea and FPSO facilities prior to a formal tendering process, expected in Q1 2018. The joint venture is considering a redeployed FPSO facility as the preferred development opportunity. In August 2017, the environmental baseline survey was completed and the Environment and Social Impact Assessment (ESIA) process commenced. The joint venture is targeting submission of the ESIA in Q2 2018. Work is progressing on detailed concept definition work which will lead to front-end engineering and design beginning in Q4 2018, in parallel with anticipated approval of the Exploitation Plan. First oil from SNE is expected in 2022. Woodside is committed to working with our fellow joint venture participants and the Government of Senegal to achieve the earliest commercialisation of the discovered resources in Senegal. Woodside continues to build its presence in Senegal with a local team of six personnel, including three Senegalese staff, now based in Dakar. As part of the joint venture, Woodside contributed to capacity building through English language training and a mobilisation project with seven fishing communities in Yenne. This mobilisation project was undertaken through a partnership with The Hunger Project to address health, nutrition, education, hygiene, environment issues and micro-finance opportunities. Woodside also commenced its first social investment in Senegal through the Woodside Development Fund. Refer to Creating Shared Value on page 52 for more information. Woodside interest: 35% Indicative FPSO facility and subsea layout for the SNE Field Development-Phase 1 (schematic not to scale). Kitimat LNG Port Arthur LNG The proposed Port Arthur LNG Project is located about 140 km east of Houston, Texas. The potential project includes two natural gas liquefaction trains with a total LNG export capability of approximately 10 mtpa. In June 2017, Woodside and Sempra Energy signed a memorandum of understanding (MOU) with the Korea Gas Corporation (KOGAS). The MOU provides a framework for cooperation and joint discussion by the parties regarding key aspects of the Port Arthur LNG Project. Grassy Point LNG In January 2018, Woodside elected not to renew its Sole Proponent Agreement for the Grassy Point LNG site, on the north-west coast of British Columbia. The Kitimat LNG Project proposes to develop world-class natural gas resources found in shale and tight rock formations in the Liard and Horn River Basins, in north-eastern British Columbia. Gas will be transported by the proposed 480 km Pacific Trail Pipeline to a liquefaction facility at Bish Cove near Kitimat. Kitimat LNG remains one of the most advanced LNG opportunities in Canada. It is well positioned to supply gas to Asian markets given the shorter shipping distances. Production from new and existing wells in 2017 continued to demonstrate the Liard Basin as one of the best unconventional hydrocarbon resources in the world. In 2017, the joint venture continued to focus efforts on activities to drive down costs across the full value chain, targeting top- decile cost of supply to support a future LNG development. We are engaging governments to establish a clear, stable and competitive fiscal framework. Woodside interest: 50% Sunrise LNG The Greater Sunrise fields contain gross (100%) contingent resources (2C) of 5.1 Tcf of dry gas and 226 MMbbl of condensate. The fields are located approximately 150 km south-east of Timor- Leste and 450 km north-west of Darwin, Australia. Woodside is committed to developing the Greater Sunrise fields. In 2017, we maintained compliance with our title obligations and continued our social investment activities in Timor-Leste. Woodside welcomes the news that Australia and Timor-Leste reached agreement on a draft treaty regarding maritime boundaries between Australia and Timor-Leste and continues to engage with both Governments and its joint venture in discussions on a pathway to the development of the resource. Woodside interest: 33.44% Woodside Petroleum Ltd | Projects and developments 39 An aerial view of Pluto LNG at dusk. S N O I T A R E P O OPERATING AND FINANCIAL REVIEW PLUTO LNG 2017 HIGHLIGHTS + Record LNG production rates + Delivered 350th LNG cargo + 5th anniversary of LNG production 2018 ACTIVITIES + Targeting domgas supply to Western Australia + Progress Pluto LNG expansion options based on high-rate production trials A focus on operational excellence has driven an improvement in plant capacity, resulting in record daily, weekly and monthly production rates for Pluto LNG. In 2017, annual production of 41.1 MMboe was achieved at a globally competitive unit production cost of $3.9/boe. Higher production rates are being achieved following the completion of high-rate production trials in Q2. In 2018, the facility will target maintaining higher rates through process improvements made during the year. The facility achieved 100% reliability during Q4 2017 and averaged 94% reliability throughout 2017. Pluto shipped its 350th cargo and celebrated its fifth anniversary of exports in April. In 2017, Pluto LNG delivered 66 LNG cargoes (100% project), of which 44 were sold under foundation contracts, 14 under mid-term contracts and eight on the spot market. In 2017, Pluto 4D seismic data was used to inform decision making on reservoir development. As a result, the PLA07 infill well is targeting ready for start-up in Q4 2019. In 2018, the seismic data will be used to consider the optimal offshore gas supply sequence for Pluto LNG through to end of field life. No major maintenance or turnaround campaigns are scheduled for Pluto LNG in 2018, but preparations are underway for a scheduled major turnaround in 2019. In 2018, we will continue to maintain a disciplined approach to optimising operating costs and maximising plant efficiency to drive value. Refer to Australian Developments on page 35 for more information on Pluto LNG’s expansion activities. Profitability Woodside interest: 90% 47% 37% 8% 8% lGross margin lDepreciation and amortisation lOther lProduction cost $/boe 24.8 19.5 4.2 3.9 % 47 37 8 8 42 Woodside Petroleum Ltd | Annual Report 2017 NWS PROJECT 2017 HIGHLIGHTS + Issued non-binding tolling proposal to third-party resource owners for processing gas through the KGP + GWF-2 Project drilling and completion activities were completed 2018 ACTIVITIES + Execute a preliminary tolling agreement with a third-party resource owner + Finalise technical feasibility studies for processing third-party gas at KGP + Progress subsea and commissioning of GWF-2 Project infrastructure Profitability 51% 19% 20% 10% lGross margin lDepreciation and amortisation lOther lProduction cost $/boe 19.0 7.0 7.5 3.8 % 51 19 20 10 After pioneering Australian LNG production in the 1980s, the North West Shelf Project is now leading the development of new gas processing arrangements to ensure that this facility continues to deliver value for decades to come. In 2017, annual production of 34.8 MMboe (201.5 MMboe, 100% project) was achieved at a globally competitive unit production cost of $3.8/boe, as the NWS Project delivered 257 LNG cargoes (100% project). During the year, Woodside’s equity share of domestic gas reduced due to the fulfilment of joint venture entitlements. Woodside’s equity share of pipeline gas is now 16.67%. The NWS Project is committed to continuous improvement of production and cost performance, growing investment in Western Australia and expanding opportunities in the Carnarvon and Browse Basins. In 2017, the NWS Project participants issued a non-binding tolling proposal to third-party resource owners for processing gas through the Karratha Gas Plant (KGP). Discussions and technical studies continue to be progressed with interested parties to confirm commercial viability before entering into binding commitments. The feasibility studies are expected to continue during 2018. In 2018, we will continue to develop arrangements for processing new gas while optimising production costs. The Karratha Life Extension (KLE) program is focused on extending the life of the KGP for a further 30 years. It is approximately 30% complete. The program is matched to KGP’s current production profile, and further investment at the plant will be required to underpin future opportunities to process gas from third-party resource owners. Woodside continues to pursue the efficient and effective commercialisation of existing NWS reserves. The Persephone Project achieved start-up ahead of schedule in July 2017, and the GWF-2 Project is on schedule for start-up in the first half of 2019. The NWS Project is focused on improving environmental performance by reducing the need for spare power generation at our facilities. A planned battery installation on the Goodwyn A platform is expected to reduce fuel gas consumption and decrease emissions. Refer to Building a Resilient Business on pages 56–57 for more information. Two integrated NWS turnarounds are planned for Q2 and Q3 2018. These turnarounds involve onshore and offshore facilities. Woodside interest: 16.67% Woodside Petroleum Ltd | Operations 43 AUSTRALIA OIL Field and facility Update Vincent (Ngujima-Yin FPSO) Woodside interest: 60% Woodside’s share of annual production was 4.0 MMbbl, down from 4.1 MMbbl in 2016 primarily due to natural reservoir decline. During the year, work was focused on maintaining the facility ahead of shipyard modifications in Singapore from Q2 2018. Production from Vincent will be suspended for approximately 12 months from Q2 2018 to undertake FPSO modifications, which will enable additional production as part of the Greater Enfield Project. In mid-2019, production from Vincent will resume following FPSO modifications, and the Greater Enfield Project drilling campaign will continue. Cossack, Wanaea, Lambert and Hermes (CWLH) (Okha FPSO) Woodside interest: 33.33% Woodside’s share of production in 2017 was 1.9 MMbbl, up from 1.0 MMbbl in 2016 due to increased reliability and the absence of any major maintenance or turnaround. Subsea life extension studies required to support the continued operations of the CWLH infrastructure were finalised in 2017. There is no major maintenance planned in 2018. Enfield (Nganhurra FPSO) Woodside interest: 60% Woodside’s share of annual production was 0.9 MMbbl, down from 1.1 MMbbl in 2016 primarily due to natural reservoir decline. The cessation of production and permanent departure of the Nganhurra FPSO was deferred from Q4 2017 to Q4 2018. A planned maintenance turnaround was executed in October 2017 to ensure the integrity of the facility and support the extended production timeframe. During 2018, work will continue to support cessation of production activities. No further turnaround activities are planned. Oil production FPSO reliability Enfield 95% 81% 6.8MMboe CWLH Vincent 2016 2017 14% 44 Woodside Petroleum Ltd | Annual Report 2017 Wheatstone LNG Wheatstone LNG safely commenced production from Train 1. The first LNG cargo was shipped on 31 October 2017 and delivered to Japan on 12 November 2017. The plant achieved full rates of approximately 13 kt/d (100% project) prior to a planned shutdown to remove start-up strainers. Drawing on Woodside’s extensive experience in LNG commissioning, we seconded 26 employees to support the operator with the successful start-up. The secondment of 15 employees will continue in 2018 to support start-up of Train 2. The first Wheatstone LNG cargo was delivered to JERA on 12 November 2017. In 2018, our focus will be on supporting the operator to achieve first LNG production from Train 2, progress the development of the domestic gas plant, optimise lifting costs and maximise production rates. Once fully operational, Wheatstone is expected to deliver more than 13 MMboe to Woodside’s annual production. Woodside interest: 13% Image courtesy of Chevron Australia International gas production Annual production from the Liard Basin in north-eastern British Columbia was 1.3 MMboe, down from 1.6 MMboe in 2016 due to natural reservoir decline and a four-month shut-in of a well for mechanical repairs. The natural gas produced goes into the Canadian domestic grid and is a result of the appraisal program being undertaken to support the proposed Kitimat LNG project. 2018 production guidance Woodside’s production guidance for 2018 is 85–90 MMboe, comprising as follows: A production increase is forecast for the LNG business due to a significant increase in the contribution from Wheatstone LNG. 2017 actual (MMboe) 2018 guidance (MMboe) LNG Liquids1 NWS pipeline gas Other2 Total 61.7 14.8 6.0 1.9 84.4 69–71 10–12 4–5 2 85–90 Lower liquids production is largely due to the Ngujima-Yin FPSO (Vincent oil) leaving station from May 2018 for modifications ahead of forecast Greater Enfield production from mid-2019. NWS pipeline gas is lower following fulfilment of the Domestic Gas Joint Venture (DGJV) production entitlement in May 2017.³ Woodside’s share of NWS LNG was not impacted by the fulfilment of this production entitlement. 1. Liquids includes oil and condensate. 2. Other includes LPG and other pipeline gas. 3. Woodside equity share of NWS domestic gas and associated condensate was 50% in the DGJV. The DGJV applied to the first 414 TJ/d, with contractual flexibilities allowing up to 517.5 TJ/d. The DGJV production entitlement was fulfilled on 8 May 2017. Woodside’s share of domestic gas and associated condensate following fulfilment of the DGJV production entitlement is 16.67%. Woodside Petroleum Ltd | Operations 45 LNG vessel arriving at Karratha Gas Plant. G N I T E K R A M G N I P P I H S D N A In 2017, Woodside achieved favourable outcomes for LNG sales and matured opportunities to supply LNG as a fuel for heavy transport and remote power generation. Efficient and reliable delivery We continue to use our integrated business model and access to shipping to ensure reliable delivery of LNG and create value through portfolio optimisation. In 2017, LNG cargoes were supplied to customers in the established markets of Japan, Korea and China, as well as emerging markets such as Thailand. Our oil, condensate and LPG sales delivered positive results, relative to price benchmarks, for the 38 cargoes delivered in 2017. We have increased sales of Woodside’s independently marketed pipeline gas under short-term contracts. This partially offsets Woodside’s reduced share of North West Shelf Project pipeline gas sales following fulfilment of the Domestic Gas Joint Venture production entitlement in May 2017. Woodside maintains a fleet of five LNG ships under long-term contracts which enables us to take advantage of trading and optimisation opportunities. In 2017, our ships were employed to lift our own cargoes as well as third-party cargoes in Australia, Asia, Europe and the United States. MARKETING AND SHIPPING 2017 HIGHLIGHTS + Equity-lifted LNG up from 3% in 2016 to 25% in 2017 + Delivered the first Wheatstone LNG cargo + Executed new mid-term portfolio LNG sales and purchase agreements (SPA) + Executed a long-term LNG SPA with Pertamina 2018 ACTIVITIES + Pursue new LNG SPAs with customers in traditional and Asian growth markets + Pursue opportunities to serve new markets for LNG by participating further down the value chain The Woodside Chaney preparing to load an LNG cargo. 48 Woodside Petroleum Ltd | Annual Report 2017 Revenue stability We balance revenue stability with operational flexibility through our portfolio of sales contracts. Increasing portfolio scale and flexibility Woodside is well positioned to meet expected future Asian energy demand. We currently commit 80% to 90% of expected LNG production under long-term and mid-term contracts. The balance of production is used to preserve operational flexibility and access to optimisation opportunities, and is typically sold on the spot market. The proportion of LNG production that we commit to long-term contracts is likely to reduce over the next few years as the market becomes more liquid. LNG sales achieved in 2017 reduced our future uncommitted volumes and delivered long-term flexibility at favourable prices. We established Woodside’s position as a significant future supplier of LNG to Indonesia through the execution of a long-term LNG SPA by Woodside Singapore and PT Pertamina (Persero) (Pertamina). LNG will be supplied from Woodside’s global portfolio commencing in 2019, with initial ramp-up quantities building to approximately 0.6 mtpa from 2022 to 2034. Woodside Singapore has the option to increase supply to Pertamina to approximately 1.1 mtpa from 2024 to 2038. In addition, we increased our mid-term contracted volumes by executing portfolio LNG SPAs for delivery of up to two million tonnes (28 cargoes) over the period 2017 to 2020. At the end of 2017, over 90% of Woodside’s expected 2018 LNG production has been committed to sales contracts. The commencement of production from Wheatstone LNG in the second half of 2017 provided additional portfolio LNG supply. Offtake from Corpus Christi, which is expected to commence in mid-2020, will further increase the scale and diversity of Woodside’s LNG portfolio. We continue to increase the equity-lifted proportion of Woodside’s LNG production, from 3% in 2016 to 25% in 2017. This provides additional flexibility to meet customer needs. Condensate and equity pipeline gas is expected to be available for sale from Wheatstone LNG in 2018. Expanding the LNG market We are promoting the use of LNG as a low-emissions and cost-effective alternative fuel for heavy transport and remote power generation. At Pluto LNG, we are constructing an LNG truck-loading facility. The facility will provide LNG for distribution by truck to the Pilbara region of Western Australia. Refer to Australian Developments on page 35 for more information. We are also working with mining companies and equipment manufacturers on the use of LNG for mining operations. We are participating in two joint industry projects to assess the feasibility for LNG to be used as a fuel for bulk carriers transporting iron ore from the Pilbara. We are evaluating opportunities to be involved further along the value chain to facilitate additional demand for our gas in the international market. This may include LNG regasification and power generation. Woodside Petroleum Ltd | Marketing and Shipping 49 Y T I L I B A N I A T S U S An aerial view of the coastline south of Dampier. 50 Woodside Petroleum Ltd | Annual Report 2017 SUSTAINABILITY As a core value, working sustainably is embedded throughout every level at Woodside and is fundamental to realising our vision to be a global leader in upstream oil and gas. Sustainability performance Woodside’s corporate scorecard includes metrics reflecting our material sustainability issues. Woodside’s sustainability performance is also linked to remuneration for employees and executives. We respond to a range of environmental, social and governance specific indices, including the Dow Jones Sustainability Index (DJSI). Woodside received a Silver Class distinction from RobecoSAM1 for its DJSI sustainability performance, placing us in the top 3% when ranked against our peers in the oil and gas upstream and integrated sector. United Nations Sustainable Development Goals The United Nations Sustainable Development Goals (UNSDG) aim to address some of the world’s most pressing economic, environmental and social challenges. While the response to the UNSDG is led by national governments, business must understand where opportunities exist to contribute to UNSDG targets. Refer to the Sustainable Development Report 2017 for more details on the work we are completing to address the UNSDG. In 2017, we reviewed the impacts across our value chain, conducted benchmarking analysis, and considered how each UNSDG applied to our operations and how we can meaningfully contribute. Following this review, we have identified the following five UNSDGs to focus on in 2018: affordable and clean energy; industry, innovation and infrastructure; climate action; life below water; and partnerships for the goals. 1. An investment specialist focused exclusively on sustainability investing. It publishes the globally recognised DJSI. In this year’s annual report we have restructured what was formerly our Corporate section to reflect and align to the company’s sustainability principles. In doing so, the Sustainability section of the report is more closely aligned to our Sustainable Development Report and demonstrates how the principles are linked to our everyday activities. Our sustainability principles Our approach to sustainability is underpinned by five principles described in this report: + Creating shared value – summarises our social investment program and the stakeholder engagement undertaken as part of contributing to the communities in which we operate. + Operating with transparency and integrity – describes the policies and programs that address anti-bribery and corruption, human rights risks and regulatory compliance. + Fostering our organisation and culture – details the programs that promote inclusion and diversity. It also covers our training, education and technical programs. + Building a resilient business – demonstrates our business model is capable of responding to challenges and creating new business opportunities. + Operating responsibly – provides an overview of our health, safety and environment (HSE) activities undertaken to ensure our operations are sustainable. Our principles provide the foundations for ensuring we operate in a manner that is sustainable. Sustainable Development Report Our Sustainable Development Report provides a complete overview of our company performance against our sustainability principles and outlines our approach to addressing our material sustainability issues. Woodside considers sustainability issues to be material if they have the potential to impact our ability to achieve our business strategy, affect our reputation, or are of material concern to our key stakeholders due to economic, environmental or social impacts. An integral part of ascertaining our material issues is consulting with our key stakeholders about their concerns. For more information on how we engage with our stakeholders, as well as details on our approach to our material issues and our overall sustainability performance, refer to our Sustainable Development Report 2017. Woodside Petroleum Ltd | Sustainability 51 CREATING SHARED VALUE 2017 HIGHLIGHTS + Announced the Woodside Development Fund’s first early childhood program in Senegal with long-term partner Save the Children + Provided financial support for Scitech’s new collaborative experiential learning gallery, Karrtadjin Kooliny + Extended our Plan International partnership in Myanmar and commenced training programs with Yangon Technological University + Commenced implementation of the Karratha and Roebourne Social Impact Management Plans 2018 ACTIVITIES + Develop a social investment outcomes management framework and pilot it on the Woodside Development Fund + Review the social investment approach to support Woodside’s five Sustainable Development Goal focus areas Woodside launching a WDF program in Dakar, Senegal. Social contribution Our social investment strategy is to create capacity and capability in the communities in which we operate. Our strategy has three objectives: to improve knowledge; create opportunities; and build resilience. The objectives provide flexibility to cater for varying community and stakeholder needs and expectations and are applied throughout all phases of our business value chain. To achieve our objectives, our 2017 social investment portfolio focused on innovation and technology, early childhood development, Indigenous outcomes and our employee volunteering and participation programs. In 2017, we contributed A$17.9 million worth of social investment, up from A$15.7 million in 2016, demonstrating Woodside’s ongoing commitment and support of host communities. The Woodside Development Fund (WDF) invested in a range of community-based collaboration initiatives and programs to build capacity within the early childhood sector. This included the launch of the fund’s first program in Senegal, the Education and Empowerment of Children Program with long-term partner Save the Children. Our employees also contributed more than 10,400+ hours of volunteering in 2017, equating to A$2.3 million worth of assistance to communities. We understand that providing financial support is just one way we support communities. By building shared value with community, government and industry, we’re helping to build stronger communities. Refer to the Sustainable Development Report 2017 for more information on our social investment. 52 Woodside Petroleum Ltd | Annual Report 2017 Indigenous peoples engagement In 2017, our Indigenous engagement focused on three areas: embedding our Reconciliation Action Plan (RAP) outcomes framework; delivering on our commitments to our Indigenous host communities; and undertaking an independent benchmarking study of our Indigenous peoples engagement practice and management. Woodside’s 2016–2020 RAP reflects a key step in our journey to creating tangible Indigenous outcomes in Australia. In shifting our focus from activities to outcomes, we set a new vision for our reconciliation work in Australia, which emphasises mutual exchange. The focus of our effort in 2017 has been to embed our outcomes framework across the whole business with indicators that can usefully assist us to measure improvements in our key areas of interest: respect; relationships; and opportunity. Embedding the outcomes framework takes time and presents challenges, but we are reporting good progress. Our RAP details commitments to increase Indigenous employment, increase contracts with Indigenous business and improve workforce understanding of Indigenous cultures. In 2017, Woodside made substantial progress against its RAP commitments. Our RAP performance is reported annually and will be released on our website in Q2 2018. Refer to the Sustainable Development Report 2017 for more information about our RAP. Refer to Woodside’s website for the full RAP report (www.woodside.com.au). OPERATING WITH TRANSPARENCY AND INTEGRITY Tax transparency Woodside recognises the importance of stability, sustainability and competitiveness in tax and fiscal regimes. We have an established tax governance framework. Our Tax Policy, which is available on our website, is clear – we will comply with all tax laws and regulations applicable to our business. Furthering our commitment to transparency, Woodside participates in the Australian Board of Taxation’s voluntary Tax Transparency Code. Regulatory compliance Woodside has adopted a global regulatory compliance management process and system in order to increase transparency and drive regulatory compliance behaviours and performance. Our global Indigenous peoples engagement benchmarking work was initiated in 2017 and is scheduled to be completed in the first half of 2018. The work builds on previous years’ efforts to strengthen, streamline and integrate Indigenous engagement into our whole-of-business processes and procedures. Outcomes from the benchmarking study will inform scheduled reviews of our management system and aid our considerations about continuous improvement opportunities in delivering mutually beneficial outcomes with Indigenous people in places where we are active. Woodside employees participating in a cultural learning walk led by the Murujuga Rangers. Anti-bribery and corruption Bribery and corruption present a threat to commercial organisations and communities worldwide. They undermine fair competition, erode public trust in governments and business, and disadvantage economies. Woodside has a zero-tolerance approach to fraud, bribery and corruption, and complies with all relevant Australian and international anti-bribery and corruption laws. A number of improvements were implemented during 2017, including the integration of cyber security capability and updated and extended anti-bribery and corruption training programs. In 2018, the focus will be on operator and high-risk contractor audits and using data to prevent and detect fraud. Human rights Woodside is committed to conducting business in a way that respects the human rights of all people. To formalise this commitment, Woodside introduced a Human Rights Policy in October 2017 that details the principles by which we operate. The development of the Human Rights Policy was informed by benchmarking analysis of Woodside’s policies and systems against industry leaders. The policy guides Woodside’s global activities as we take steps to identify, prevent and manage potential human rights impacts in all phases of our value chain. Woodside Petroleum Ltd | Sustainability 53 FOSTERING THE ORGANISATION AND CULTURE 2017 HIGHLIGHTS + Increased employee engagement and sustained enablement as measured by employee engagement survey + Applied leading-edge technology to improve workforce analytics and the management of talent and capability + Increased executive and senior female representation + Increased retention of Indigenous employees 2018 ACTIVITIES + Drive an inclusive high-performing culture + Increase activities to grow outstanding leaders + Optimise workforce performance + Build diverse capability We continue to grow outstanding leaders, build diverse capability, drive an inclusive high-performing culture and optimise workforce performance. Productivity progress In 2017, we focused on optimising workforce productivity. We maintained a consistent overall workforce size and global voluntary turnover remained at 3.2% year on year. Our 2017 employee engagement survey results showed we have an engaged and enabled workforce. Since 2013, our engagement levels have continued to climb above the oil and gas industry average and now sit just below global top-performing companies. The results reveal that our staff are confident in Woodside’s direction and goals, and are committed to values-led growth. In 2018, we will commence activities to increase enablement levels. In 2017, we continued the roll-out of our talent management software that improves our workforce analytics and the management of talent and capability. Building culture and capability Woodside continues to drive an inclusive values-led high- performing culture. One way in which we do this is by growing outstanding leaders and building the capability of our workforce. In 2017, we established the Leaders as Coaches Engagement and enablement Indigenous employment rate 74 Engagement (%)¹ 70 Enablement (%)² 66 66 3 2 . % 3 3 . 0 3 . 6 2 . 6 2 . . 7 2 2015 2017 12 13 14 15 16 17 63 63 2013 1. Engagement measures commitment, loyalty and willingness to put in discretionary effort under Korn Ferry | Hay Group’s Engagement Performance Framework. 2. Enablement measures our workforce’s perception about the right people being in the right roles in a work environment conducive to productivity, under Korn Ferry | Hay Group’s Engagement Performance Framework. 54 Woodside Petroleum Ltd | Annual Report 2017 program to enhance our leaders’ coaching skills and support them to build the technical, leadership and safety capability of their respective teams. This program was designed and developed internally to cater for Woodside’s needs and has delivered cost savings for the business. We continued to provide our employees with experience-based opportunities to mature our global leadership capability and readiness for growth. Woodside provides employees with opportunities to temporarily join other companies and Woodside entities overseas to gain exposure to international operations, global strategies, country- specific regulations and increase cultural awareness. Our Development Centres objectively assess and develop leadership capability against global benchmarks. There are currently 100 employees on internal cross-functional rotations, which aim to broaden their experience across our value chain. Our Graduate Development Program provides structured learning opportunities to accelerate time to autonomy. Our ability to grow outstanding leaders remains evident with 68% of senior leader appointments in 2017 coming from internal candidates. The percentage of graduate hires over mid-career external hires is steady at 69%, comparable to 67% in 2016. We remain committed to extending our employees’ tertiary education qualifications and, through our Production Training Academy, we support the ongoing development of the core skills competencies for our operator and maintenance technician workforce. We continue to embrace our values-led culture through our Woodside Compass, which outlines our approach to growing a successful and sustainable business. In 2017, we refreshed the Compass to reflect our evolved strategic direction and reinforce our drive to innovate, collaborate and accelerate. Our values remain the same and we are committed to doing what is right so we can perform to our very best. Woodside employees discussing staff survey results. Inclusion and diversity Woodside recognises that an inclusive culture that promotes diversity, respect and a sense of belonging is a key contributor to our success. Our Inclusion and Diversity Policy outlines our commitment. In 2017, we progressed our employment-related 2016–2020 Reconciliation Action Plan (RAP) activities and continued to implement our Gender Diversity Strategy. Our employee community groups, including Spectrum (for lesbian, gay, bisexual, transgender and intersex staff and allies), Gender Equality Matters (for staff interested in gender equality) and Woodside Reconciliation Community (for Indigenous and interested staff) are assisting the promotion and implementation of inclusive behaviours and initiatives. We increased our directly employed Indigenous workforce from 103 employees in 2016 (3.0% of the total workforce) to 117 employees (3.3% of the total workforce and a 10% increase on 2016). This has been supported by our strong retention, with the turnover rate declining from 2.9% in 2016 to 1.7% in 2017, and the continuation of our pathways programs that increase our talent pool. This year we made offers to eight Indigenous candidates to join the graduate program. There are 27 Karratha- based Indigenous apprentices and trainees and 10 cadets undergoing tertiary study and work placement at Woodside. There were 22 Indigenous tertiary scholarships active in 2017. In 2017, we advanced our strategy to drive sustainable improvements in gender diversity across all levels of the workforce. Female representation increased to 29%, which is a favourable comparison to the industry average of 22%.1 Voluntary turnover is 4.5% and the return rate from parental leave is 95%. This is supported by gender-balanced graduate, apprentice and trainee development programs. Executive female representation increased from 19.6% in 2016 to 23.9%. Similarly, senior female representation increased from 15.9% in 2016 to 17.6% in 2017. 1. The World Petroleum Council and The Boston Consulting Group, 2017. Woodside Petroleum Ltd | Sustainability 55 BUILDING A RESILIENT BUSINESS 2017 HIGHLIGHTS + Commenced robotics site trials + Completed the installation of WiFi across all Karratha Gas Plant (KGP) LNG trains + Signed WorldBank Zero Routine Flaring initiative 2018 ACTIVITIES + Install a lithium-ion battery on the Goodwyn A (GWA) production platform Woodside’s robotics team successfully conducting site trials at Pluto LNG. Technology and innovation We aim to enhance Woodside’s competitiveness through innovation and applying technology that enables resource development, reduces unit costs and increases production. In mid-2017, we took delivery of one of NASA’s Anthropomorphic Robonauts, which will be on loan to Woodside for a five-year deployment in Perth. At present, the Robonaut is testing tasks that have been suggested by our Operations workforce. The Robonaut complements Woodside’s own robotics program that includes machines capable of conducting tele-operated and semi-autonomous patrols and inspections. The first site trial of our patrol and inspection machines took place in November at the Pluto LNG facility and further trials will be conducted in 2018. Woodside has advanced artificial intelligence and data analytics capabilities with the introduction of Willow, our cognitive adviser. Willow digests vast amounts of information using complex algorithms and is designed to interact with staff using natural language. Willow enables our people to unlock the collective intelligence of the organisation both past and present, allowing 56 Woodside Petroleum Ltd | Annual Report 2017 all employees to access cognitive and advanced analytics applications that are built using a range of data science tools updated with live streaming data from our assets. In December 2017, Woodside announced an agreement with ABB Australia Pty Ltd to install a lithium-ion battery energy storage system on the GWA platform. The installation of the 1 megawatt hour battery will reduce the need for back- up capacity (known as spinning reserve) in GWA platform’s power generation system and is expected to reduce fuel gas consumption by more than 2,000 tonnes per year. This is estimated to decrease the platform’s fuel gas emissions by 5% and positions Woodside as an early adopter of battery storage technology in oil and gas operations. During 2017, we completed the installation of WiFi across all KGP LNG trains. In 2018, we will connect the remainder of the plant to WiFi, providing site-wide availability. WiFi provides employees with greater access to services and support in the field, improving productivity and plant availability. The KGP WiFi technology provides a fast and cost-effective way of acquiring additional data to support operations and business decision making. Woodside also continues to invest in FutureLab, our collaboration hubs based at Monash and Curtin Universities and the University of Western Australia, that supports the delivery of our Intelligent Enterprise, Plant of the Future and Offshore Transformation work programs. CYBER-SECURITY A cyber incident presents a risk to the integrity and availability of Woodside’s operations and the confidentiality of corporate information. Globally, cyber-security threats remain persistent and adversarial with an ever-increasing level of frequency, sophistication and severity. Woodside manages a range of risk controls to ensure adequate protection from, detection of and response to cyber-attacks. Climate change Woodside has a Climate Change Policy and a defined climate change approach focused on: + Ensuring the resilience of our portfolio + Improving the carbon performance of our facilities and developments + Communicating the future role of gas. Resilience of our portfolio As part of Woodside’s business planning, we have modelled long-term energy outlook scenarios. We use our standard business processes to manage the risks and opportunities associated with climate change. Our latest Climate Disclosure Project (CDP) response also details how these processes apply to our approach to climate change. Refer to Woodside’s website for our CDP response (www.woodside.com.au). Improving carbon performance Woodside continues to invest in and promote technologies that reduce emissions and promote energy efficiency in our current and future facilities. Woodside is evolving to meet the challenges of a low carbon economy, in which LNG will be a key resource. As the lowest emissions fossil fuel, LNG can reduce emissions by replacing oil or coal. In the long term, LNG has an important role in the energy mix, including providing low-emissions, reliable power as the rise of renewables increases intermittency in power generation. Communicating the future role of gas We acknowledge that our investors, regulators and other stakeholders want us to be transparent about the impact of climate change on our business. We continue to deliver natural gas as a key part of the long-term energy mix. About 90% of the emissions from Woodside’s value chain comes from our customers using our products. This means that the greatest opportunities to impact global emissions come from how and where our customers use our products. Refer to the Sustainable Development Report 2017 for further information on our approach to climate change. Refer to Risk on page 62 for more information. LNG FUELS We are building a truck-loading facility at our Pluto LNG facility to support the switch to LNG from higher-emitting fuels such as diesel in heavy transport and in remote power generation throughout the resource-rich Pilbara region. If even a third of the Pilbara’s diesel is replaced by LNG, it could reduce Australia’s emissions by up to 2 million tCO₂e, or more than 50% of Woodside’s direct emissions. Woodside Petroleum Ltd | Sustainability 57 OPERATING RESPONSIBLY 2017 HIGHLIGHTS + TRIR score of 1.29, a 21% improvement on 2016 + Awarded the 2017 APPEA Environment and Health and Safety awards + No Tier 1 or 2 process safety events + Delivered 61 kt CO₂e savings of the 389 kt CO₂e 2020 target in 2017 2018 ACTIVITIES + Execute planned energy efficiency and greenhouse gas improvement projects + Refresh our Golden Safety Rules, improving industry alignment and enabling global application + Monitor the effectiveness of the Process Safety Management framework across the value chain to manage risk + Build on our data analytics capability to learn from incidents and prevent reoccurrence, and continue to use industry partnerships to share incident lessons Process safety Maintaining facility integrity is essential to prevent a loss of integrity of structures, equipment, piping or wells with the potential to cause a loss of containment. Process Safety Management (PSM) provides a disciplined framework for ensuring integrity across the value chain. In October 2017, asset integrity management was further improved through an online tool that helps manage integrity envelopes, or the boundaries in which asset systems should operate. The tool provides automated and real-time integrity envelope monitoring. This supports operations to provide timely response to manage process safety risk. This year, we extended our process safety curriculum and competency assessment program to brownfields contractors at the Karratha Gas Plant. This is part of a broader focus to make process safety real and relevant to all employees and contractors. To date, over 350 contractors have completed the training. Perfect HSE Day Woodside’s safety performance has continued to improve with a 69% reduction in Total Recordable Injury Rate (TRIR) since 2012. To support ongoing improvement and to increase personal ownership of Health, Safety, Environment (HSE) performance, the Perfect HSE Day concept was launched across the organisation in 2017. The concept makes a positive change by creating a common language which consolidates existing HSE processes and tools under a global HSE banner. The concept was the focus of Woodside’s annual Stand Together for Safety week. Since the launch of the Perfect HSE Day and in conjunction with other HSE activities, Woodside’s health and personal safety performance has improved, achieving the best TRIR performance to date. Peer recognition In May 2017, Woodside was awarded both the Australian Petroleum Production & Exploration Association (APPEA) Safety Excellence Award and the APPEA Environment Excellence Award for our performance, leadership and collaboration in safety and environmental management. Advanced data analytics Data analytics and cognitive computing provide an opportunity to generate better insights into Woodside’s health, safety, environment and quality (HSEQ) performance to support Total recordable injury rate (TRIR) performance Lost time injuries (LTI) and Lost time injury frequency (LTIF) Tier 1 and 2 process safety events (PSEs) 3.00 d e k r o w s r u o h n o i l l i m r e p R R T I 1.90 1.71 1.64 0.90 0.91 0.81 0.81 1.29 0.61 8 4 ) # ( s e i r u n j I ) # ( s t n e v E 0.43 6 0.22 3 0.43 6 0.28 4 d e k r o w s r u o h n o i l l i m r e p s e i r u n j I 2 2 1 1 13 14 15 16 17 13 14 15 16 17 13 14 15 16 Woodside IOGP top quartile actual LTIF (LHS) LTI (RHS) Tier 1 Tier 2 0 17 58 Woodside Petroleum Ltd | Annual Report 2017 continuous improvement. In March 2017, the Watson for HSEQ data analytics and cognitive computing tool was created to analyse large amounts of information and present it in an accessible manner. The tool has already digested more than 30 years of incident and operational data to help analyse information to better manage risks. Watson for HSEQ is also valuable in supporting incident investigations, improving the quality of our learning from incidents and supporting risk assessments and hazard studies. Workplace health To support Woodside’s global growth, an integrated travel risk management solution was implemented to manage health exposure for business travellers and employees based in our international offices. The new travel risk management solution consolidated three systems, streamlined processes and aligns with leading practice in travel risk management. Woodside is a supporter of mental health awareness, actively participating in World Mental Health Day and the R U OK? initiative as well as contributing to committees promoting mental health across the community. HSE Representatives Network Our HSE Representatives Network includes 140+ frontline Woodside employees and contractors from across our production assets who have committed to promoting health, safety and environment in the workplace. Our representatives are important HSE leaders and change agents and have a critical role in continuing to lift our HSE performance and culture. The 2017 HSE Representatives improvement project has delivered greater structure, role clarity, fit-for-purpose resources and improved support for this network. More than 70 representatives attended two HSE forums held in late 2017 to share success stories, create stronger networks and engage in HSE professional development activities. Environment performance Woodside HSEQ policy underpins our aim to minimise the impact of our operations on the environment in which we work. To support our goal of achieving 5% energy efficiency improvement by end 2020, fuel intensity metrics for Woodside- operated production assets continued to be monitored in 2017. Whilst fuel intensity performance slightly exceeded target, a pathway to achieving our goal has been established with a number of additional energy efficiency projects scheduled to be implemented in 2018 and 2019. In 2017, Woodside implemented emissions savings projects totalling approximately 61 kt CO₂e. While 2017 performance was slightly above target, Woodside has renewed our commitment to achieving 5% energy efficiency improvement by implementing 389 kt CO₂e of sustained emissions savings by end 2020. Annual flare performance was affected by unplanned outages at our onshore gas plants. Maintenance activities involving the flare system at the KGP are expected to improve performance in the first half of 2018. Biodiversity Robust science is core to Woodside’s environmental management approach and processes. We rely on having the best knowledge to support our understanding of the local environment and our potential impacts upon it. In 2017, we continued our collaboration with our partners such as BirdLife, Fauna and Flora International (FFI), Wildlife Conservation Society (WCS), Australian Institute of Marine Science (AIMS) and the Western Australian Museum. The overall goal of our partnership with WCS in Myanmar is to develop a deeper understanding of the fishing community and marine environment along some of Myanmar’s western coastline. In parallel, a collaboration with FFI and Myanmar’s Pathein University aims to build the capacity of marine science staff and students to understand and assess Myanmar’s coastal and marine habitats. Our current work with BirdLife is focused on the East Asian Australian Flyway (EAAF). Woodside continues to coinvest in marine environmental science with research-based organisations and universities in Australia and overseas. Refer to the Sustainable Development Report 2017 for further information on Operating Responsibly. Outlook Supported by the Perfect HSE Day, our focus is to continue to improve our health, safety and environmental performance. We will continue to drive the development of energy-efficiency initiatives to support our commitment to sustained emissions savings by the end of 2020. We will strive for excellence in identifying and mitigating HSE risks and impacts to protect our people, communities and environment. Flared gas Fuel intensity n o i t c u d o r p f o e n n o t o l i k r e p e n n o T 12.7 4 . 1 2 4 5 . 1 2 1 13 10.0 . 8 9 4 3 . 4 0 7 1 14 9.1 8 . 1 1 3 5 . 1 6 1 15 n o i t c u d o r p f o e n n o t r e p J G s e n n o t o l i K 9.5 . 5 0 8 2 1 . 3 2 1 17 6.1 . 0 0 1 2 . 7 0 9 16 4.56 2 5 4 . 2016 4.68 3 6 4 . 2017 Baseline fuel intensity Operated fuel intensity Flared intensity - operated (LHS) Total flaring - equity (RHS) Total flaring - operated (RHS) Baseline fuel intensity is calculated using actual production. Woodside Petroleum Ltd | Sustainability 59 Looking out to sea from the Pluto LNG dolphin wharf. E T A R O P R O C RISK Woodside maintains a robust and disciplined focus on operational excellence and effective risk management. We do this so that we understand and manage risk to help achieve our objectives. Our risk management process is designed to recognise and manage risks that have the potential to materially impact Woodside’s business objectives. The process is aligned to International Standard ISO31000 for risk management and assesses potential risks in areas such as health and safety, environment, finance, reputation and brand, legal and compliance, and social and cultural impacts. Refer to the Sustainable Development Report 2017 for more information on sustainability issues of importance to our stakeholders and our business. Refer to Woodside’s Corporate Governance Statement for more information (www.woodside.com.au/ Working-Sustainably/governance-and-compliance). An overview of our material risks is summarised below. CONTEXT RISK MITIGATION Our future growth depends on our ability to identify, acquire, explore and develop reserves. The commercially recoverable quantity of gas, oil and condensate within reserves is estimated with reasonable certainty based on anticipated conditions. Efficient and cost-competitive commercialisation of hydrocarbons is a contributor to our success. Safety, reliability and integrity in production and delivery of hydrocarbon products influence our licence to operate and our ability to achieve superior shareholder returns. Our business relies on a variety of information technology systems. Unsuccessful exploration and renewal of upstream resources may impede delivery of our strategy. Estimates of economically recoverable reserves are based upon a number of factors and assumptions, such as geological and engineering estimates and judgements, the assumed effects of government regulation and estimates of future commodity prices and operating costs, all of which may vary considerably from actual results. Variation in reserve quantities may result in lower future production volumes, impairment of assets or decreased earnings, cash flows and financial performance. A failure to successfully commercialise our hydrocarbons by selecting sub-optimal development options or failing to execute projects that achieve cost, quality and schedule expectations may reduce the value we can secure from future developments and negatively impact our financial performance. Sustained, unplanned interruption to production may impact our licence to operate and financial performance. Our facilities are subject to operating hazards, inclement weather and disruption to supply chain, which can result in a loss of hydrocarbon containment, diminished production, additional costs, environmental damage or harm to our people, reputation or brand. The integrity, availability and reliability of data within Woodside’s information and operations technology systems may be subject to intentional or unintentional disruption (e.g. cyber security attack). Exposure to reserve depletion is addressed by our comprehensive exploration strategy together with our capability in geosciences and deep-water exploration. Our disciplined management of opportunities and acquisitions, together with the application of new technologies and recovery processes, further addresses this risk. Our framework of petroleum resources and reservoir management processes provide assurance for reserves estimation and reporting. These incorporate the Woodside Reserves Policy, the Petroleum Resources Management Procedure and competency and training minimum requirements. Our reserves are also reviewed through external audits. Central to the management of this risk is our focus on creating effective commercial arrangements with a range of participants, stakeholders and contractors. In addition, we continue to invest in robust and high-quality opportunity development and project management systems. Our extensive framework of controls enables the management of these risks. This includes production processes, drilling and completions and well-integrity management processes, inspection and maintenance procedures and performance standards. This framework is supported by the ongoing engagement we have with regulators. Our exposure to cyber security risk is managed by a robust control framework and the continuing focus on system control improvements, supported by an established and embedded security strategy across the organisation. 62 Woodside Petroleum Ltd | Annual Report 2017 CONTEXT RISK MITIGATION External market conditions, including volatility in commodity prices and demand for our products, impact our financial performance. Woodside’s technology strategy is focused on maintaining competitive advantage through innovation to generate value for our business. Access to capital, capital allocation and management of financial risks underpin our business performance. Commercial transactions, obligations or liabilities may impact Woodside’s portfolio. Our business activities are subject to extensive regulation and government policy. Woodside faces climate- change risks including changes in product demand, carbon pricing, uncertainty surrounding future regulatory frameworks and increased stakeholder expectations. Bribery and corruption present a significant threat to commercial organisations and communities worldwide. Commodity prices are variable and are impacted by global economic factors beyond Woodside’s control. Demand for and pricing of our products remain sensitive to external economic and political factors, weather, natural disasters, introduction of new and competing supply, and change within buyer preferences for differing products and price regimes. Woodside mitigates the uncertainty associated with product demand by selling LNG in a portfolio manner and under long-term ‘take or pay’ sale agreements, in addition to the spot market. Our low cost of production and disciplined approach to balance sheet risk management further mitigate this exposure. Unsuccessful development and delivery of new technology and new products through innovation may impact competitive advantage. We are exposed to treasury and financial risks, including liquidity, changes in interest rates, fluctuation in foreign exchange and credit risk. Insufficient liquidity to meet financial commitments and fund growth opportunities could have a material adverse effect on our operations and financial performance. Our financing costs could be affected by interest rate fluctuations or deterioration to our long-term investment-grade credit rating. We are exposed to credit risk. Our counterparties could fail or could be unable to meet their payment and/or performance obligations under contractual arrangements. Commercial transactions undertaken with the objective of growing Woodside’s portfolio incur a number of risks that may impact the ability to deliver anticipated value. These include sub- optimal commercial outcomes; the imposition of unfavourable or a change in fiscal conditions, obligations or liabilities; and operational performance of acquired assets not meeting expectations. In each of the countries where we do business, Woodside is subject to various national and local laws, regulations and approvals. These relate to the exploration, development, production, marketing, pricing, transport and storage of our products, and changes or failure to comply with these may impact our licence to operate. Demand for oil and gas may subside as lower carbon substitutes take market share. Global climate-change policy remains uncertain and has the potential to constrain Woodside’s ability to create and deliver stakeholder value. Violation of anti-bribery and corruption laws may expose Woodside to fines, criminal sanctions and civil suits, and negatively impact our reputation. We are reducing unit costs for developments and deploying technology solutions in new business opportunities to deliver our strategic objectives. We aim to respond nimbly to emerging trends, disruptive innovations and complementary technologies. Woodside maintains a flexible approach to capital management. The overall level of investment in the different areas of our business and the investment mix are adjusted to reflect the external environment. Our capital management strategy focuses on capital allocation, capital discipline and capital efficiency. Our extensive framework of financial controls, including monitoring of counterparties, enables the management of these risks. The US dollar reflects the majority of Woodside’s underlying cash flows and is used in our financial performance reporting, reducing our exposure to currency fluctuations. Our commercial processes are designed to reduce the likelihood of these risks materialising as a result of a commercial transaction. We focus on maintaining a disciplined approach to ensure that we continue to increase shareholder value and appropriately manage risk. As we increase our global footprint, we continue to strengthen our regulatory compliance framework and supporting tools. We also proactively maintain relationships with governments and regulators within countries in which we operate and those of interest. We are focusing on ensuring our portfolio is robust in a carbon-constrained market, improving our energy efficiency and maintaining engagement with key industry and government stakeholders. We are implementing strategies to diversify our product mix, diversify use of our products, broaden our customer base and increase our portfolio resilience. Our Fraud and Corruption Control Program provides a clear framework to help prevent, detect and respond to dishonest or unethical behaviour. The framework incorporates policies, programs, training, standards and guidelines that help ensure that all activities are conducted ethically, honestly and to a high standard. Refer to Unreasonable Prejudice and Forward-looking Statements on page 142 for more information. Woodside Petroleum Ltd | Corporate 63 RESERVES AND RESOURCES Start-up of Persephone and Wheatstone adds 29 MMboe to Proved (1P) Developed reserves while progression of development planning for Pyxis contributes 39 MMboe to Greater Pluto Proved plus Probable (2P) reserves. Woodside’s¹,²,³,⁴ reserves and contingent resources⁵ overview* (Woodside share, as at 31 December 2017) Proved11 Developed13 and Undeveloped14 Proved Developed Proved Undeveloped Proved plus Probable12 Developed and Undeveloped Proved plus Probable Developed Proved plus Probable Undeveloped Contingent resources *Small differences are due to rounding. Key metrics Dry gas Bcf 4,983.0 2,623.9 2,359.1 6,538.5 3,532.1 3,006.4 26,043.8 Condensate MMbbl Oil MMbbl 88.8 46.4 42.4 117.0 62.1 54.8 48.5 17.5 31.0 69.9 27.9 42.0 236.9 206.0 Total MMboe 1,011.5 524.2 487.3 1,333.9 709.7 624.3 5,012.0 2017 reserves replacement ratio15 Organic 2017 reserves replacement ratio16 Three-year reserves replacement ratio Organic three-year reserves replacement ratio Reserves life17 Annual production18 Net acquisitions and divestments % % % % Years MMboe MMboe Proved Proved plus Probable 23 23 87 19 11 88.5 0.0 -23 -23 98 5 15 88.5 0.0 1P Reserves 2P Reserves 2C Contingent resources 1 3 2 , 1 3 4 1 , 1 0 5 1 , 1 3 4 1 , 1 0 8 0 , 1 2 1 0 , 1 e o b M M e o b M M 3 4 5 , 1 7 3 4 , 1 9 3 3 , 1 8 0 5 , 1 2 4 4 , 1 4 3 3 , 1 4 1 0 5 , 2 1 0 5 , 8 9 3 4 , e o b M M 5 4 7 , 1 2 9 6 , 1 3 4 7 , 1 12 13 14 15 16 17 12 13 14 15 16 17 12 13 14 15 16 17 64 Woodside Petroleum Ltd | Annual Report 2017 Developed and Undeveloped reserves annual reconciliation by product* (Woodside share, as at 31 December 2017) Dry gas6 Bcf8 Condensate7 MMbbl9 Oil MMbbl ) P 1 ( d e v o r P l s u p d e v o r P l e b a b o r P ) P 2 ( ) P 1 ( d e v o r P l s u p d e v o r P l e b a b o r P ) P 2 ( ) P 1 ( d e v o r P l s u p d e v o r P l e b a b o r P ) P 2 ( Total MMboe10 ) P 1 ( d e v o r P l s u p d e v o r P l e b a b o r P ) P 2 ( 5,326.1 7,089.5 94.9 124.2 50.5 74.4 1,079.8 1,442.4 -68.4 147.5 0.0 0.0 -422.2 -308.0 179.2 0.0 0.0 -422.2 -0.1 1.6 0.0 0.0 -7.6 -1.2 1.6 0.0 0.0 -7.6 4.4 0.4 0.0 0.0 -6.8 1.6 0.6 0.0 0.0 -6.8 -7.7 27.9 0.0 0.0 -88.5 -53.6 33.6 0.0 0.0 -88.5 4,983.0 6,538.5 88.8 117.0 48.5 69.9 1,011.5 1,333.9 Reserves at 31 December 2016 Revision of previous estimates19 Transfer to/from reserves Extensions and discoveries20 Acquisitions and divestments Annual production Reserves at 31 December 2017 *Small differences are due to rounding. Best Estimate Contingent resource annual reconciliation by product* (Woodside share, as at 31 December 2017) Best Estimate Contingent resource summary by region* (Woodside share, as at 31 December 2017) Dry gas Bcf Condensate MMbbl Oil MMbbl Total MMboe Project Dry gas6 Bcf8 Condensate7 MMbbl9 Oil MMbbl Total MMboe10 -178.3 26,053.7 Contingent resources at 31 December 2016 Transfer to/from reserves Revision of previous estimates Extensions and discoveries Acquisitions and divestments Contingent resources at 31 December 2017 26,043.8 168.4 0.0 0.0 236.6 206.9 5,014.2 -1.6 -0.6 -33.4 1.9 0.0 0.0 -0.3 31.2 0.0 0.0 0.0 0.0 Greater Browse26 Greater Sunrise28 Greater Pluto21 Greater Exmouth23 North West Shelf22 Wheatstone24 Canada25 Senegal30 Greater Scarborough27 Myanmar29 4,881.0 1,716.8 619.9 307.4 289.8 20.3 14,976.0 0.0 2,765.1 467.5 142.6 75.6 8.2 2.1 8.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 39.3 16.8 0.0 0.0 998.9 376.7 117.0 95.2 75.8 3.9 2,627.4 150.0 150.0 0.0 0.0 485.1 82.0 236.9 206.0 5,012.0 Total 26,043.8 236.9 206.0 5,012.0 *Small differences are due to rounding. *Small differences are due to rounding. 1P Reserves by region (Developed and Undeveloped) 2P Reserves by region (Developed and Undeveloped) 2C Contingent resource by region 1,012 MMboe 1,334 MMboe 5,012 MMboe lGreater Pluto lNorth West Shelf lGreater Exmouth % 50 27 4 lWheatstone lCanada % 19 <1 lGreater Pluto lNorth West Shelf lGreater Exmouth % 52 23 4 lWheatstone lCanada % 20 1 lGreater Browse lGreater Sunrise lGreater Pluto lGreater Exmouth lNorth West Shelf % % 20 lWheatstone <1 8 lCanada 52 2 lSenegal 3 2 lGreater Scarborough 10 1 lMyanmar 2 Woodside Petroleum Ltd | Corporate 65 Proved (1P) Developed and Undeveloped reserves by region* Dry gas Bcf l d e p o e v e d n U d e p o e v e D l l a t o T Greater Pluto21,31 1,089.3 1,551.2 2,640.5 North West Shelf22,31 1,014.8 303.9 1,318.7 Greater Exmouth²³ 0.0 0.0 0.0 Wheatstone24 486.8 504.0 990.8 Condensate MMbbl d e p o e v e D l 14.8 19.8 0.0 11.8 0.0 l d e p o e v e d n U 25.4 8.8 0.0 8.3 0.0 Oil MMbbl l d e p o e v e d n U 0.0 0.0 31.0 0.0 0.0 Total MMboe l d e p o e v e d n U l a t o T 297.5 503.4 62.1 31.0 96.7 0.0 270.6 37.9 193.8 5.8 d e p o e v e D l 205.9 208.5 6.9 97.1 5.8 l a t o T 0.0 10.6 37.9 0.0 0.0 31.0 48.5 524.2 487.3 1,011.5 d e p o e v e D l 0.0 10.6 6.9 0.0 0.0 17.5 l a t o T 40.1 28.6 0.0 20.0 0.0 88.8 Canada25 Reserves 33.0 0.0 33.0 2,623.9 2,359.1 4,983.0 46.4 42.4 *Small differences are due to rounding. Proved plus Probable (2P) Developed and Undeveloped reserves by region* Dry gas Bcf l d e p o e v e d n U d e p o e v e D l l a t o T Greater Pluto 1,688.2 1,920.2 3,608.4 North West Shelf 1,159.4 332.5 1,492.0 Greater Exmouth Wheatstone Canada Reserves 0.0 631.5 53.0 0.0 0.0 753.6 1,385.1 0.0 53.0 3,532.1 3,006.4 6,538.5 *Small differences are due to rounding. Condensate MMbbl l d e p o e v e d n U 32.3 9.9 0.0 12.6 0.0 l a t o T 54.8 34.3 0.0 27.8 0.0 d e p o e v e D l 22.5 24.4 0.0 15.2 0.0 62.1 Oil MMbbl l d e p o e v e d n U 0.0 0.0 42.0 0.0 0.0 d e p o e v e D l 0.0 13.7 14.2 0.0 0.0 Total MMboe l d e p o e v e d n U 369.2 68.3 42.0 l a t o T 687.9 309.8 56.2 144.8 270.8 0.0 9.3 d e p o e v e D l 318.7 241.5 14.2 126.0 9.3 l a t o T 0.0 13.7 56.2 0.0 0.0 54.8 117.0 27.9 42.0 69.9 709.7 624.3 1,333.9 Qualified petroleum reserves and resources evaluator statement The Reserves and Resources Statement is based on and fairly represents information and supporting documentation prepared by qualified petroleum reserves and resources evaluators. The Reserves and Resources Statement has been approved by Mr Ian F. Sylvester, Woodside’s Vice President of Reservoir Management, who is a full-time employee of the company and a member of the Society of Petroleum Engineers. 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). Woodside has several processes to provide assurance for reserves reporting, including the Woodside Reserves Policy, the Petroleum Resources Management Procedure, staff training and minimum competency levels and external reserves audits. On average, 97% of Woodside’s Proved Reserves have been externally verified by independent review over the past four years. Unless otherwise stated, all petroleum resource estimates are quoted as net Woodside share at standard oilfield conditions of 14.696 pounds per square inch (psi) (101.325 kPa) and 60 degrees Fahrenheit (15.56 degrees Celsius). 66 Woodside Petroleum Ltd | Annual Report 2017 Notes to the reserves and resources statement ‘Reserves’ are estimated quantities of petroleum that have been 1. 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. 2. Assessment of the economic value of a project, in support of a reserves booking, uses Woodside Portfolio Economic Assumptions (PEAs). The PEAs are reviewed on an annual basis or more often if required. The review is based on historical data and forecast estimates for economic variables such as product prices and exchange rates. The PEAs are approved by the Woodside Board. Specific contractual arrangements for individual projects are also taken into account. 3. Woodside uses both deterministic and probabilistic methods for estimation of petroleum resources at the field and project levels. Unless otherwise stated, all petroleum estimates reported at the company or region level are aggregated by arithmetic summation by category. Note that the aggregated Proved level may be a very conservative estimate due to the portfolio effects of arithmetic summation. 4. Woodside reports reserves net of the fuel and flare required for production, processing and transportation up to a reference point. For offshore oil projects, the reference point is defined as the outlet of the floating production storage and offloading facility (FPSO). For onshore LNG projects, the reference point is defined as the inlet to the downstream (onshore) processing facility. For offshore LNG projects (floating liquefied natural gas (FLNG)), the reference point is defined as the outlet of the FLNG facility. Downstream fuel and flare represents 9.5% of Woodside’s Proved (Developed and Undeveloped) reserves, and 9.9% of Proved plus Probable (Developed and Undeveloped) 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 fuel and flare required for production, processing and transportation up to a reference point and non-hydrocarbons not present in sales products. Contingent resources 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. ‘Dry gas’ is defined as ‘C4 minus’ petroleum components including non-hydrocarbons. These volumes include LPG (propane and butane) resources. Dry gas reserves and contingent resources 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. ‘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. ‘Probable reserves’ are those reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. Proved plus Probable reserves represent the best estimate of recoverable quantities. Where probabilistic methods are used, there is at least a 50% probability that the quantities actually recovered will exceed the sum of estimated Proved plus Probable reserves. 5. 6. 7. 8. 9. 10. 11. 12. 13. ‘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. 14. ‘Undeveloped reserves’ are those reserves for which wells and facilities have not been installed or executed but are expected to be recovered through future investments. 15. The ‘reserves replacement ratio’ is the reserves (Developed and Undeveloped) change during the year, before the deduction of production, divided by production during the year. The ‘three- year reserves replacement ratio’ is the reserves (Developed and Undeveloped) change over three years, before the deduction of production for that period, divided by production during the same period. 16. The ‘organic annual reserves replacement ratio’ is the reserves (Developed and Undeveloped) change during the year, before the deduction of production and adjustment for acquisition and divestments, divided by production during the year. 17. The ‘reserves life’ is the reserves (Developed and Undeveloped) divided by production during the year. 18. ‘Annual production’ is the volume of dry gas, condensate and oil produced during the year and converted to ‘MMboe’ for the specific purpose of reserves reconciliation and the calculation of reserves replacement ratios. The ‘Reserves and resources statement’ annual production differs from production volumes reported in the company’s annual and quarterly reports due to differences between the sales and reserves product definitions, reserves reported gross of downstream fuel and flare and the ‘MMboe’ conversion factors applied. 19. ‘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 or reservoir modelling to estimate volumes reasonably expected to be recovered from wells in the relevant project. 20. ‘Extensions and discoveries’ represent additions to reserves or contingent resources that result from increased areal extensions of previously discovered fields, discovery of reserves or contingent resources in new fields, or new reservoirs in old fields. 21. The ‘Greater Pluto’ region comprises the Pluto-Xena, Larsen, Martell, Martin, Noblige, Pyxis and Remy fields. 22. 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 17.5% of NWS Proved (Developed and Undeveloped) dry gas reserves and 22.7% of NWS Proved (Developed and Undeveloped) condensate reserves. 23. The ‘Greater Exmouth’ region comprises the Vincent, Enfield, Greater Enfield, Greater Laverda, Ragnar and Toro fields. 24. The ‘Wheatstone’ region comprises the Julimar and Brunello fields. 25. The ‘Canada’ region comprises unconventional resources in the Liard Basin. 26. The ‘Greater Browse’ region comprises the Brecknock, Calliance and Torosa fields. 27. The ‘Greater Scarborough’ region comprises the Jupiter, Scarborough and Thebe fields. 28. The ‘Greater Sunrise’ region comprises the Sunrise and Troubadour fields. 29. ‘The Myanmar’ region comprises the Shwe Yee Htun and Thalin fields. 30. The ‘Senegal’ region comprises the SNE field. 31. Material concentrations of undeveloped reserves in Greater Pluto and North West Shelf have remained undeveloped for longer than five years from the dates they were initially reported, as the incremental reserves are expected to be recovered through future developments to meet long-term contractual commitments. The incremental projects are included in the company business plan, demonstrating the intent to proceed with the developments. Woodside Petroleum Ltd | Corporate 67 Woodside’s outgoing Chairman, Michael Chaney, AO, with incoming Chairman-elect, Richard Goyder, AO. E C N A N R E V O G WOODSIDE BOARD MICHAEL CHANEY, AO PETER COLEMAN LARRY ARCHIBALD MELINDA CILENTO FRANK COOPER, AO RICHARD GOYDER, AO CHRISTOPHER HAYNES, OBE IAN MACFARLANE ANN PICKARD SARAH RYAN GENE TILBROOK 70 Woodside Petroleum Ltd | Annual Report 2017 Michael Chaney, AO BSc, MBA, Hon LLD (UWA), FAICD Chairman: Appointed July 2007 Term of office: Director since November 2005 Independent: Yes Experience: Spent 22 years at Wesfarmers Limited, including Managing Director and CEO from 1992 to 2005. Three years with investment bank Australian Industry Development Corporation (1980 to 1983), and prior to that eight years as a petroleum geologist working on the North West Shelf and in the USA and Indonesia. Previously Chairman of National Australia Bank Limited (2004 to 2015) and 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/other interests: Chair: Wesfarmers Limited (director since 2015). Director: The Centre for Independent Studies Ltd (since 2000). Member: Commonwealth Science Council (since 2014) and Australia-Germany Advisory Group. Directorships of other listed entities within the past three years: National Australia Bank Limited (2004 to 2015). Peter Coleman BEng, MBA, FTSE CEO and Managing Director Term of office: Director since 2011 Independent: No Experience: More than 30 years in the global oil and gas business, including 27 years’ experience with the ExxonMobil group, culminating as Vice President Development Company, with responsibility for the development and project work in the Asia-Pacific region. Appointed an Adjunct Professor in Corporate Strategy by the University of Western Australia in 2012. Committee membership: Attends Board committee meetings. Current directorships/other interests: Chair: Australia–Korea Foundation (since 2014). Director: Business Council of Australia (since 2017). Member: The Commonwealth Government’s Advisory Group on Australia–Africa Relations (since 2015) and Executive Committee of the Australia Japan Business Co-operation Council (since 2011). Adviser: Monash Industry Council. Directorships of other listed entities within the past three years: Nil Larry Archibald BSc (Geosciences), BA (Geology), MBA Frank Cooper, AO BCom, FCA, FAICD Term of office: Director since February 2017 Term of office: Director since February 2013 Independent: Yes Independent: Yes Experience: Former ConocoPhillips company executive (2008 to 2015), spending eight years in senior positions including Senior Vice President, Business Development and Exploration, and Senior Vice President, Exploration. Prior to this, spent 29 years at Amoco (1980 to 1998) and BP (1998 to 2008) in various positions including leadership of exploration programs covering many world regions. Experience: More than 35 years’ experience in corporate tax, specialising in the mining, energy and utilities sector, including senior leadership roles at three of the largest accounting firms and director of a leading Australian utility company. Committee membership: Chair of the Audit & Risk Committee. Member of the Human Resources & Compensation and Nominations Committees. Committee membership: Audit & Risk, Sustainability and Nominations Committees. Current directorships/other interests: Non-executive director: MainSail Energy Plc (since 2016). Adviser: Warburg Pincus (since 2016) and Cairn Oil and Gas/Vedanta Limited (since 2017). Member: Geosciences Advisory Board of the University of Arizona. Directorships of other listed entities within the past three years: Nil Melinda Cilento BA, BEc (Hons), MEc Term of office: Director since December 2008 Independent: Yes Experience: Significant public and private sector experience in economic policy development and analysis. 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: Chair of the Human Resources & Compensation Committee. Member of the Sustainability and Nominations Committees. Current directorships/other interests: Chief Executive Officer: Committee for Economic Development of Australia (since 2017). Director: Australian Unity Limited (since 2014). Co-Chair: Reconciliation Australia (director since 2010) and NAB Advisory Council on Corporate Responsibility (member since 2013). Member: Chief Executive Women. Directorships of other listed entities within the past three years: Nil Current directorships/other interests: Chair: Insurance Commission of Western Australia and the University of Western Australia Strategic Resources Committee. Director: St John of God Australia Limited (since 2015) and South32 Limited (since 2015). Member: Senate of the University of Western Australia. President: Western Australia division of the Australian Institute of Company Directors. Trustee: St John of God Health Care (since 2015). Directorships of other listed entities within the past three years: Nil Richard Goyder, AO BCom, FAICD Term of office: Director (Chairman-elect) since August 2017 Independent: Yes Experience: 24 years with Wesfarmers Limited, including Managing Director and CEO from 2005 to late 2017. Chairman of the Australian B20 (the key business advisory body to the international economic forum which includes business leaders from all G20 economies) from February 2013 to December 2014. Committee membership: Member of the Nominations Committee. Attends other Board committee meetings. Current directorships/other interests: Chairman: Australian Football League Commission and JDRF Australia. Director: Qantas Airways Limited (since 2017). Member: Evans and Partners Investment Committee. Directorships of other listed entities within the past three years: Wesfarmers Limited (2002 to 2017). Christopher Haynes, OBE BSc, DPhil, FREng, CEng, FIMechE Term of office: Director since June 2011 Independent: Yes Experience: A 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, seconded to Woodside as General Manager of the North West Shelf Venture. Retired from Shell in 2011. Woodside Petroleum Ltd | Governance 71 Committee membership: Member of the Audit & Risk, Sustainability and Nominations Committees. Current directorships/other interests: Director: WorleyParsons Limited (since 2012). Sarah Ryan BSc (Geophysics) (Hons 1), BSc (Geology), PhD (Petroleum and Geophysics), FTSE Term of office: Director since 2012 President: Energy Industries Council (since 2015). Independent: Yes Directorships of other listed entities within the past three years: Nil Ian Macfarlane Former Australian Federal Minister (Resources; Energy; Industry and Innovation), FAICD Term of office: Director since 2016 Independent: Yes Experience: Australia’s longest-serving Federal Resources and Energy Minister and the Coalition’s longest-serving Federal Industry and Innovation Minister with over 14 years of experience in both Cabinet and shadow ministerial positions. Before entering politics, Mr Macfarlane’s experience included agriculture, and being President of the Queensland Graingrowers Association (1991 to 1998) and the Grains Council of Australia (1994 to 1996). Committee membership: Member of the Human Resources & Compensation, Sustainability and Nominations Committees. Experience: More than 20 years’ experience in the oil and gas industry in various technical, operational and senior management positions, including 15 years with Schlumberger Limited. Currently an energy adviser for institutional investment firm Earnest Partners, having previously been responsible for research and portfolio management from 2007 until 2014. Committee membership: Member of the Audit & Risk, Sustainability and Nominations Committees. Current directorships/other interests: Director: Akastor ASA (since 2014), Central Petroleum Limited (since 2017) and Kinetic Consolidated Pty Ltd (previously Vautron Holdings Pty Ltd) (since 2016). Member: Advisory Board of Unearthed Solutions (since 2017) and Chief Executive Women (since 2016). Advisor to the Chairman: Saxo Bank, Denmark Directorships of other listed entities within the past three years: Nil Current directorships/other interests: Chief Executive: Queensland Resources Council (since 2016). Gene Tilbrook BSc, MBA, FAICD Chair: Innovative Manufacturing Co-operative Research Centre. Term of office: Director since 2014 Member: Toowoomba Community Advisory Committee of the University of Queensland Rural Clinical School. Directorships of other listed entities within the past three years: Nil Ann Pickard BA, MA Term of office: Director since February 2016 Independent: Yes Experience: Retired from Shell in 2016 after a 15-year tenure holding numerous positions, including Executive Vice President Arctic, Executive Vice President Exploration and Production, Country Chair of Shell in Australia, and Executive Vice President Africa. Previously had an 11-year tenure with Mobil prior to its merger with Exxon. Committee membership: Chair of the Sustainability Committee. Member of the Human Resources & Compensation and Nominations Committees. Independent: Yes Experience: Broad experience in corporate strategy, investment and finance. Senior executive of Wesfarmers Limited between 1985 and 2009, including roles as Executive Director Finance and Executive Director Business Development. Committee membership: Member of the Audit & Risk, Human Resources & Compensation and Nominations Committees. Current directorships/other interests: Deputy Chair: National Board of the Australian Institute of Company Directors (since 2016). Director: Orica Limited (since 2013), GPT Group Limited (since 2010) and the Bell Shakespeare Company. Councillor: Curtin University and Western Australia division of the Australian Institute of Company Directors (since 2013). Directorships of other listed entities within the past three years: Fletcher Building Limited (2009 to 2015) and Aurizon Holdings Limited (2010 to 2016). Current directorships/other interests: Director: KBR Inc. (since 2015). David McEvoy BSc (Physics), Grad Dip (Geophysics) Member: Chief Executive Women, Advisory Council of the Eurasia Foundation and Board of University of Wyoming. Directorships of other listed entities within the past three years: Nil Mr David McEvoy retired effective on 5 May 2017 after 11 years of service on Woodside’s Board of Directors. Mr McEvoy served on a number of Woodside Board committees including as Chair of the Sustainability Committee and as a member of the Audit & Risk and Nominations Committees. 72 Woodside Petroleum Ltd | Annual Report 2017 CORPORATE GOVERNANCE STATEMENT We believe high standards of governance and transparency are essential. 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. Woodside’s Compass is core to our governance framework. It sets out our mission, vision and strategic direction and core values of integrity, respect, working sustainably, working together, discipline and excellence. It is the overarching guide for everyone who works for Woodside. Refer to Woodside’s website for more information (www.woodside.com.au/About-Us/Pages/The-Woodside- Compass.aspx#.WnkZm5P1XOQ). Our corporate governance model is illustrated below. The Woodside Management System (WMS) describes the Woodside way of working, enabling Woodside to understand and manage its business to achieve its objectives. It defines the boundaries within which our employees and contractors are expected to work. The WMS establishes a common approach to how we operate, wherever the location. Throughout 2017, our governance arrangements complied with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (third edition). Our Corporate Governance 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. The Corporate Governance Statement discusses arrangements in relation to our Board of Directors, committees of the Board, shareholders, risk management and internal control, the external auditor relationship, and inclusion and diversity. Our website contains copies of Board and committee charters and copies of many of the policies and documents mentioned in the Corporate Governance Statement. The website is updated regularly to ensure that it reflects Woodside’s most current corporate governance information. Refer to Woodside’s Corporate Governance Statement for more information (www.woodside.com.au/ Working-Sustainably/governance-and-compliance). STAKEHOLDERS BOARD DELEGATION ACCOUNTABILITY AUDIT & RISK COMMITTEE HUMAN RESOURCES & COMPENSATION COMMITTEE CHIEF EXECUTIVE OFFICER NOMINATIONS COMMITTEE SUSTAINABILITY COMMITTEE INDEPENDENT ASSURANCE MANAGEMENT GOVERNANCE AND ASSURANCE EXTERNAL AUDIT STRATEGY GUIDELINES AUTHORITIES FRAMEWORK INTERNAL AUDIT RISK MANAGEMENT MAJOR PROJECT ASSURANCE CHECKS MANAGEMENT REVIEW & IMPROVEMENT PROCESSES & PROCEDURES EXPECTATIONS COMPASS & POLICIES WOODSIDE MANAGEMENT SYSTEM OPERATING STRUCTURE MANAGEMENT COMMITTEES Woodside Petroleum Ltd | Governance 73 DIRECTORS’ REPORT The directors of Woodside Petroleum Ltd present their report (including the Remuneration Report) together with the Financial Statements of the consolidated entity, being Woodside Petroleum Ltd and its controlled entities, for the year ended 31 December 2017. Directors The directors of Woodside Petroleum Ltd in office at any time during or since the end of the 2017 financial year and information on the directors (including qualifications and experience and directorships of listed companies held by the directors at any time in the last three years) are set out on pages 70–72. 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 3 on page 9 of the Corporate Governance Statement. Directors attended all relevant Board and committee meetings during the year. Details of director and senior executive remuneration are set out in the Remuneration Report. The particulars of directors’ interests in shares of the company as at the date of this report are set out on page 75. 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 $1,024 million ($868 million in 2016). Review of operations A review of the operations of the Woodside Group during the financial year and the results of those operations are set out on pages 1–67. 74 Woodside Petroleum Ltd | Annual Report 2017 Significant changes in the state of affairs The review of operations (pages 1–67) sets out a number of matters that 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 Since the reporting date, the directors have declared a fully franked dividend. More information is available in the ‘Dividend’ section below. 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. Dividend The directors have declared a final dividend out of profits of the company in respect of the year ended 31 December 2017 of 49 cents per ordinary share (fully franked) payable on 22 March 2018. Type 2017 final 2017 interim 2016 final Payment date 22 March 2018 21 September 2017 29 March 2017 Period ended Cents per share Value $ million Fully franked 31 December 2017 30 June 2017 31 December 2016 49 49 49 413 413 413 The full-year 2017 dividend is 98 cents per share. 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 are provided on pages 58–59. Through its Health, Safety, Environment and Quality Policy, Woodside plans and performs activities so that adverse effects on the environment are avoided or kept as low as reasonably practicable. Company Secretaries The following individuals have acted as Company Secretary during 2017: Andrew Cox BA (Hons), LLB, MA Vice President Legal and General Counsel and Joint Company Secretary Mr Cox joined Woodside in 2004 and was appointed to the role of Vice President Legal in January 2015. He was appointed Vice President Legal and General Counsel and Joint Company Secretary on 1 June 2017. Warren Baillie LLB, BCom, Grad. Dip. CSP Company Secretary Mr Baillie joined Woodside in 2005 and was appointed Company Secretary effective 1 February 2012. Mr Baillie is a solicitor and chartered secretary. He is a member of the National Board and President of the Governance Institute of Australia. Michael Abbott BJuris, LLB, BA, MBA Senior Vice President Corporate and Legal Mr Abbott joined Woodside in 2005 and was appointed to the role of Senior Vice President Corporate and Legal in December 2014. He retired as Joint Company Secretary on 1 June 2017. 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 Guidance Policy. 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 E.5 to the Financial Statements. Based on advice provided by the Audit & Risk Committee, the directors are satisfied that the provision of non-audit services by the external auditor during the financial year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth) for the following reasons: + all non-audit services were provided in accordance with Woodside’s External Auditor Policy and External Auditor Guidance Policy; 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. The auditor independence declaration, as required under section 307C of the Corporations Act 2001 (Cth) 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 2001 (Cth). 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 Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016. Directors’ relevant interests in Woodside shares as at the date of this report Director L Archibald M Chaney M Cilento P Coleman1 F Cooper R Goyder C Haynes I Macfarlane A Pickard S Ryan G Tilbrook Relevant interest in shares 1,088 20,000 3,559 349,443 6,396 12,500 7,565 873 2,376 5,748 7,153 1. Mr Coleman holds Variable Pay Rights under his CEO incentive arrangements, details of which are set out in the Remuneration Report in Table 11 on page 90. Signed in accordance with a resolution of the directors. M A Chaney, AO Chairman Perth, Western Australia 14 February 2018 P J Coleman Chief Executive Officer and Managing Director Perth, Western Australia 14 February 2018 Auditor’s independence declaration to the Directors of Woodside Petroleum Ltd As lead auditor for the audit of Woodside Petroleum Ltd for the financial year ended 31 December 2017, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Woodside Petroleum Ltd and the entities it controlled during the financial year. Ernst & Young T S Hammond Partner Perth, Western Australia 14 February 2018 Liability limited by a scheme approved under Professional Standards Legislation Woodside Petroleum Ltd | Governance 75 REMUNERATION REPORT Chair's letter KMP and summary of Woodside's five-year performance Scorecard measures and outcomes CEO and executive KMP remuneration structure CEO and executive KMP remuneration for 2017 Other equity plans Contracts for executive KMP Non-executive Directors (NEDs) Human Resources & Compensation (HR&C) Committee Use of remuneration consultants Reporting notes Statutory tables Glossary 77 78 79 80 82 86 86 87 87 88 88 89 95 76 Woodside Petroleum Ltd | Annual Report 2017 14 February 2018 Dear Shareholder On behalf of the Board, I am pleased to present Woodside’s Remuneration Report for the year ended 31 December 2017. This report demonstrates our ongoing commitment to shareholders to present a simple and transparent summary of how executive remuneration outcomes are linked to the Company’s performance. The changes made in 2016 to the remuneration arrangements for KMP continue to be reflected in the 2017 remuneration outcomes, as we continue to address shareholder feedback on our remuneration policy and practice. In addition, for the third consecutive year, the Board has resolved that Non-executive Directors (NEDs) would not receive an increase in their fees for the 2017 year. As foreshadowed in last year’s report, the Board has commenced a review of our Executive Incentive Plan. The review has progressed well throughout the year and is expected to conclude early in 2018. A key focus of the review is strengthening the alignment between our executives’ variable remuneration outcomes, the company’s strategy and performance, alongside our shareholders’ experience. We have also sought to ensure we can continue to attract and retain talent in a globally competitive environment. We are confident that the review will deliver these objectives and look forward to communicating the outcomes in the near future. Yours sincerely, Melinda Cilento Chair - Human Resources & Compensation Committee Woodside Petroleum Ltd | Remuneration Report 77 Remuneration Report (audited) KMP and summary of Woodside's five-year performance Woodside’s key management personnel (KMP) This Remuneration Report outlines the remuneration arrangements in place and outcomes achieved for Woodside’s KMP during 2017. Woodside’s KMP are those people who have a meaningful capacity to shape and influence the Group’s strategic direction and performance through their actions, either collectively (in the case of the Board) or as individuals acting under delegated authorities (in the case of the CEO and senior executives). The names and positions of the individuals who were KMP during 2017 are set out in Table 1. Table 1 – KMP Executive Executive Director P Coleman (Managing Director and Chief Executive Officer) (CEO) Senior Executives M Abbott (Senior Vice President Corporate and Legal) S Duhe (Executive Vice President and Chief Financial Officer)1 R Edwardes (Executive Vice President Development) S Gregory (Senior Vice President and Chief Technology Officer) P Loader (Executive Vice President Global Exploration)² R Matisons (Executive Vice President Marketing, Trading and Shipping) D McLoughlin (Senior Vice President People and Global Capability)3 L Tremaine (Executive Vice President and Chief Financial Officer)4 M Utsler (Executive Vice President and Chief Operations Officer) 1. Ms Sherry Duhe commenced as KMP on 1 December 2017. 2. Mr Phil Loader will cease being KMP on 28 February 2018. 3. Mr David McLoughlin ceased employment with Woodside on 3 March 2017. 4. Mr Lawrie Tremaine ceased employment with Woodside on 2 June 2017. 5. Mr Larry Archibald was appointed to the Woodside Board on 1 February 2017. 6. Mr Richard Goyder was appointed to the Woodside Board on 1 August 2017. 7. Mr David McEvoy ceased being a director of Woodside on 5 May 2017. Non-executive Directors M Chaney (Chairman) L Archibald5 M Cilento F Cooper R Goyder6 C Haynes I Macfarlane D McEvoy7 A Pickard S Ryan G Tilbrook Table 2 – Five year performance The table below outlines Woodside's performance over the last five years against key metrics. Net Profit After Tax (NPAT)1 Earnings per Share2 Dividends per Share Share closing price (last trading day of the year) Production 1. NPAT detail is contained in the Financial Statements on pages 97–136. 2. Basic and diluted earnings per share from total operations. (US$ million) (US cents) (US cents) (A$) (MMboe) 2017 1,024 122 98 33.08 84.4 2016 2015 868 104 83 31.16 94.9 26 3 109 28.72 92.2 2014 2,414 293 255 38.01 95.1 2013 1,749 213 249 38.90 87.0 Remuneration Policy Woodside aims to be a leading global performer in upstream oil and gas. To do so the company must be able to attract and retain talented executives in a globally competitive market. The Board structures remuneration so that it rewards those who perform, is valued by executives, and is strongly aligned with the company’s strategic direction and the creation of returns to shareholders. Fixed Annual Reward (FAR) is determined by the scope of the executive’s role and their level of knowledge, skills and experience. Variable Annual Reward (VAR) at target is structured to reward the CEO and executive KMP for achieving challenging yet realistic targets set by the Board. VAR aligns shareholder and executive remuneration outcomes by ensuring a significant portion of executive remuneration is at risk, while rewarding performance. Executive remuneration is reviewed annually having regard to individual and business performance and relevant comparative information. FAR and VAR is benchmarked against domestic and international competitors at target, to maintain competitive advantage. 78 Woodside Petroleum Ltd | Annual Report 2017 Scorecard measures and outcomes The Board assesses executive management performance on an annual basis against a balanced scorecard of measures that aim to drive business performance and the creation of shareholder value. The 2017 scorecard for executive KMP is based on four equally weighted measures that have been chosen because they impact long and short-term shareholder value, with a score of one for an outcome at target and a maximum score of two on each measure. The Board sets challenging yet realistic targets for each measure with sufficient stretch to promote continuous improvement and superior performance. In 2017, Woodside continued to deliver across operational assets with strong safety performance. A solid NPAT result was delivered despite a lower than expected production outcome. Woodside further capitalised on its strong balance sheet to create and build near- term value and growth opportunities. The majority of business plan priorities were met and we are well positioned to deliver across all three growth horizons. Accordingly, the Board determined a scorecard outcome of 1.2 out of a maximum of two for executive KMP for the 2017 performance year.¹ NPAT Profit after tax performance is closely aligned with short-term shareholder value creation. NPAT is underpinned by operational performance, oil price and foreign exchange rates. This measure focuses management on driving exceptional operational performance, with the Board ensuring that short-term results are not achieved at the expense of longer term performance. NPAT outcomes, and therefore the short- term awards, are exposed to the upside and downside of oil price and foreign exchange fluctuations, as are returns to shareholders. SAFETY Strong safety performance creates and protects value four ways; it reduces the likelihood of major accident events and catastrophic losses; it maintains Woodside’s licence to operate which enables the development and sanction of its growth portfolio; it reflects efficient, optimised and controlled business processes that generate value; and it retains the company’s position as a partner of choice providing us access to the best capabilities and talent. The Total Recordable Injury Rate (TRIR) target is set with reference to the company’s aim to achieve global top-quartile health and safety performance. 2016 NPAT Outcome: 2017 NPAT Outcome: $868 million $1,024 million Scorecard Outcome: 1.5 2016 TRIR Outcome: 1.64 2017 TRIR Outcome: 1.26 Scorecard Outcome: 1.4 + In 2017, Woodside delivered NPAT of $1,024 million, an 18% increase on 2016. This was due to higher realised prices; lower depreciation expense primarily driven by an increase in developed reserves; release of Balnaves termination provision; and lower exploration and evaluation expense. This was offset by lower revenue primarily from lower sales volumes and Pluto LNG sale prices. The Balnaves provision release and lower depreciation expense were not included in the scorecard. Total scorecard 1.2 outcome + Woodside’s safety performance continues to improve toward our goal of global top quartile performance with a total recordable injury rate of 1.26, a 21% improvement on 2016. There were zero Tier 1 or Tier 2 loss of primary containment process safety events in 2017. Emissions from fuel gas and vented reservoir carbon dioxide increased in 2017, mainly due to increased flaring and fuel consumption related to production interruptions. Woodside has announced its world-first large-scale offshore application of lithium-ion battery use to reduce emissions from fuel gas. DELIVERY AGAINST BUSINESS PLAN Woodside’s annual business plan commitments aim to deliver long-term shareholder value. The commitments are structured under four categories; grow the portfolio (e.g. resource replacement, concept select decisions, commercialisation of international assets, tie- back opportunities); grow the market (e.g. capture new markets, mature gas to power opportunities); operational excellence (e.g. operating expenditure, unit production costs, reliability); and capability (e.g. diversity, social licence to operate, disciplined opportunity financing). Scorecard Outcome: 1.3 The majority of our 2017 business plan commitments were met or exceeded, with highlights including; + Achieved concept select for the SNE Development-Phase 1, offshore Senegal, Joint Venture aligned on Browse to NWS as reference development concept; announced a third gas discovery offshore Myanmar; full year operational cost and gas unit production cost maintained 10% and 7% below budget, respectively, Approved development of an LNG truck-loading facility at Pluto LNG; Persephone development delivered 30% under budget and six months ahead of schedule; Reduced and extended the existing unsecured syndicated debt facility, while maintaining competitive pricing; Woodside achieved its highest percentile rating in the 2017 Dow Jones Sustainability Index to date of 97 (up from 95 last year), which is top 3% of upstream integrated oil and gas companies worldwide. PRODUCTION Woodside maximises revenue and generates value from its assets when they are fully utilised in production. Production is carefully managed throughout the year to optimise the production value from the reservoir. The production target is set relative to the company’s annual budget and is not revised through the year. 2016 Production Outcome: 2017 Production Outcome: Scorecard Outcome: 94.9 MMboe 84.4 MMboe 0.6 + Full year production was 84.4 MMboe, impacted primarily by delays to Wheatstone RFSU. Wheatstone LNG commenced production and delivery of its first LNG cargo. 1. Scorecard outcomes, including the total scorecard outcome, have been rounded for reporting purposes. Woodside Petroleum Ltd | Remuneration Report 79 CEO and executive KMP remuneration structure Woodside's remuneration structure for the CEO and executive KMP is comprised of one component that is fixed being FAR, and two components that are variable being short-term award (STA) and long-term award (LTA). Challenging yet realistic annual targets are set by the Board and set out in the corporate scorecard. These targets are designed to promote short-term and long-term shareholder value. Meeting these targets means the CEO and executive KMP are eligible for their target STA allocation, subject to individual performance. Exceeding targets may result in an increase to STA, whereas under performance will result in a reduction in STA. Target LTA is a set percentage of FAR, converted to Variable Pay Rights (VPRs) with vesting subject to a relative total shareholder return test. LTA vesting is subject to share performance with the overall value exposed to the upside or downside of the share price movement, therefore closely aligning with shareholder interests. The remuneration structure for executive KMP for 2017 is explained below: Summary of executive KMP remuneration structure for 2017 Fixed Annual Reward (FAR) How is it determined? FAR is based on the scope of the executive’s role and their individual level of knowledge, skill and experience. FAR makes up 30% of the CEO’s total target remuneration and 45-50% for other executive KMP. When is it paid? Monthly. Link to Woodside strategy FAR is benchmarked for competitiveness against domestic and international competitors, to enable the company to attract and retain high quality executives. Variable Annual Reward (VAR) Short-term Award (STA) How is it determined? STA payments are based on the annual corporate scorecard result and individual performance against KPIs during 2017. The corporate scorecard for 2017 is based on NPAT, production, safety and delivery against business plan commitments. Individual KPIs vary but can include measures relating to health and safety, environment, human resources, financial and operational measures. See page 82 for details of the CEO’s individual KPIs and page 83 for other executive KMP. The Board assesses performance against the corporate scorecard. Performance against individual KPIs is assessed by the Board in the case of the CEO, or by the CEO in the case of other executive KMP (subject to approval by the HR&C Committee). Eligible executives may only receive an STA award if their individual performance for 2017 is assessed as acceptable. Participants other than the CEO are then divided into “Pool Groups”, with the size of the pool determined by each participant's target STA, and then adjusted based on the corporate scorecard result. Each participant is then allocated a portion of the relevant pool based on individual performance relative to other executives in the same pool. STA makes up 30% of the CEO’s total target remuneration and 30–33% for other executive KMP. The CEO’s maximum STA award is two times FAR. Other executive KMP do not have an individual maximum STA opportunity because the size of the STA pool varies from year to year depending on performance and other factors. However, the total size of the STA pool is capped as noted above. The minimum STA award that an executive can receive is zero if their individual performance is assessed as unacceptable, or the corporate scorecard result is zero. When is it paid? For the CEO and executive KMP, two-thirds will be paid in cash in March 2018. The remaining third will be delivered as a deferred equity award of Restricted Shares, subject to a three-year deferral period. Dividends are payable on the Restricted Shares. The number of Restricted Shares is calculated by dividing the deferred STA value by the Volume Weighted Average Price (VWAP) for December 2017. 80 Woodside Petroleum Ltd | Annual Report 2017 Generally, vesting of the deferred STA is subject to the executive’s employment not being terminated with cause, or by resignation, for the deferral period after allocation. The deferred STA may vest prior to the expiry of the deferral period upon a change of control event, or on the death or total and permanent disablement of the executive. Deferred STA will also generally vest upon redundancy, termination without cause, retirement or the cessation of a fixed term employment contract, as determined by the Board. The Board has discretion to claw back unvested shares held by or on behalf of the executive. This discretion arises if, after cessation of employment, new information has come to light about a material breach of an executive’s obligations or other inappropriate conduct during their employment, or their circumstances change after they cease employment (e.g. they commence working with a competitor), and in each case the Board considers that it is no longer appropriate for them to retain the benefit. A summary of unvested deferred STA awarded to KMP is provided in Table 11 on pages 90–92. Link to Woodside strategy The corporate scorecard consists of balanced measures that reflect the values and annual goals of the organisation. The measures and annual targets are reviewed and approved by the Board each year. The scorecard provides a common purpose for all executives each year. Individual KPIs are calibrated to the role of each executive. This recognises that Woodside’s success depends upon all executives achieving and exceeding targets within their areas of influence and responsibility. STA deferral ensures that awards remain subject to fluctuations in share price over a three year period, which is intended to reflect the sustainability of performance over the medium-term and support increased alignment between executives and shareholders. Long-term Award (LTA) How is it determined? LTA is granted in the form of VPRs. The VPRs are divided into two portions with each portion subject to a separate RTSR performance hurdle tested over a four year period. One-third of the LTA will be tested against a comparator group that comprises of the entities within the ASX 50 index at 1 December 2017. The remaining two-thirds of the VPRs will be tested against an international group of oil and gas companies, set out in Table 10 on page 90. TSR outcomes are calculated by an external adviser on the fourth anniversary of the allocation of the VPRs. The outcome of the test is measured against the schedule below. For 2017 LTA awards, any VPRs that do not vest will lapse and are not retested. Woodside RTSR percentile position within peer group Vesting of VPRs Less than 50th percentile Equal to 50th percentile Equal to or greater than 75th percentile Vesting between these percentile points is on a pro rata basis. no vesting 50% vest 100% vest The CEO’s annual LTA entitlement is set at 133% of his fixed remuneration and makes up 40% of his total target remuneration. LTA makes up 20–22% of total target remuneration for other executive KMP. When is it paid? LTA may vest after four years, subject to performance against the relevant peer group. The number of VPRs allocated at the start of the performance period is calculated on a face value basis by dividing the LTA value by the Volume Weighted Average Price (VWAP) for December 2017. VPRs lapse if the executive’s employment is terminated with cause, or by resignation, prior to vesting. 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 redundancy, termination without cause, retirement or the cessation of a fixed term employment contract of a participant, VPRs continue in the plan and remain subject to the normal performance measures. The Board has discretion to claw back the unvested VPRs of former employees in certain circumstances, as outlined above in relation to deferred STA. A summary of unvested VPRs awarded to executive KMP is provided in Table 11 on pages 90–92. Link to Woodside strategy LTA is directly linked to shareholder returns over the longer term. For LTA to vest, Woodside must deliver better shareholder outcomes than at least half of the companies in the relevant comparator group. In this way, shareholder interests are embedded directly into the remuneration structure. The LTA has been designed to align with company strategy through peer groups that include both competitors for shareholder funds, and domestic and overseas oil and gas players (recognising that Woodside competes globally for resources, investment, and people). The relative weightings reflect our vision of becoming a global leader in upstream oil and gas. Woodside Petroleum Ltd | Remuneration Report 81 The LTA performance period is tested after four years as Woodside operates in a capital intensive industry with long investment timelines. It is imperative that executives take decisions in the long-term interest of shareholders, focused on value creation across the commodity price cycles of the oil and gas industry. CEO and executive KMP remuneration for 2017 CEO Short-term Award (STA) The CEO’s remuneration is governed by his contract of employment. The CEO’s STA award is determined by multiplying the CEO’s FAR by the corporate scorecard result and the CEO’s individual performance factor as determined by the Board. The award is subject to an overall cap of two times FAR. Each year the Board determines and documents the metrics that will be used to assess the annual individual performance of the CEO for the year. For 2017, the individual performance of the CEO was reviewed by the Board against five equally weighted measures: + Growth agenda: Assesses the alignment of growth opportunities to shareholder return; portfolio balance; the achievement of challenging business objectives. + Effective execution: Assesses the maintenance, operation and profitability of existing assets; project delivery to achieve budget, schedule and stated performance; cost reduction; achievement of health, safety and community expectations. + Enterprise capability: Assesses leadership development; workforce planning; executive succession; Indigenous participation and diversity; effective risk identification and management. + Culture and reputation: Assesses performance culture and emphasis on values; engagement and enablement; improved employee climate; Woodside’s brand as a partner of choice. + Shareholder focus: Assesses whether decisions are made with a long-term shareholder return focus; effective and timely communication to shareholders, market analysts and fund managers; the focus on shareholder return throughout the organisation. These metrics were chosen because successful performance in each area is a key driver of superior shareholder returns. At the completion of the year, each NED independently contributes to the review of the CEO’s performance for that year. The CEO is given an overall individual performance factor of between 0.8 and 1.4. CEO Long-term Award (LTA) Under his contract, the CEO’s annual LTA opportunity is set at 133% of his FAR. The LTA entitlement for the 2017 performance year was allocated in February 2018 at face value and will be subject to RTSR testing in February 2022. There will be no retest. The vesting conditions for the LTA allocation reflect those outlined on page 81. KMP Executive Incentive Plan (EIP) The EIP is used to deliver STA and LTA to executive KMP, other than the CEO. 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. Table 3 illustrates how EIP awards for executive KMP will be determined for the 2017 performance year, as well as their lifecycle in future years. 82 Woodside Petroleum Ltd | Annual Report 2017 Table 3 – Overview of the EIP for executive KMP (excluding the CEO) 2017 2018 2019 2020 2021 2022 PERFORMANCE YEAR Executives must be employed for at least part of the Performance Year and achieve at least an acceptable level of performance in their individual performance assessments to be eligible for an EIP award. F O S T S I S N O C R A V ELIGIBLE EXECUTIVES RECEIVE A VAR UNDER THE EIP VAR for a Performance Year is calculated as a percentage of FAR, which is determined by the Board taking into account relevant data on levels of variable reward being offered in the market. 60% STA Adjusted in accordance with the STA pooling and performance assessment process. Two-thirds of the STA is paid in early 2018 as cash while the other third is awarded as Restricted Shares. 40% LTA Awarded as VPRs. RESTRICTED SHARES Subject to a three-year deferral period ending on 20 February 2021. VPRS Subject to RTSR performance over a four-year period up to the vesting date on 20 February 2022 with no retest. Individual KPIs for 2017 STA KPIs are tailored to reflect the individual responsibilities of executives who participate in the STA, and are chosen to align individual performance with the achievement of Woodside’s business plan and objectives. Examples of the individual KPIs for each of the executive KMP are shown in Table 4. Table 4 – Individual KPIs for 2017 STA KMP Key Performance Indicator KMP Key Performance Indicator Executive Vice President and Chief Operating Officer Executive Vice President Development Executive Vice President Global Exploration Production Operating expense Unit production costs Total recordable injury rate Process safety events Energy efficiency Capital expense Portfolio cost competitiveness Portfolio maturation Portfolio development imperatives Exploration expense Discovered resource volumes Commercial finding costs Exploration prospects Executive Vice President and Chief Financial Officer Senior Vice President and Chief Technology Officer Senior Vice President Corporate and Legal NPAT Corporate development Return on capital employed Corporate operating expense Productivity benefits Unit technical cost reduction Innovation capability Data science value IS&S service and cost Regulatory compliance Corporate affairs management Management system deployment Executive Vice President Marketing, Trading and Shipping Sales Trading/performance Woodside Petroleum Ltd | Remuneration Report 83 Remuneration outcomes for 2017 A summary of the remuneration outcomes for executive KMP in 2017 is set out below. Fixed Annual Reward CEO and Managing Director In December 2016, Woodside conducted a review of the CEO's remuneration based on benchmarking data against a defined peer group. This data confirmed the CEO's remuneration was below market median. This supported the Board's decision to award the CEO an increase of 2% to FAR in April 2017. Executive KMP In January 2017, Woodside conducted a review of executive KMP’s remuneration based on benchmarking data against a defined peer group. This data confirmed that the executive KMP’s remuneration was below market median. This supported the CEO’s decision to award an on average increase of 2.5% to their FAR in April 2017. Short-term awards STA pool The STA pool for 2017 was $20,613,243 for 103 participants including the executive KMP and the CEO. CEO and Managing Director The CEO’s performance outcomes against his individual performance indicators are as follows: + Growth agenda: Highlighted by a third gas discovery in Myanmar and added acreage in Myanmar, Gabon and Australia; disciplined drilling campaigns in Myanmar and Senegal ahead of schedule and under budget; Browse, Scarborough and broader Carnarvon aggregation opportunities matured in support of our Horizon II strategic plan; execution of a long-term SPA with Pertamina. + Effective execution: Delivered first LNG production from Wheatstone; achieved record LNG production rates at Pluto; Persephone project delivered A$355M under budget and six months ahead of schedule; achieved a significant improvement on TRIR with a 1.26 score in 2017. + Enterprise capability: highlighted by an increase to our Indigenous participation from 3% in 2016 to 3.3% in 2017 with continued declined in Indigenous turnover from 2.9% in 2017 to 1.7%; increasing our female participation to 29%, which compares favourably to the industry average of 22%, with executive female representation increased from 19.6% in 2016 to 23.9% in 2017; continuing to attract high-quality graduates; achieving gender balance in graduate recruitment; industry leading practices in technology and innovation, in particular in cognitive robotics research to improve risk management. + Culture and reputation: highlighted by our A$17.97 million worth of social investment to our host communities and establishing the first early childhood program in Senegal through the Woodside Development Fund; Creation of significant economic value through A$1 billion in remuneration and associated taxes through employing people in the communities in which we operate; employee volunteer contribution was 10,450 hours reflecting A$2.2 million towards community assistance; the introduction of a Board approved Human Rights policy. + Shareholder focus: highlighted by outstanding operational performance in our base business and domestic and international growth opportunities; strong focus on productivity, continued focus on driving down costs to maintain profitability in a low price environment; disciplined approach to acquisitions and capital management. The CEO’s overall individual performance factor for 2017 was 1.2, resulting in an STA award of 72% of maximum. The CEO’s 2013 deferred STA vested on 21 February 2017, resulting in him receiving 19,924 shares. Executive KMP The Board approved STA to executive KMP based on the scorecard result and their individual performance assessment. Two-thirds of STA was delivered in cash, and one-third in Restricted Shares subject to a three-year deferral period. Executive KMPs 2013 deferred STA vested on 21 February 2017, which resulted in the following: + 1,390 restricted shares vested to Mr Abbott. + 2,660 restricted shares vested to Mr Matisons. + 5,075 restricted shares vested to Mr Edwardes. + 4,249 restricted shares vested to Mr Tremaine. + 2,566 restricted shares vested to Mr Gregory. + 322 restricted shares vested to Mr Utsler. + 1,450 restricted shares vested to Mr Loader. 84 Woodside Petroleum Ltd | Annual Report 2017 Long-term awards CEO and Managing Director The CEO’s 2012 LTA had a partial vesting of 33.84% on 22 February 2017 which resulted in him receiving 50,985 shares. Executive KMP The KMP's 2012 LTA had a partial vesting of 33.84% on 22 February 2017 which resulted in the following: + 2,221 rights vested to Mr Abbott. + 4,034 rights vested to Mr Edwardes. + 1,572 rights vested to Mr Gregory. + 3,438 rights vested to Mr Matisons. + 4,951 rights vested to Mr Tremaine. Other Woodside Equity Plan (WEP) Executive KMPs 2014 WEP equity rights vested on 1 October 2017, which resulted in the following: + 1,150 rights vested to Mr Abbott. + 1,720 rights vested to Mr Matisons. + 2,300 rights vested to Mr Gregory. Supplementary Woodside Equity Plan (SWEP) Executive KMPs 2014 SWEP equity rights vested on 1 October 2017, which resulted in the following: + 11,960 rights vested to Mr Loader. + 14,350 rights vested to Mr Utsler. Table 5 on page 85 provides a valuation summary of the VAR for the CEO and executive KMP for the 2017 and 2016 performance years. Table 5 – Valuation Summary of CEO and executive KMP EIP for 2017 and 2016 Name P Coleman M Abbott S Duhe⁴ R Edwardes S Gregory P Loader⁵ R Matisons D McLoughlin6 L Tremaine7 M Utsler Year 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 STA Cash1 $ STA Deferred2 $ 1,875,061 1,085,317 234,046 240,312 21,809 - 333,532 434,721 239,529 316,815 256,787 395,538 184,074 251,333 - 98,688 - 380,224 475,262 615,447 850,617 2,103,092 106,175 111,478 9,873 - 151,290 201,659 108,649 146,953 116,476 183,473 83,483 116,573 - 45,769 - 176,373 215,589 285,492 LTA3 $ 1,263,852 1,265,214 84,263 83,711 10,468 - 160,109 159,385 86,229 85,266 123,265 122,127 88,364 87,893 - 83,711 - 144,407 171,107 169,375 Total EIP $ 3,989,530 4,453,623 424,484 435,501 42,150 - 644,931 795,765 434,407 549,034 496,528 701,138 355,921 455,799 - 228,168 - 701,004 861,958 1,070,314 1. Represents the short-term incentive earned in the respective year, which is actually paid in the following year. Amounts were translated to US dollars using closing spot rate on 31 December 2017. Under his contract, the CEO is entitled to receive two-thirds of his STA in cash and one-third in restricted shares which have a three-year deferral period. For the 2016 performance year, the CEO agreed to take one-third as cash, one-third as shares with a two-year deferral period and one-third in restricted shares which have a three-year deferral period. For the 2017 award, the CEO originally agreed to a similar arrangement but with the subsequent decision to raise new equity through a retail entitlement offer, the Board elected to pay the CEO two-thirds of the STA in cash on the basis that he will use the after-tax proceeds to exercise his rights under the offer. The CEO has undertaken to retain those shares for at least a year. 2. The number of shares allocated under the STA was calculated by dividing the amount of the executive's entitlement by the face value of Woodside shares. The USD fair value of Restricted Shares as at their date of grant has been determined by reference to the share price at acquisition. The fair value is not related to or indicative of the benefit (if any) that individual executive may ultimately realise should these equity instruments vest. 3. The number of shares allocated under the LTA for 2017 was calculated by dividing the amount of the executive's entitlement by the face value of Woodside shares. The USD fair value shown above has been determined at the date of grant by applying the binomial valuation method combined with a Monte Carlo simulation. The amount listed above is not related to or indicative of the benefit (if any) that individual executives may ultimately receive should these equity instruments vest. 4. Ms Duhe commenced employment with Woodside on 1 December 2017. 5. Mr Loader will cease being KMP on 28 February 2018. 6. Mr McLoughlin ceased employment with Woodside on 3 March 2017, resulting in the forfeiture of 100% of his 2017 VAR. 7. Mr Tremaine ceased employment with Woodside on 2 June 2017, resulting in the forfeiture of 100% of his 2017 VAR. Woodside Petroleum Ltd | Remuneration Report 85 Other equity plans Woodside has a history of providing employees with the opportunity to participate in ownership of shares in the company and using equity to support a competitive base remuneration position. Details of prior year allocations are provided in Table 11 on pages 90–92. Woodside Equity Plan (WEP) The WEP is available to all Australian based permanent employees including executives, other than the CEO. 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 determined by the Board, and based on individual performance as assessed under the performance review process as described for STA on page 80. There are no further ongoing performance conditions. The linking of performance to an allocation allows Woodside to recognise and reward eligible employees for high performance. Each ER entitles the participant to receive a Woodside share on the vesting date three years after the effective grant date. Supplementary Woodside Equity Plan (SWEP) In October 2011, the Board approved a remuneration strategy which includes the use of equity to support a competitive base remuneration position. To this end, the Board approved the establishment of the SWEP to enable the offering of targeted retention awards of ERs for key capability. The SWEP was designed to be offered to a small number of employees identified as being retention critical. The SWEP awards have service conditions and no performance conditions. Each ER entitles the participant to receive a Woodside share on the vesting date three years after the effective grant date. An award of 15,000 Equity Rights under SWEP was made to Ms Sherry Duhe upon commencement of employment with Woodside to recognise certain rights that were forfeited with her prior employer. ERs under both the WEP and the SWEP 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 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. Table 11 on pages 90–92 includes a summary of executive KMP’s interests in ERs. Contracts for executive KMP All KMP have a contract of employment. Table 6 below contains a summary of the key contractual provisions of the contracts of employment for the executive KMP. Table 6 – Summary of contractual provisions for executive KMP Employing company Contract Duration Termination notice period company1, 2 Termination notice period executive P Coleman Woodside Petroleum Ltd Unlimited M Abbott S Duhe Woodside Energy Ltd Unlimited Woodside Energy Ltd Unlimited R Edwardes Woodside Energy Ltd Fixed Term Contract until 31 December 2018 S Gregory Woodside Energy Ltd Unlimited R Matisons Woodside Energy Ltd Unlimited P Loader M Utsler Woodside Energy Ltd Woodside Energy Ltd Fixed Term Contract until 1 July 2018 Fixed Term Contract until 2 December 2018 12 months 6 months 6 months 6 months 12 months 12 months 6 months 6 months 6 months 3 months 6 months 6 months 6 months 6 months 6 months 3 months 1. Termination provisions – Woodside may choose to terminate the contract immediately by making a payment in lieu of notice equal to the fixed remuneration the executive would have received during the ‘Company Notice Period’. In the event of termination for serious misconduct or other nominated circumstances, executives are not entitled to this termination payment. Any payments made in the event of a termination of an executive contract will be consistent with the Corporations Act 2001 (Cth). 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. 86 Woodside Petroleum Ltd | Annual Report 2017 Non-executive Directors (NEDs) Remuneration Policy Woodside’s Remuneration Policy for NEDs aims to attract, retain, motivate and to remunerate fairly and responsibly having regard to: + the level of fees paid to NEDs relative to other major Australian companies + the size and complexity of Woodside’s operations + the responsibilities and work requirements of Board members Fees paid to NEDs are recommended by the HR&C Committee based on benchmarking from external remuneration consultants, and determined by the Board, subject to an aggregate limit of A$3.75 million per financial year, which was approved by shareholders at the 2014 AGM. The Woodside minimum shareholding requirement for NEDs increased in 2016, with NEDs now required to have acquired shares for a total purchase price of at least 50% of their pre-tax annual fee after four years on the Board. The NEDs 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. NEDs remuneration structure NEDs remuneration consists of base Board fees and committee fees, plus statutory superannuation contributions or payments in lieu (currently 9.5%). Other payments may be made for additional services outside the scope of Board and committee duties. NEDs do not earn retirement benefits other than superannuation and are not entitled to any form of performance-linked remuneration. For the third consecutive year, NEDs received no increase in their fees. Table 7 below shows the annual base Board and committee fees for NEDs. In addition to these fees, NEDs 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. NEDs are not entitled to compensation on termination of their directorships. Board fees are not paid to the CEO, 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 NED in 2017 is set out in Table 12 on page 93. Table 7 – Annual base Board and Committee fees for NEDs Position Chairman of the Board2 Non-executive Directors3 Committee Chair Committee Member Board A$1 723,3004 212,7004 Audit & Risk Committee Human Resources & Compensation Committee Sustainability Committee Nominations Committee A$1 A$1 A$1 56,0004 27,9004 47,4004 23,7004 47,4004 23,7004 A$1 Nil Nil 1. NEDs receive Board and committee fees plus statutory superannuation (or payments in lieu for overseas based NEDs). 2. Inclusive of committee work. 3. Board fees paid to NEDs, other than the Chairman. 4. Annual fee from 1 July 2014. Human Resources & Compensation (HR&C) Committee The HR&C Committee assists the Board to determine appropriate remuneration policies and structures for NEDs and executives. Further information on the role of the Committee is described in section 3.4 of the Corporate Governance Statement, available on Woodside's website. Woodside Petroleum Ltd | Remuneration Report 87 Use of remuneration consultants The Committee directly engages independent external advisers to provide input to the process of reviewing NEDs and executive remuneration. The Committee receives executive remuneration advice directly from external independent remuneration consultants. Table 8 below shows the fees payable to independent external remuneration consultants during 2017. Under communications and engagement protocols adopted by the company, the market data reports were provided directly to the Committee Chair, and the consultants 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 work undertaken by PricewaterhouseCoopers were free from undue influence by KMP. Table 8 – Fees paid to remuneration consultants Remuneration consultant Services provided PricewaterhouseCoopers Remuneration benchmarking for the 2017 NED fee review Remuneration benchmarking for the 2017 CEO remuneration review Fees A$15,000 (ex GST) A$25,500 (ex GST) PricewaterhouseCoopers provided other services to Woodside including provision of taxation advice and general financial and business consulting which resulted in a total of A$3,039,713 fees being paid by Woodside. Reporting notes Reporting in United States dollars In this report, the remuneration and benefits reported have been presented in US dollars, unless otherwise stated. This is consistent with the functional and presentation currency of the company. Compensation for Australian-based employees and all KMP 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. 88 Woodside Petroleum Ltd | Annual Report 2017 Statutory tables Table 9 - Compensation of executive KMP for the year ended 31 December 2017 and 2016 Fixed Annual Reward Variable Annual Reward Short-term Post Short-term Share based payments s e e f , s e i r a a S l s e c n a w o l l a d n a $ s e c n a w o l l a i g n d u l c n i ( d n a s t fi e n e B 1 ) y r a t e n o m - n o n $ y n a p m o C o t s n o i t u b i r t n o c n o i t a u n n a r e p u s m r e t - t r o h S 2 ) h s a C ( d r a w a l 3 s n a p e r a h S e v a e l e c i v r e s g n o L s t fi e n e b n o i t a n m r e T i l a t o T 4 n o i t a r e n u m e r 5 d e t a e r l e c n a m r o f r e P $ $ $ $ $ $ A$ P Coleman, Chief Executive Officer 2017 1,893,748 51,310 15,197 1,875,061 3,994,496 84,293 2016 1,809,295 25,158 14,461 1,085,317 3,673,472 98,772 M Abbott, Senior Vice President Corporate and Legal 2017 349,823 17,049 92,801 234,046 270,277 19,760 2016 340,806 15,320 63,205 240,312 271,499 29,379 S Duhe, Executive Vice President and Chief Financial Officer6 2017 197,922 78,528 2016 - - - - 21,809 9,186 1,238 - - - - - - - - - - - - - - - - - 7,914,105 10,266,600 6,706,475 8,949,491 983,756 1,281,013 960,521 1,292,954 308,683 402,986 - - 1,890,649 2,456,444 1,874,159 2,518,405 1,079,246 1,409,030 1,105,396 1,488,227 1,682,683 2,186,728 1,653,104 2,220,352 1,015,831 1,325,726 1,078,439 1,449,595 - - 645,568 869,059 - - % 74 71 51 53 10 - 54 56 54 61 56 58 50 56 34 31 - 55 - 61 55 56 2017 807,124 17,532 15,197 333,532 688,578 28,686 2016 769,232 13,254 14,461 434,721 607,645 34,846 2017 444,512 17,003 15,197 239,529 339,217 23,788 2016 414,999 19,282 14,461 316,815 357,328 (17,489) 2017 681,242 41,783 2016 642,876 27,487 - - 256,787 681,840 21,031 395,538 563,058 24,145 2017 385,171 23,336 79,248 184,074 323,310 20,692 2016 348,924 18,253 90,494 251,333 351,166 18,269 R Edwardes, Executive Vice President Development7 S Gregory, Senior Vice President and Chief Technology Officer P Loader, Executive Vice President Global Exploration8, 9, 10 R Matisons, Executive Vice President Marketing, Trading and Shipping D McLoughlin, Senior Vice President People and Global Capability11 G Roder, Executive Vice President Business Development and Growth12 2017 2016 2017 67,741 2,933 2,727 - 144,478 (23,842) 225,557 419,594 542,337 2016 399,768 17,744 14,461 98,688 99,405 15,502 - - - - - - 219,107 10,406 14,291 151,403 661,126 (10,606) 425,219 1,470,946 1,983,499 L Tremaine, Executive Vice President and Chief Financial Officer13 M Utsler, Executive Vice President and Chief Operations Officer8, 14 2017 286,355 8,242 7,419 - (1,616,311) (108,997) 51,065 (1,372,227) (1,779,498) 2016 606,228 13,053 16,942 380,224 692,987 39,820 2017 1,026,372 22,006 2016 946,540 23,643 - - 475,262 828,789 30,656 615,447 666,580 35,982 - - - 1,749,254 2,364,527 2,383,085 3,094,964 2,288,192 3,079,492 1. Reflects the value of allowances and non-monetary benefits (including travel, health insurance, car parking and any associated fringe benefit tax). 2. Represents the short-term incentive earned in the respective year, which is actually paid in the following year. Amounts were translated to US dollars using closing spot rate on 31 December 2017. Under his contract, the CEO is entitled to receive two-thirds of his STA in cash and one-third in restricted shares which have a three-year deferral period. For the 2016 performance year, the CEO agreed to take one-third as cash, one-third as shares with a two-year deferral period and one-third in restricted shares which have a three-year deferral period. For the 2017 award, the CEO originally agreed to a similar arrangement but with the subsequent decision to raise new equity through a retail entitlement offer, the Board elected to pay the CEO two-thirds of the STA in cash on the basis that he will use the after-tax proceeds to exercise his rights under the offer. The CEO has undertaken to retain those shares for at least a year. 3. ‘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. 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. 4. The total remuneration in AUD is converted from USD using exchange rates on the date of each transaction. This non-IFRS information is included for the purposes of showing the total annual cost of benefits to the company in Australian dollars for the service period. 5. Performance related outcomes are calculated using the USD total remuneration figure. 6. Ms Duhe commenced with Woodside on 1 December 2017. 7. Mr Edwardes' 2014, 2015, 2016 and 2017 share based payment amortisation expenses have been accelerated based on his contract end date of 31 December 2018. 8. As nonresidents for Australian tax purposes Mr Loader and Mr Utsler have 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 their normal monthly salary. The amount is included in salaries, fees and allowances. 9. Mr Loader's 2014, 2015, 2016 and 2017 share based payment amortisation expenses have been accelerated based on his contract end date of 1 July 2018. 10. Mr Loader will cease being KMP on 28 February 2018. 11. Mr McLoughlin ceased employment with Woodside on 3 March 2017. 12. Mr Roder ceased being KMP on 29 April 2016 and left employment with Woodside on 31 October 2016. 13. Mr Tremaine ceased employment with Woodside on 2 June 2017. 14. Mr Utsler's 2014, 2015, 2016 and 2017 share based payment amortisation expenses have been accelerated based on his contract end date of 2 December 2018. Woodside Petroleum Ltd | Remuneration Report 89 Table 10 - LTA peer group, international oil and gas companies Anadarko Petroleum Corporation Apache Corporation 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 Tullow Oil PLC Table 11 – Summary of CEO and executive KMP’s allocated, vested or lapsed equity Type of equity1 Grant date Allocation date Vesting date2,3 Awarded but not vested Vested in 2017 % of total vested Lapsed in 2017 Fair Value of Equity4,5 P Coleman Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - 19,924 100 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 16 December 2016 27 February 2017 27 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 45,334 47,905 48,225 48,225 37,822 - - - - - - - - - - RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 150,665 50,985 33.84 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 156,940 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 167,316 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 153,833 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 104,997 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 104,797 - - - - - - - - - - M Abbott6 Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - 1,390 100 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 WEP Equity Rights 1 October 2014 WEP Equity Rights 1 October 2015 WEP Equity Rights 1 October 2017 - - - 1 October 2017 1 October 2018 1 October 2020 S Duhe⁷ Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 4,788 5,339 4,721 6,564 9,425 6,947 6,987 - - - - - - 2,221 33.84 - - - - - - - 1,150 100 2,300 1,150 439 868 - - - - - - - - - - SWEP Equity Rights 1 December 2017 - 1 December 2020 15,000 90 Woodside Petroleum Ltd | Annual Report 2017 - - - - - - - - - - - - - - - - - - - - - - - - - - 35.18 34.80 31.15 22.73 20.88 22.49 15.90 20.77 17.45 17.39 12.05 12.06 35.18 31.15 20.88 22.49 15.90 17.39 12.05 12.06 31.26 18.07 20.33 22.49 12.06 21.26 Table 11 – Summary of CEO and Executive KMP’s allocated, vested or lapsed equity (cont.) Type of equity1 Grant date Allocation date Vesting date2,3 Awarded but not vested Vested in 2017 % of total vested Lapsed in 2017 Fair Value of Equity4,5 R Edwardes Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - 5,075 100 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 9,717 10,507 9,658 6,727 11,923 19,780 21,078 19,379 13,227 13,276 - - - - - - - - 4,034 33.84 - - - - - - - - - - S Gregory Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - 2,566 100 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 5,198 6,218 7,038 4,831 4,647 10,000 11,276 10,367 7,076 7,150 - - - - - - - - 1,572 33.84 - - - - - - - - - - WEP Equity Rights 1 October 2014 WEP Equity Rights 1 October 2015 WEP Equity Rights 1 October 2017 - - - 1 October 2017 1 October 2018 1 October 2020 - 2,300 100 2,300 1,730 - - - - P Loader⁸ Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - 1,450 100 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 SWEP Equity Rights 1 October 2014 - 1 October 2017 R Matisons9 Restricted Shares 1 January 2013 21 February 2014 21 February 2017 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 7,445 8,051 8,787 5,179 7,536 16,150 14,849 10,135 10,221 - - 5,541 5,583 3,712 10,161 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 10,688 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 7,294 7,327 - - - - - - - - - 11,960 2,660 - - - - - - - - - - - - 100 100 - - - 3,438 33.84 - - - - - - WEP Equity Rights 1 October 2014 WEP Equity Rights 1 October 2015 WEP Equity Rights 1 October 2017 - - - 1 October 2017 1 October 2018 1 October 2020 - 1,720 100 2,300 1,150 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35.18 34.80 31.15 20.88 22.49 15.90 20.77 17.45 17.39 12.05 12.06 35.18 34.80 31.15 20.88 22.49 15.90 20.77 17.45 17.39 12.05 12.06 31.26 18.07 20.33 35.18 34.80 31.15 20.88 22.49 20.77 17.45 17.39 12.05 12.06 31.26 35.18 31.15 20.88 22.49 15.90 17.39 12.05 12.06 31.26 18.07 20.33 Woodside Petroleum Ltd | Remuneration Report 91 Table 11 – Summary of CEO and Executive KMP’s allocated, vested or lapsed equity (cont.) Type of equity1 Grant date Allocation date Vesting date2,3 Awarded but not vested Vested in 2017 % of total vested Lapsed in 2017 Fair Value of Equity4,5 D McLoughlin10 Restricted Shares 1 January 2014 20 February 2015 20 October 2017 Restricted Shares 1 January 2015 19 February 2016 20 October 2017 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 - - - RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 7,068 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 WEP Equity Rights 1 October 2015 - 20 March 2017 L Tremaine11 Restricted Shares 1 January 2013 21 February 2014 21 February 2017 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 RTSR Tested VPRs 1 January 2012 22 February 2013 22 February 2017 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 WEP Equity Rights 1 October 2014 WEP Equity Rights 1 October 2015 SWEP Equity Rights 1 October 2014 - - - 1 October 2017 1 October 2018 1 October 2017 M Utsler Restricted Shares 1 January 2013 21 February 2014 21 February 2017 - - - - - - - - - - - - - - - 158 4,239 - - - 1,090 4,249 - - - 100 100 - - - 47.4 100 - - - 4,951 33.84 - - - - - - - - - - - - - - 322 100 Restricted Shares 1 January 2014 20 February 2015 20 February 2018 Restricted Shares 1 January 2015 19 February 2016 19 February 2019 Restricted Shares 1 January 2016 27 February 2017 27 February 2020 Restricted Shares 1 January 2017 20 February 2018 20 February 2021 RTSR Tested VPRs 1 January 2013 21 February 2014 21 February 2018 RTSR Tested VPRs 1 January 2014 20 February 2015 20 February 2019 RTSR Tested VPRs 1 January 2015 19 February 2016 19 February 2020 RTSR Tested VPRs 1 January 2016 27 February 2017 27 February 2021 RTSR Tested VPRs 1 January 2017 20 February 2018 20 February 2022 12,228 10,876 13,673 9,586 1,676 21,219 19,509 14,056 14,188 - - - - - - - - - - - - - - - - - - SWEP Equity Rights 1 October 2014 - 1 October 2017 - 14,350 100 - - 17.45 31.15 2,192 20.88 - 6,947 - - 10,393 9,887 8,447 9,680 16,560 18,036 16,583 11,984 2,300 2,300 11,960 - - - - - - - - - - - 17.39 12.05 18.07 35.18 34.80 31.15 20.88 15.90 20.77 17.45 17.39 12.05 31.26 18.07 31.26 35.18 34.80 31.15 20.88 22.49 20.77 17.45 17.39 12.05 12.06 31.26 1. For valuation purposes all VPRs and equity rights are treated as if they will be equity settled. 2. Vesting date and exercise date are the same. Vesting is subject to satisfaction of vesting conditions. Full details of the vesting conditions for all prior year equity grants to KMP are included in the remuneration report for the relevant year. The minimum total value of the grants for future financial years is nil if relevant vesting conditions are not satisfied. An estimate of the maximum possible total value in future financial years is the fair value at grant date multiplied by the number of equity instruments awarded. 3. Any RTSR-tested VPRs allocated prior to 2016 that do not vest as a result of the first test will be retested over a five year performance period. RTSR-tested VPRs allocated in 2016 and future years will not be retested. The second test date for earlier VPR allocations is one year after the vesting date listed in the table. 4. In accordance with the requirements of AASB 2 Share-based Payment, the fair value of variable pay 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. 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. 5. The fair value of Equity Rights and Restricted Shares as at their date of grant has been determined by reference to the share price at acquisition. The fair value is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should these equity instruments vest. 6. Mr Abbott did not meet the definition of KMP under AASB 124 for years prior to 2015. Previous years comparative figures are not shown. 7. Ms Duhe commenced employment with Woodside on 1 December 2017. 8. Mr Loader will cease being KMP on 28 February 2018. 9. Mr Matisons did not meet the definition of KMP under AASB 124 for years prior to 2015. Previous years comparative figures are not shown. 10. Mr McLoughlin ceased employment with Woodside on 3 March 2017. 11. Mr Tremaine ceased employment with Woodside on 2 June 2017. 92 Woodside Petroleum Ltd | Annual Report 2017 Table 12 - Total remuneration paid to NEDs in 2017 and 2016 The following table provides a detailed breakdown of the components of remuneration for each of the company’s NEDs. Non-executive director Cash salary and fees Pension super Salaries, fees and allowances $ Company contributions to superannuation $ M Chaney L Archibald¹ M Cilento F Cooper R Goyder2 C Haynes A Jamieson3 I Macfarlane4 D McEvoy5 A Pickard⁶ S Ryan G Tilbrook 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 1. Mr Archibald was appointed as a director on 1 February 2017. 2. Mr Goyder was appointed as a director on 1 August 2017. 3. Dr Jamieson ceased being a director on 21 April 2016. 4. Mr MacFarlane was appointed as a director on 14 November 2016. 5. Mr David McEvoy ceased being a director of Woodside on 5 May 2017. 6. Ms Pickard was appointed as a director on 29 February 2016. 554,241 537,452 203,850 - 217,467 205,449 224,057 217,270 69,080 - 221,765 215,047 - 69,634 203,043 25,233 75,562 214,000 234,168 163,184 202,524 196,390 211,265 196,390 52,653 51,058 - - 20,659 19,518 21,285 20,641 6,507 - - - - - 14,852 1,206 7,179 20,330 - 12,677 19,240 18,657 18,301 15,015 Total $ 606,894 588,510 203,850 - 238,126 224,967 245,342 237,911 75,587 - 221,765 215,047 - 69,634 217,895 26,439 82,741 234,330 234,168 175,861 221,764 215,047 229,566 211,405 Woodside Petroleum Ltd | Remuneration Report 93 Table 13 - KMP share and equity holdings Details of shares held by KMP including their personally related entities1 for the 2017 financial year are as follows: Opening holding at 1 January 20172 Type of equity¹ Rights allocated in 2017 Rights vested in 2017 Restricted shares granted Net changes other NEDSP3 Closing holding at 31 December 20174 Non-executive Directors M Chaney L Archibald M Cilento F Cooper R Goyder⁵ C Haynes I MacFarlane D McEvoy⁶ A Pickard S Ryan G Tilbrook Executives P Coleman M Abbott S Duhe Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares Equity Rights Shares Equity Rights Shares Equity Rights Shares R Edwardes Equity Rights S Gregory P Loader⁷ R Matisons Shares Equity Rights Shares Equity Rights Shares Equity Rights Shares D McLoughlin⁸ Equity Rights L Tremaine⁹ Equity Rights Shares M Utsler Shares Equity Rights Shares 20,000 - 2,311 4,928 - 6,119 - 8,040 940 4,458 7,153 628,754 238,758 33,385 17,286 - - 72,160 30,552 40,890 13,982 50,495 16,946 46,786 40,038 9,726 4,397 82,370 60,627 56,754 23,426 - 1,088 1,248 1,468 - 1,446 873 - 1,436 1,290 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 104,997 - 8,097 - 15,000 - 13,227 - 8,806 - 10,135 - 8,444 - - - - - 14,056 - - - - - - - - - - - - (50,985) 50,985 (3,371) 3,371 - - (4,034) 4,034 (3,872) 3,872 (11,960) 11,960 (5,158) 5,158 (1,090) 1,090 (4,951) 4,951 (14,350) 14,350 - - - - - - - - - - - - - - - - 12,500 - - (8,040) - - - - 96,450 (36,750) - - 5,339 (10,000) - - - (2,000) - (4,138) - - - (12,375) (8,636) (5,487) (77,419) (65,578) - - - 9,658 - 7,038 - 8,787 - 5,583 - - - - - 13,673 20,000 1,088 3,559 6,396 12,500 7,565 873 - 2,376 5,748 7,153 682,766 349,443 38,111 15,996 15,000 - 81,353 42,244 45,824 20,754 48,670 37,693 50,072 38,404 - - - - - - 56,460 51,449 1. Personally related entities include a KMP's spouse, dependents or entities over which they have direct control or significant influence. 2. Opening holding represents amounts carried forward in respect of KMP. 3. Related to participation in the non-executive Directors' Share Plan (NEDSP). 4. Closing equity rights holdings represent unvested options and rights held at the end of the reporting period. There are no options and rights vested but unexercised as at 31 December 2017. 5. Mr Goyder was appointed as a director on 1 August 2017. 6. Mr McEvoy ceased being a diretor on 5 May 2017. 7. Mr Loader will cease being KMP on 28 February 2018. 8. Mr McLoughlin ceased employment with Woodside on 3 March 2017. 9. Mr Tremaine ceased employment with Woodside on 2 June 2017. 94 Woodside Petroleum Ltd | Annual Report 2017 Glossary Key terms used in the Remuneration Report Term Committee EIP ER Meaning The Human Resources & Compensation Committee The Executive Incentive Plan Equity right. ERs are awarded under the WEP and SWEP and each one entitles participants to receive a fully paid share in Woodside on the vesting date (or a cash equivalent in the case of international assignees). No amount is payable by the Executive on the grant or vesting of an ER A senior employee whom the Board has determined to be eligible to participate in the EIP Executive Executive Director Peter Coleman The Executive Director and senior executives listed in Table 1 on page 78 Executive KMP Key management personnel KMP Key performance indicator KPI Long-term award LTA Non-executive director NED The Non-executive Director Share Plan NEDSP Performance Year The year to which an EIP award relates Restricted Shares Woodside ordinary shares that are awarded to Executives as the deferred component of their STA. RTSR Scorecard STA SWEP VAR VPR WEP No amount is payable by the Executive on the grant or vesting of a Restricted Share Relative total shareholder return A corporate scorecard of key measures that aligns with Woodside’s overall business performance Short-term award The Supplementary Woodside Equity Plan Variable Annual Reward Variable Pay Right. Each VPR is a right to receive a fully paid ordinary share in Woodside (or, at the Board’s discretion, as cash equivalent). No amount is payable by the Executive on the grant or vesting of a VPR The Woodside Equity Plan Woodside Petroleum Ltd | Remuneration Report 95 S T N E M E T A T S L A I C N A N I F Main cryogenic heat exchanger at the Karratha Gas Plant. CONTENTS Financial statements 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 the financial statements About these statements A. Earnings for the year A.1 Segment revenue and expenses A.2 Finance costs A.3 Dividends paid and proposed A.4 Earnings per share A.5 Taxes B. Production and growth assets B.1 Segment production and growth assets B.2 Exploration and evaluation B.3 Oil and gas properties B.4 Impairment of oil and gas properties B.5 Significant production and growth asset acquisitions 98 99 100 101 102 103 105 106 108 108 108 108 110 111 112 113 114 115 C. Debt and capital C.1 Cash and cash equivalents C.2 Interest-bearing liabilities and financing facilities C.3 Contributed equity C.4 Other reserves D. Other assets and liabilities D.1 Receivables D.2 Inventories D.3 Payables D.4 Provisions D.5 Segment assets and liabilities E. Other items E.1 Contingent liabilities and assets E.2 Leases E.3 Employee benefits E.4 Related party transactions E.5 Auditor remuneration E.6 Events after the end of the reporting period E.7 Joint arrangements E.8 Parent entity information E.9 Subsidiaries E.10 Other accounting policies Directors’ declaration Independent audit report 116 117 117 118 119 120 121 121 121 121 122 123 124 124 124 126 126 126 126 127 128 130 132 133 Significant changes in the current reporting period The financial performance and position of the Group was particularly affected by the following events and transactions during the reporting period: • Wheatstone LNG commenced production from its onshore facility near Onslow, Western Australia. Refer to Note A.1 for the asset’s results for the period. Woodside Petroleum Ltd | Financial Statements 97 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2017 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 (PRRT) benefit Income tax expense Profit after tax Profit attributable to: Equity holders of the parent Non-controlling interest Profit for the year Basic and diluted earnings per share attributable to equity holders of the parent (US cents) The accompanying notes form part of the financial statements. Notes A.1 A.1 A.1 A.1 A.2 A.5 A.5 E.9 A.4 2017 US$m 3,908 (1,963) 1,945 31 (326) 1,650 10 (94) 1,566 136 (582) 1,120 1,024 96 1,120 121.8 2016 US$m 4,075 (2,234) 1,841 56 (509) 1,388 8 (56) 1,340 177 (544) 973 868 105 973 104.0 98 Woodside Petroleum Ltd | Annual Report 2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2017 Profit for the year Other comprehensive income Items that may be reclassified to the income statement in subsequent periods: Exchange differences reclassified to profit or loss Losses on hedges Tax effect on employee share plans Items that will not be reclassified to the income statement in subsequent periods: Remeasurement gains/(losses) on defined benefit plan 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 statements. 2017 US$m 1,120 2016 US$m 973 - (2) 8 4 10 1,130 1,034 96 1,130 17 (12) - (2) 3 976 871 105 976 Woodside Petroleum Ltd | Financial Statements 99 CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2017 Notes 2017 US$m 2016 US$m C.1 D.1 D.2 A.5 D.1 D.2 B.2 B.3 A.5 D.3 C.2 D.4 A.5 C.2 A.5 D.4 C.3 C.3 C.4 E.9 318 482 186 - 27 1,013 155 - 31 8 3,530 19,398 141 1,125 24,388 25,401 691 76 11 29 220 61 1,088 4,989 1,798 22 77 1,547 8,433 9,521 15,880 6,919 (35) 997 7,169 15,050 830 15,880 285 446 149 2 18 900 172 5 30 8 3,228 19,376 69 965 23,853 24,753 546 76 17 31 202 91 963 4,897 1,578 20 72 1,561 8,128 9,091 15,662 6,919 (30) 979 6,971 14,839 823 15,662 Current assets Cash and cash equivalents Receivables Inventories Tax receivable Other assets Total current assets Non-current assets Receivables 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 Other financial liabilities Other liabilities Provisions Tax payable Total current liabilities Non-current liabilities 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 statements. 100 Woodside Petroleum Ltd | Annual Report 2017 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2017 Cash flows from operating activities Profit after tax for the year Adjustments for: Non-cash items Depreciation and amortisation Gain on disposal of oil and gas properties Change in fair value of derivative financial instruments Net finance costs Tax expense Exploration and evaluation written off Other Changes in assets and liabilities Decrease in trade and other receivables (Increase)/decrease in inventories (Decrease)/increase in provisions Increase in other assets and liabilities Increase/(decrease) in trade and other payables Cash generated from operations Purchases of shares and payments relating to employee share plans Interest received Dividends received Borrowing costs relating to operating activities Income tax paid PRRT received Payments for restoration Net cash from operating activities Cash flows used in investing activities Payments for capital and exploration expenditure Borrowing costs relating to investing activities Payments for disposal of oil and gas properties Payments for acquisition of joint arrangements net of cash acquired Net cash used in investing activities Cash flows (used in)/from financing activities Proceeds from borrowings Repayments of borrowings Borrowing costs relating to financing activities Contributions to 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 in cash held Cash and cash equivalents at the beginning of the period Effects of exchange rate changes Cash and cash equivalents at the end of the period The accompanying notes form part of the financial statements. Notes 2017 US$m 2016 US$m 1,120 973 1,204 - (1) 84 446 58 28 7 (25) (75) (4) 37 2,879 (47) 10 6 (21) (411) 6 (22) 2,400 (1,390) (178) - - (1,568) 2,220 (2,133) (15) (51) - - (826) (805) 27 285 6 318 1,346 (23) 5 48 367 54 45 21 45 16 (7) (81) 2,809 (54) 8 7 - (172) 14 (25) 2,587 (1,608) (153) (14) (698) (2,473) 2,673 (2,128) (18) (193) 277 (274) (286) 51 165 122 (2) 285 B.5 C.2 C.2 C.1 Woodside Petroleum Ltd | Financial Statements 101 g n i l l o r t n o c - n o N t s e r e t n i E.9 US$m 823 96 - 96 - - - (89) 830 799 105 - 105 - - - - (81) 823 y t i u q e l a t o T US$m 15,662 1,120 10 1,130 (47) - 50 (915) 15,880 15,025 973 3 976 372 (54) - 64 (721) 15,662 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2017 i d a p y l l u f d n a d e u s s I s e r a h s l s n a p e r a h s e e y o p m e l r o f d e v r e s e r s e r a h S s t fi e n e b e e y o p m E l e v r e s e r e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o F i e v r e s e r g n g d e H i i s g n n r a e d e n a t e R i e h t l f o s r e d o h y t i u q E t n e r a p Notes C.3 US$m C.3 US$m C.4 US$m C.4 US$m C.4 US$m US$m US$m At 1 January 2017 Profit for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Employee share plan purchases Employee share plan redemptions Share-based payments Dividends paid At 31 December 2017 At 1 January 2016 Profit for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Dividend Reinvestment Plan Employee share plan purchases Employee share plan redemptions Share-based payments Dividends paid At 31 December 2016 The accompanying notes form part of the financial statements. 6,919 - - - - - - - 6,919 6,547 - - - 372 - - - - 6,919 (30) - - - (47) 42 - - (35) (27) - - - - (54) 51 - - (30) 198 - 12 12 - (42) 50 - 218 187 - (2) (2) - - (51) 64 - 198 793 - - - - - - - 793 776 - 17 17 - - - - - 793 (12) - (2) (2) - - - - (14) - - (12) (12) - - - - - (12) 6,971 1,024 - 1,024 - - - (826) 7,169 6,743 868 - 868 - - - - (640) 6,971 14,839 1,024 10 1,034 (47) - 50 (826) 15,050 14,226 868 3 871 372 (54) - 64 (640) 14,839 102 Woodside Petroleum Ltd | Annual Report 2017 About these statements Woodside Petroleum Ltd (Woodside or the Group) is a for- profit entity limited by shares, incorporated and domiciled in Australia. Its shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report and in the segment information in Note A.1. The financial statements were authorised for issue in accordance with a resolution of the directors on 14 February 2018. Statement of compliance The financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001 (Cth), Australian Accounting Standards (AASBs) and other authoritative pronouncements of the Australian Accounting Standards Board. The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The accounting policies are consistent with those disclosed in the Financial Report 2016, except for the impact of all new or amended standards and interpretations. With the exception of AASB 9 (refer to Note E.10(c)), the adoption of these standards and interpretations did not result in any significant changes to the Group’s accounting policies. Currency The functional and presentation currency of Woodside Petroleum Ltd and all its subsidiaries is US dollars. 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. Rounding of amounts The amounts contained in these financial statements have been rounded to the nearest million dollars under the option available to the Group under Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016, unless otherwise stated. Basis of preparation The financial statements have been prepared on a historical cost basis, except for derivative financial instruments and certain other financial assets and financial liabilities, which have been measured at fair value or amortised cost adjusted for changes in fair value attributable to the risks that are being hedged in effective hedge relationships. The financial statements comprise the financial results of the Group and its subsidiaries as at 31 December each year (refer to Section E). 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 the Group ceases to have control. 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. The consolidated financial statements provide comparative information in respect of the previous period. A reclassification of items in the financial statements of the previous period have been made in accordance with the classification of items in the financial statements of the current period. 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. Financial and capital risk management The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework, including review and the approval of the Group’s risk management strategy, policy and key risk parameters. The Board of Directors and the Audit and Risk Committee have oversight of the Group’s internal control system and risk management process, including the oversight of the internal audit function. The Group’s management of financial and capital risks is aimed at ensuring that available capital, funding and cash flows are sufficient to: • meet the Group’s 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 management of exposures relating to trading activities, the purchase of reserves and the underpinning of the economics of a new project. It is, and has been throughout the period, the Group Treasury policy that no speculative trading in financial instruments shall be undertaken. Refer to the risk section of the Operating and Financial Review on pages 62–63 for more information on the Group’s objectives, policies and processes for managing financial risk. The below risks arise in the normal course of the Group’s business. Risk information can be found in the following sections: Section A Section A Section C Section C Section C Section D Commodity price risk Foreign exchange risk Capital risk Liquidity risk Interest rate risk Credit risk Page 105 Page 105 Page 116 Page 116 Page 116 Page 120 Woodside Petroleum Ltd | Financial Statements 103 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 Key estimates 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 known 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 found in the following notes: Note A.5 Note B.2 Note B.3 Note B.4 Note D.4 Note E.7 Taxes Exploration and evaluation Oil and gas properties Impairment of oil and gas properties Provisions Joint arrangements Page 109 Page 112 Page 113 Page 114 Page 122 Page 126 104 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS A. EARNINGS FOR THE YEAR for the year ended 31 December 2017 In this section This section addresses financial performance of the Group for the reporting period including, where applicable, the accounting policies applied and the key estimates and judgements made. The section also includes the tax position of the Group for and at the end of the reporting period. A. A.1 A.2 A.3 A.4 A.5 Earnings for the year Segment revenue and expenses Finance costs Dividends paid and proposed Earnings per share Taxes Page 106 Page 108 Page 108 Page 108 Page 108 Key financial and capital risks in this section Commodity price risk management The Group’s revenue is exposed to commodity price fluctuations. Oil and gas prices are measured 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. As at the reporting date, the Group had no financial instruments with material exposure to commodity price risk. Foreign exchange risk management Foreign exchange risk arises from future commitments, financial assets and financial liabilities that are not denominated in US dollars. The majority of the Group’s revenue is denominated in US dollars. The Group is exposed to foreign currency risk arising from operating and capital expenditure incurred in currencies other than US dollars, particularly Australian dollars. Measuring the exposure to foreign exchange risk is achieved by regularly monitoring and performing sensitivity analysis on the Group’s financial position. A reasonably possible change in the exchange rate of the US dollar to the Australian dollar (+12%/-12% (2016:+10%/-10%)), with all other variables held constant, would not have a material impact on the Group’s equity or the profit or loss in the current period. Refer to Notes C.1, C.2, D.1 and D.3 for detail of the denomination of cash and cash equivalents, interest-bearing liabilities, receivables and payables held at 31 December 2017. In order to hedge the foreign exchange risk and interest rate risk (refer to Section C) of a Swiss Franc (CHF) denominated medium term note, Woodside holds a number of cross-currency interest rate swaps (refer to Note C.2). The aim of this hedge is to convert the fixed interest CHF bond into variable interest US dollar debt. Woodside Petroleum Ltd | Financial Statements 105 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS A. EARNINGS FOR THE YEAR for the year ended 31 December 2017 A.1 Segment revenue and expenses Operating segment information The Group has identified its operating segments based on the internal reports that are reviewed and used by the executive management team in assessing performance and in determining the allocation of resources. During the period North West Shelf oil revenue and expenses were transferred to the Australia Oil segment. Comparatives have been restated to reflect the change. Management monitors the operating results of the segments 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 and is measured in accordance with the Group’s accounting policies. Financing requirements, including cash and debt balances, finance income, finance costs and taxes are managed at a Group level. Operating segments outlined below are identified by management based on the nature and geographical location of the business or venture. Producing North West Shelf Project – Exploration, evaluation, development, production and sale of liquefied natural gas, pipeline natural gas, condensate and liquefied petroleum gas from the North West Shelf ventures. Pluto LNG – Exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas. Australia Oil – Exploration, evaluation, development, production and sale of crude oil in assigned permit areas (North West Shelf, Enfield, Vincent, Stybarrow and Balnaves). Wheatstone LNG – Exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas. Development Browse – Exploration, evaluation and development of liquefied natural gas and condensate in the Browse area. The segment is not disclosed in Note A.1 as there were no revenues or expenses recorded for 2017 or 2016. Other Other segments – This segment comprises trading and shipping activities and activities undertaken in the United States, Canada, Senegal, Myanmar and other international locations. Major customer information The Group has two major customers which account for 20% and 15% of the Group’s external revenue. The sales are generated by the Pluto and North West Shelf operating segments (2016: two customers; 21% and 17%). Revenue from external customers1 Non-current assets2 2017 US$m 329 3,377 11 - 191 3,908 2016 US$m 501 3,513 11 - 50 4,075 2017 US$m 21,178 133 1,349 598 5 23,263 2016 US$m 21,048 64 1,285 486 5 22,888 Oceania Asia Canada Africa Other Consolidated 1. Revenue is attributable to geographic location based on the location of the customers. 2. Non-current assets exclude deferred tax of US$1,125m (2016: US$965m). Recognition and measurement 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. • Revenue from sale of produced hydrocarbons Revenue from the sale of produced hydrocarbons is recognised when the significant risks and rewards of ownership have passed to the customer, which is typically at the point that title passes. This policy is applied to the Group’s different operating arrangements. Revenue is recognised on the basis of the Group’s working interest in a producing field (the entitlement method). Revenue from take or pay contracts is recognised in earnings when the product has been drawn by the customer and recorded as unearned revenue when not drawn by the customer. • Other operating revenue Revenue earned from LNG processing, ship chartering and other services is recognised as the services are rendered. Trading and other hydrocarbon revenue earned from sales of third party products is recognised when the risks and rewards of ownership of the products are transferred to the customer. Expenses • 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. • Depreciation and amortisation Refer to Note B.3 for details on depreciation and amortisation. Unallocated items – Unallocated items comprise primarily corporate 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. • Impairment Refer to Note B.4 for details on impairment. • Leases Refer to Note E.2 for details on leases. • Employee benefits Refer to Note E.3 for details on employee benefits. 106 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS A. EARNINGS FOR THE YEAR for the year ended 31 December 2017 A.1 Segment revenue and expenses (cont.) Producing Other Pluto North West Shelf 2016 Australia Oil 2017 Wheatstone 2017 Other segments Unallocated items 2016 Consolidated 2017 2017 2016 2016 2016 2017 US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m 2,751 303 413 302 34 1,950 - 134 - - 1,763 - 145 - - 2,631 148 413 390 34 801 292 279 - 34 860 137 268 - 34 - - - 390 - - - - 302 - - 11 - - - - 11 - - - 8 - - - - - - - - - - - - - - - - - - - 2016 2017 2017 2016 Liquefied natural gas Pipeline natural gas Condensate Oil Liquefied petroleum gas Revenue from sale of produced hydrocarbons Processing and services revenue Trading revenue Other hydrocarbon revenue Other revenue Operating revenue Production costs Royalties and excise Insurance Inventory movement Provision adjustment Costs of production Land and buildings Transferred exploration and evaluation Plant and equipment Marine vessels and carriers Oil and gas properties depreciation and amortisation Shipping and direct sales costs Trading costs Other hydrocarbon costs Other cost of sales Cost of sales Trading intersegment adjustments Gross profit Other income Exploration and evaluation expenditure Amortisation Write-offs Exploration and evaluation General, administrative and other costs Depreciation of other plant and equipment Other1 Other costs Other expenses 1,299 1,406 1,908 2,084 390 302 8 - - - - 1,299 (132) (180) (2) (1) - (315) (4) (7) (226) (7) - - - - 1,406 (157) (177) (5) 4 - (335) (7) (4) (243) (7) 192 36 19 247 2,155 (159) - (12) 13 - (158) (24) (35) (744) - 202 - - 202 2,286 (145) - (11) (16) - (172) (46) (49) (820) - - - - - 390 (125) (7) (7) (8) 120 (27) - (3) (94) - - - - - 302 (157) (2) (4) (4) - (167) - (2) (121) - - - 28 28 36 (15) - - 11 - (4) (6) (1) (17) - (244) (261) (803) (915) (97) (123) (24) (61) - - (61) (620) (18) 661 12 (4) - - (4) (3) - - (3) (7) (34) - - (34) (630) - 776 11 (4) - - (4) (11) (1) 4 (8) (12) (104) (34) (20) (158) (1,119) (93) - - (93) (1,180) (18) 1,018 (65) 1,041 - - - - (124) - 266 7 (8) - - (8) (1) - (6) (7) (15) 2 (3) - - (3) - - (30) (30) (33) 8 (1) - - (1) - - 1 1 - - - - - (290) - 12 40 (1) - - (1) (9) - - (9) (10) - - (27) (27) (55) - (19) - (2) - - (2) - - 1 1 (1) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11 11 - 17 - 17 28 (11) - (1) - - (12) - - - - - - (21) - (21) (33) 36 31 - (104) (16) (58) (178) - 70 - 70 81 (11) - - - - (11) - - - - - - (109) - (109) (120) 65 26 - (208) (26) (54) (288) - - - - - - (1) - (1) - - (2) - - - - - (10) - - (10) (12) - (12) 4 - - - - - 3,616 3,803 - - - - - (2) - 2 - - - - - - - - (14) - - (14) (14) - (14) 192 53 47 292 3,908 (443) (187) (23) 15 120 (518) (34) 202 70 - 272 4,075 (472) (179) (18) (16) - (685) (53) (46) (1,081) (7) (55) (1,184) (7) (1,168) (1,299) (175) (55) (47) (277) (1,963) (141) (109) - (250) (2,234) - 1,945 - 1,841 3 31 56 - - - - (119) (16) (58) (193) (216) (26) (54) (296) (8) (23) (87) (90) (99) (133) (1) 4 (5) (183) (1) (5) (29) (317) (19) (14) (120) (120) (19) (28) (137) (137) (20) (14) (133) (326) (21) (59) (213) (509) (152) (291) (128) (148) 1,650 1,388 Profit/(loss) before tax and net finance costs 666 775 1,010 1,010 274 42 (20) 1. Other comprises foreign exchange gains and losses, losses on disposals of investments, restructuring costs as well as other expenses not associated with the ongoing operations of the business. Woodside Petroleum Ltd | Financial Statements 107 NOTES TO THE FINANCIAL STATEMENTS A. EARNINGS FOR THE YEAR for the year ended 31 December 2017 A.2 Finance costs A.5 Taxes Interest on interest-bearing liabilities Accretion charge Other finance costs Less: Finance costs capitalised against qualifying assets 2017 US$m 202 39 20 (167) 94 2016 US$m 163 40 16 (163) 56 A.3 Dividends paid and proposed Woodside Petroleum Ltd, the parent entity, paid and proposed dividends set out below: (a) Dividends paid during the financial year Prior year fully franked final dividend US$0.49, paid on 29 March 2017 (2016: US$0.43, paid on 8 April 2016) Current year fully franked interim dividend US$0.49 paid on 21 September 2017 (2016: US$0.34, paid on 30 September 2016) (b) Dividend declared subsequent to the reporting period (not recorded as a liability) Final dividend US$0.49 (2016: US$0.49) (c) Other information Franking credits available for the subsequent periods Current year dividends per share (US cents) A.4 Earnings per share 2017 US$m 2016 US$m 413 413 826 354 286 640 413 413 2,032 98 1,887 83 Profit attributable to equity holders of the parent (US$m) Weighted average number of shares on issue Basic and diluted earnings per share (US cents) 1,024 840,928,530 121.8 868 835,011,896 104.0 2017 2016 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 on issue during the year. The weighted average number of shares makes allowance for shares reserved for employee share plans. Performance rights of 10,006,241 (2016: 9,384,302) are considered to be contingently issuable and have not been allowed for in the diluted earnings per share calculation. There have been no transactions involving ordinary shares between the reporting date and the date of completion of these financial statements. (a) Tax expense comprises PRRT Current tax benefit Deferred tax benefit PRRT benefit Income tax Current year Current tax expense Deferred tax expense Adjustment to prior years Current tax benefit Deferred tax expense Income tax expense Tax expense (b) Reconciliation of income tax expense Profit before tax PRRT benefit Profit before income tax Income tax expense calculated at 30% Non-deductible items Foreign expenditure not brought to account Adjustment to prior years Foreign exchange impact on tax expense Income tax expense (c) Reconciliation of PRRT benefit Profit before tax Non-PRRT assessable profits PRRT projects profit/(loss) before tax PRRT expense/(benefit) calculated at 40% Augmentation Other PRRT benefit (d) Deferred tax income statement reconciliation PRRT Production and growth assets Augmentation for current year Provisions Other PRRT deferred tax benefit Income tax Oil and gas properties Exploration and evaluation assets Provisions PRRT liabilities Unused tax losses and tax credits Other Income tax deferred tax expense Deferred tax expense (e) Deferred tax balance sheet reconciliation Deferred tax assets PRRT Production and growth assets Augmentation for current year Provisions Other 2017 US$m 2016 US$m (3) (133) (136) (5) (172) (177) 384 170 (3) 31 582 446 1,566 136 1,702 511 2 35 28 6 582 1,566 (1,513) 53 21 (183) 26 (136) (49) (183) 105 (6) (133) 198 9 39 39 (50) (42) 193 60 933 178 24 (10) 1,125 368 176 (10) 10 544 367 1,340 177 1,517 456 15 84 (2) (9) 544 1,340 (1,452) (112) (45) (170) 38 (177) (36) (170) 13 21 (172) 200 (49) 36 56 (119) 62 186 14 685 170 125 (15) 965 108 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS A. EARNINGS FOR THE YEAR for the year ended 31 December 2017 A.5 Taxes (cont.) (e) Deferred tax balance sheet reconciliation (cont.) Deferred tax liabilities PRRT Production and growth assets Augmentation for current year Provisions Other Income tax Oil and gas properties Exploration and evaluation assets Provisions PRRT liabilities Unused tax losses and tax credits Other1 (f) Tax (payable)/receivable reconciliation PRRT receivable Income tax payable (g) Effective income tax rate: Australian and global operations Effective income tax rate2 Australia Global (h) Current year income tax payable reconciliation Profit before income tax Income tax at the statutory tax rate of 30% Non-temporary differences3,4 Temporary differences: deferred tax4 Current year income tax payable 2017 US$m 2016 US$m 463 (5) (129) 11 1,636 308 (485) 236 (169) (68) 1,798 434 - (133) 12 1,438 299 (524) 197 (119) (26) 1,578 - (61) (61) 2 (91) (89) 31.5% 34.2% 30.5% 35.9% 1,702 511 37 (170) 378 1,517 456 99 (176) 379 1. US$8.0 million (2016: US$0.2 million) movement recognised in other comprehensive income. 2. The global operations effective income tax rate (ETR) is calculated as the Group’s income tax expense divided by profit before income tax. The Australian operations ETR is calculated with reference to all Australian companies and excludes foreign exchange impact on tax expense. 3. Primarily expenditure in respect of foreign operations. Excludes foreign exchange impact on tax expense. 4. Excludes adjustment to prior years. Tax transparency code Woodside participates in the Australian Board of Taxation’s voluntary Tax Transparency Code (TTC). To increase public confidence in the contributions and compliance of corporate taxpayers, the TTC recommends public disclosure of tax information. Woodside has addressed the recommended disclosures in two parts. The Part A disclosures are addressed within this Taxes note; the Part B disclosures are addressed in our Sustainable Development Report. Recognition and measurement Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. 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. The tax rates and laws used to determine the amount are based on those that have been enacted or substantially enacted by the end of the reporting period. Income taxes relating to items recognised directly in equity are recognised in equity. Current taxes 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. Deferred taxes Deferred tax expense is the movements in the temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. With the exception of those noted below, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for deductible temporary differences, unused tax losses and tax credits only if it is probable that sufficient future taxable income will be available to utilise those temporary differences and losses. Deferred tax is 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 accounting profit nor the taxable profit. In relation to PRRT, the impact of future augmentation on expenditure is included in the determination of future taxable profits when assessing the extent to which a deferred tax asset can be recognised in the statement of financial position. Offsetting deferred tax balances Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset current tax assets and liabilities and when they relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities that the Group intends to settle its current tax assets and liabilities on a net basis. Refer to Notes E.9 and E.10 for detail on the tax consolidated group. Key estimates and judgements (a) Income tax classification Judgement is required when determining whether a particular tax is an income tax or another type of tax. Accounting for deferred tax is applied to income taxes as described above, but is not applied to other types of taxes, e.g. North West Shelf royalties and excise. Such taxes are recognised in the income statement on an appropriate basis. PRRT is considered, for accounting purposes, to be an income tax. (b) Deferred tax asset recognition Australian tax losses: A deferred tax asset of US$169 million (2016: US$119 million) has been recognised from carry forward unused tax losses and credits. The Group has determined that it is probable that sufficient future taxable income will be available to utilise those losses and credits. Foreign tax losses: Deferred tax assets of US$403 million (2016: US$407 million) relating to unused foreign tax losses where it is not probable that the assets will be utilised based on current planned activities in those regions. PRRT: Deferred tax assets on deductible temporary differences have not been recognised on the basis that deductions from future augmentation of the deductible temporary difference will be sufficient to offset future taxable profit. US$3,722 million (2016: US$3,592 million) relates to the North West Shelf Project, US$501 million (2016: US$425 million) relates to the quarantined exploration spend of the Pluto Project and US$680 million (2016: US$605 million) relates to the Wheatstone Project. Future taxable profits were determined using the same assumptions disclosed in Note B.4 and a long-term bond rate of 2.5% (2016: 2.2%) for the purposes of augmentation. Had an alternative approach been used to assess recovery of the deferred tax assets, whereby future augmentation was not included in the assessment, the estimated deferred tax assets would be recognised, with a corresponding benefit to income tax expense. It was determined that the approach adopted provides the most meaningful information on the implications of the PRRT regime, whilst ensuring compliance with AASB 112 Income Taxes. Woodside Petroleum Ltd | Financial Statements 109 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 In this section This section addresses the strategic growth (exploration and evaluation) and core producing (oil and gas properties) assets’ position of the Group at the end of the reporting period including, where applicable, the accounting policies applied and the key estimates and judgements made. The section also includes the impairment position of the Group at the end of the reporting period. B. B.1 B.2 B.3 B.4 B.5 Production and growth assets Segment production and growth assets Exploration and evaluation Oil and gas properties Impairment of oil and gas properties Significant production and growth asset acquisitions Page 111 Page 112 Page 113 Page 114 Page 115 110 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 B.1 Segment production and growth assets B1_Segment Producing Development North West Shelf Consolidated 2016 2017 2017 US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m Australia Oil Wheatstone 2016 2017 Browse Pluto 2017 2017 2016 2016 2016 2017 2016 2017 2016 Other Other segments Balance as at 31 December Oceania Asia Canada Africa Other Total exploration and evaluation Balance as at 31 December Land and buildings Transferred exploration and evaluation Plant and equipment Marine vessels and carriers Projects in development Total oil and gas properties Additions to exploration and evaluation: Exploration Evaluation Restoration Additions to oil and gas properties: Oil and gas properties additions Capitalised borrowing costs additions1 Restoration 21 - - - - 21 7 - - - - 7 - - - - - - 407 - - - - 407 594 133 397 - - - - 562 61 1,348 1,284 486 5 397 2,677 2,398 598 4 1,447 133 1,348 598 4 3,530 1,392 61 1,284 486 5 3,228 16 - - - - 16 16 - - - - 16 402 - - - - 402 396 - - - - 396 28 42 24 69 436 333 460 368 2,263 2,293 10,222 10,932 - 56 2,739 2,768 11,053 11,816 115 268 122 283 - 62 21 - - - - 21 - 12 409 - 568 989 - 15 661 235 482 3,190 7 - - 271 - - 293 520 3,727 790 4,613 3,998 - - (6) (6) - - - - - 15 - 15 - 7 - 7 - - - - - - - - - - - - - - - - - - 14 (4) 10 30 (6) 24 1 - 3 - - 4 489 1 1,122 - 425 649 3 16,087 13,981 122 - 122 - 4,359 1,418 4 19,398 19,376 179 168 6 353 94 862 (13) 943 180 199 (3) 376 94 908 (25) 977 111 - (35) 76 286 9 1 296 116 1 (2) 115 480 150 21 651 763 157 (13) 907 - - - - - - - - - - - - - - - - 959 167 76 1,202 1,208 163 (97) 1,274 - - - - - 1 - 1 171 8 36 215 218 5 (47) 176 1 10 (5) 6 22 - 18 40 1. Borrowing costs capitalised were at a weighted average interest rate of 4.0% (2016: 3.5%). Refer to Note A.1 for descriptions of the Group’s segments and geographical regions. Woodside Petroleum Ltd | Financial Statements 111 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 B.2 Exploration and evaluation Year ended 31 December 2017 Carrying amount at 1 January 2017 Additions Amortisation of licence acquisition costs Expensed Carrying amount at 31 December 2017 Year ended 31 December 2016 Carrying amount at 1 January 2016 Additions Amortisation of licence acquisition costs Expensed Transferred exploration and evaluation Carrying amount at 31 December 2016 Exploration commitments Year ended 31 December 2017 Year ended 31 December 2016 Oceania US$m Asia US$m Canada US$m Africa US$m Other US$m 1,392 90 (2) (33) 1,447 1,302 325 - (38) (197) 1,392 82 43 61 89 (1) (16) 133 30 35 (4) - - 61 63 81 1,284 64 - - 1,348 1,170 139 (9) (16) - 1,284 21 26 486 132 (11) (9) 598 19 478 (11) - - 486 93 183 5 1 (2) - 4 7 - (2) - - 5 16 17 Total US$m 3,228 376 (16) (58) 3,530 2,528 977 (26) (54) (197) 3,228 275 350 Recognition and measurement 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. Areas of interest are based on a geographical area. All exploration and evaluation expenditure, including general permit activity, geological and geophysical costs and new venture activity costs, is expensed as incurred except for the following: • where the expenditure relates to an exploration discovery that, at the reporting date, has not been recognised as an area of interest, because an assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or • where the expenditure relates to a recognised area of interest 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 acquiring interests in new exploration and evaluation licences are capitalised. 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. Subsequent to the recognition of an area of interest, all further evaluation costs relating to that area of interest are capitalised. 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. In the statement of cash flows, those cash flows associated with capitalised exploration and evaluation expenditure, including unsuccessful wells, are classified as cash flows used in investing activities. Exploration commitments The Group has exploration expenditure obligations which are contracted for, but not provided for in the financial statements. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Group. Key estimates and judgements (a) Area of interest An area of interest (AOI) is defined by the Group as an individual geographical area whereby the presence of hydrocarbons is considered favourable or proved to exist. The Group has established criteria to recognise and maintain an AOI. There is separate guidance for conventional and unconventional AOIs. (b) Impairment of exploration and evaluation assets 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 AOI. Each potential or recognised AOI 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 continued carry forward of capitalised costs. Where a potential impairment is indicated, assessment is performed using a fair value less costs to dispose method to determine the recoverable amount for each AOI to which the exploration and evaluation expenditure is attributed. This assessment requires management to make certain estimates and apply judgement in determining 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. 112 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 B.3 Oil and gas properties Year ended 31 December 2017 Carrying amount at 1 January 2017 Additions Depreciation and amortisation Completions and transfers Carrying amount at 31 December 2017 At 31 December 2017 Historical cost Accumulated depreciation and impairment Net carrying amount Year ended 31 December 2016 Carrying amount at 1 January 2016 Additions Disposals at written down value Depreciation and amortisation Completions and transfers Carrying amount at 31 December 2016 At 31 December 2016 Historical cost Accumulated depreciation and impairment Net carrying amount Land and buildings US$m Transferred exploration and evaluation Plant and equipment Marine vessels and carriers Projects in development US$m US$m US$m US$m 489 - (34) 667 1,122 1,903 (781) 1,122 575 - - (86) - 489 1,092 (603) 489 425 - (46) 270 649 1,093 (444) 649 465 - - (55) 15 425 823 (398) 425 13,981 39 (1,093) 3,160 16,087 28,450 (12,363) 16,087 14,767 (90) (3) (1,192) 499 13,981 24,566 (10,585) 13,981 122 - (7) 7 122 316 (194) 122 129 - - (7) - 122 401 (279) 122 4,359 1,163 - (4,104) 1,418 1,530 (112) 1,418 3,300 1,364 - - (305) 4,359 5,282 (923) 4,359 Total US$m 19,376 1,202 (1,180) - 19,398 33,292 (13,894) 19,398 19,236 1,274 (3) (1,340) 209 19,376 32,164 (12,788) 19,376 Recognition and measurement Oil and gas properties are stated at cost less accumulated depreciation and impairment charges. Oil and gas properties include initial cost to acquire, construct, install or complete production and infrastructure facilities such as pipelines and platforms, capitalised borrowing costs, transferred exploration and evaluation assets, development wells and the estimated 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. 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. Transferred exploration and evaluation and offshore plant and equipment are depreciated using the unit of production basis over proved plus probable reserves or proved reserves for late life assets. Onshore plant and equipment is depreciated using a straight-line basis over the lesser of useful life and the life of proved plus probable reserves. On a straight-line basis the assets have an estimated useful life of 5-50 years. All other items of oil and gas properties are depreciated using the straight-line method over their useful life. They are depreciated as follows: • Buildings – 24-40 years; • Other plant and equipment – • Marine vessels and carriers – 5-15 years; and 10-40 years; • Land is not depreciated. Impairment Refer to Note B.4 for details on impairment. Capital commitments The Group has capital expenditure commitments contracted for, but not provided for in the financial statements of US$535 million (2016: US$553 million). Key estimates and judgements Reserves The estimations of reserves require significant management judgement and 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. Estimates of oil and natural gas reserves are used to calculate depreciation, depletion and amortisation charges for the Group’s oil and gas properties. Judgement is used in determining the reserve base applied to each asset. Typically, late life oil assets use proved reserves. Estimates are reviewed at least annually or when there are changes in the economic circumstances impacting specific assets or asset groups. These changes may impact depreciation, asset carrying values, restoration provisions and deferred tax balances. If proved reserves estimates are revised downwards, earnings could be affected by higher depreciation expense or an immediate write-down of the asset’s carrying value. For more information regarding reserve assumptions, refer to the reserves and resources statement on pages 64–67 of the Annual Report. Woodside Petroleum Ltd | Financial Statements 113 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 Recognised impairment and impairment reversal The Group assessed each CGU to determine whether an indicator of impairment or impairment reversal existed. No indicators of impairment or impairment reversal were identified in 2016 or 2017. Inputs to impairment indicator modelling Future cash flow information used for the value in use calculation is based on the Group’s latest reserves, budget, five-year plan and project economic plans. Key estimates are disclosed in the ‘Key estimates and judgements’ section. B.4 Impairment of oil and gas properties Recognition and measurement Impairment testing The carrying amounts of oil and gas properties are assessed half- yearly to determine whether there is an indication of impairment or impairment reversal for those assets which have previously been impaired. Indicators of impairment and impairment reversals include changes in future selling prices, future costs and reserves. When assessing potential indicators of impairment or reversals the Group models scenarios and a range of possible future commodity prices is considered. If any such indication exists, the asset’s recoverable amount is estimated. Oil and gas properties are assessed for impairment indicators and impairments on a cash generating unit (CGU) basis. CGUs are determined as a floating production, storage and off-take vessel for an oil asset and a LNG Plant for a gas asset. Impairment calculations The recoverable amount of an asset or CGU is determined as the higher of its value in use and fair value less costs of disposal. Value in use is determined by estimating future cash flows after taking into account the risks specific to the asset and discounting it to its present value using an appropriate discount rate. If the carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is written down and an impairment loss is recognised in the income statement. For assets previously impaired, if the recoverable amount exceeds the carrying amount, the impairment loss is reversed. The carrying amount of the asset or CGU 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. Key estimates and judgements Impairment and impairment reversal indicator modelling key assumptions In determining whether there is an indicator of impairment or impairment reversal, in the absence of quoted market prices, estimates are made regarding the present value of future cash flows for each CGU. These estimates require significant management judgement and are subject to risk and uncertainty, and hence changes in economic conditions can also affect the assumptions used and the rates used to discount future cash flow estimates. The present value of future cash flows for each CGU were estimated using the assumptions set out below: • Inflation rate – an inflation rate of 2.0% has been applied (2016: 2.0%). • Foreign exchange rates – rate of $0.78 AUD:USD (2016: $0.76) based on management’s assumptions of short and long-term views of global rates. • Discount rate – a range of pre-tax discount rates have been applied between 9% and 11% (2016: 9% and 11%). • LNG price – based on the terms set out in the relevant contracts between the Group and its customers. The majority of LNG sales contracts are linked to an oil price marker, accordingly the LNG prices used are consistent with oil price assumptions. • Natural gas price – based on the terms set out in the relevant contracts between the Group and its customers. • Oil price – oil prices were derived from long-term views of global supply and demand, building upon past experience of the industry and consistent with external sources. Prices are adjusted based on premiums and discounts applied to the oil price marker based on the nature and quality of the product produced at the field. The unadjusted Brent oil prices (US$/bbl) used were: 2018 2019 2020 2021 2022 2023 2017 2016 58 58 62 58 67 71 71 78 76 84 80 84 Prices from 2023 onwards are escalated at 2%. 114 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS B. PRODUCTION AND GROWTH ASSETS for the year ended 31 December 2017 B.5 Significant production and growth asset acquisitions (a) Senegal On 28 October 2016, Woodside completed the acquisition of 100% of the shares in ConocoPhillips Senegal B.V. for a purchase price of US$350 million plus a closing adjustment of US$92 million. Under the terms of the Purchase and Sale Agreement, Woodside acquired a 35% interest in a Joint Operation holding three offshore exploration blocks containing the SNE and FAN oil discoveries in Senegal. (b) Scarborough On 14 November 2016, Woodside completed the acquisition of half of BHP Billiton’s Scarborough area assets in the Carnarvon Basin for an aggregate purchase price of US$250 million plus a closing adjustment of US$1 million. In addition, a US$150 million payment is contingent on a positive final investment decision to develop the Scarborough field. Woodside acquired the following interest in Joint Operations: • a 25% interest in WA-1-R and a 50% interest in WA-62-R, which together contain the Scarborough gas field; • a 50% interest in WA-61-R which contains the Jupiter gas field; and • a 50% interest in WA-63-R which contains the Thebe gas field. Assets acquired and liabilities assumed The identifiable assets and liabilities acquired as at the date of the acquisition inclusive of transaction costs were: Exploration and evaluation assets Net other assets and liabilities acquired Total identifiable net assets at acquisition Cash flows on acquisition Purchase cash consideration Transaction costs Total purchase consideration Net cash outflows on acquisition Senegal Scarborough US$m US$m 447 (1) 446 252 - 252 Senegal Scarborough US$m 251 1 252 252 US$m 442 4 446 446 Asset acquisitions after the end of the reporting period On 14 February 2018, Woodside announced it had entered into a binding Sale and Purchase Agreement to acquire ExxonMobil’s 50% interest in WA-1-R, which contains the Scarborough gas field for an aggregate purchase price of US$444 million. In addition, a US$300 million payment is contingent on a positive final investment decision to develop the Scarborough field. Woodside Petroleum Ltd | Financial Statements 115 NOTES TO THE FINANCIAL STATEMENTS C. DEBT AND CAPITAL for the year ended 31 December 2017 In this section This section addresses cash, debt and capital position of the Group at the end of the reporting period including, where applicable, the accounting policies applied and the key estimates and judgements made. C. C.1 C.2 C.3 C.4 Debt and capital Cash and cash equivalents Interest-bearing liabilities and financing facilities Contributed equity Other reserves Page 117 Page 117 Page 118 Page 119 Key financial and capital risks in this section Capital risk management 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. A stable capital base is maintained 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. The Dividend Reinvestment Plan (DRP) was approved by shareholders at the Annual General Meeting in 2003 for activation as required to fund future growth. The DRP has not been utilised since the fully underwritten 2015 final dividend. A range of financial metrics is monitored, including gearing and cash flow leverage, and Treasury policy breaches and exceptions. Liquidity risk management Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its 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. The Group’s liquidity position is continually reviewed including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. At 31 December 2017, the Group has a total of US$2,942 million (2016: US$2,679 million) of available undrawn facilities and cash at its disposal. The maturity profile of interest-bearing liabilities is disclosed in Note C.2, and trade and other payables are disclosed in Note D.3. Financing facilities available to the Group are disclosed in Note C.2. Interest rate risk management 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 manages 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. The Group holds cross-currency interest rate swaps to hedge the foreign exchange risk (refer to Section A) and interest rate risk of the CHF denominated medium term note. At the reporting date, the Group was exposed to various benchmark interest rates that were not designated in cash flow hedges, US$84 million (2016: US$43 million) on cash and cash equivalents, US$1,020 million (2016: US$1,533 million) on interest-bearing liabilities (excluding transaction costs) and US$11 million (2016: US$3 million) on cross-currency interest rate swaps. A reasonably possible change in the USD London Interbank Offered Rate (LIBOR) (+1.0%/-1.0% (2016: +1.0%/-1.0%)), with all variables held constant, would not have a material impact on the Group’s equity or the income statement in the current period. 116 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS C. DEBT AND CAPITAL for the year ended 31 December 2017 C.1 Cash and cash equivalents Cash and cash equivalents Cash at bank Total cash and cash equivalents 2017 US$m 318 318 2016 US$m 285 285 Recognition and measurement 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. Foreign exchange risk The Group held US$73 million of cash and cash equivalents at 31 December 2017 (2016: US$23 million) in currencies other than US dollars. C.2 Interest-bearing liabilities and financing facilities Year ended 31 December 2017 At 1 January 2017 Repayments Drawdowns Fair value adjustment and foreign exchange movement Transaction costs capitalised and amortised Carrying value at 31 December 2017 Current Non-current Carrying value at 31 December 2017 Undrawn balance at 31 December 2017 Year ended 31 December 2016 At 1 January 2016 Repayments Drawdowns Fair value adjustment and foreign exchange movement Transaction costs capitalised and amortised Carrying value at 31 December 2016 Current Non-current Carrying value at 31 December 2016 Undrawn balance at 31 December 2016 Bilateral Facilities US$m Syndicated Facilities US$m JBIC Facility US$m US Bonds US$m Medium Term Notes US$m 244 (1,350) 1,420 - 2 316 (2) 318 316 1,824 993 (2,045) 1,295 - 1 244 (3) 247 244 1,894 696 (700) - - 1 (3) (1) (2) (3) 800 496 - 200 - - 696 (1) 697 696 500 583 (83) - - - 500 83 417 500 - 665 (83) - - 1 583 83 500 583 - 3,084 - 800 - (4) 3,880 (4) 3,884 3,880 - 2,287 - 800 - (3) 3,084 (3) 3,087 3,084 - 366 - - 7 (1) 372 - 372 372 - - - 378 (12) - 366 - 366 366 - Total US$m 4,973 (2,133) 2,220 7 (2) 5,065 76 4,989 5,065 2,624 4,441 (2,128) 2,673 (12) (1) 4,973 76 4,897 4,973 2,394 Recognition and measurement All borrowings are initially recognised at fair value less transaction costs. Borrowings are subsequently carried at amortised cost. 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. Borrowings designated as a hedged item are measured at amortised cost adjusted to record changes in the fair value of risks that are being hedged in fair value hedges. The changes in the fair value risks of the hedged item resulted in a loss of US$7 million being recorded (2016: gain US$12 million), offset by a gain of US$6 million recorded on the hedging instrument (2016: loss US$15 million). All bonds, notes and 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 period. Foreign exchange risk All interest-bearing liabilities are denominated in US dollars, excluding the CHF175 million medium term note. Fair value The carrying amount of interest-bearing liabilities approximates their fair value, with the exception of the Group’s unsecured bonds which have a carrying amount of US$3,880 million (2016: US$3,084 million) and a fair value of US$3,985 million (2016: US$3,151 million). The fair value of the bonds and notes was determined using quoted prices in an active market, classified as Level 1 on the fair value hierarchy. The Group’s repayment obligations remain unchanged. Woodside Petroleum Ltd | Financial Statements 117 NOTES TO THE FINANCIAL STATEMENTS C. DEBT AND CAPITAL for the year ended 31 December 2017 C.2 Interest-bearing liabilities and financing facilities (cont.) Maturity profile of interest-bearing liabilities The table below presents the contractual undiscounted cash flows associated with the Group’s interest-bearing liabilities, representing principal and interest. The figures will not necessarily reconcile with the amounts disclosed in the consolidated statement of financial position. Due for payment in: 1 year or less 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years Amounts exclude transaction costs. 2017 US$m 289 1,144 267 910 390 3,237 6,237 2016 US$m 264 962 1,078 197 880 2,631 6,012 Bilateral facilities The Group has 17 bilateral loan facilities totalling US$2,144 million (2016: US$2,144 million). Details of bilateral loan facilities at the reporting date are as follows: Number of facilities 8 2 7 Term (years) Currency Extension option 5 4 3 USD USD USD Evergreen Evergreen Evergreen Interest rates are based on USD LIBOR and margins 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. Syndicated facility On 3 July 2015, the Group executed an unsecured US$1,000 million syndicated loan facility, which was increased to US$1,200 million on 22 March 2016. On 15 November 2017, Woodside amended the existing facility to a US$800 million facility comprising two equal tranches, which now expire in July 2020 and July 2022. Interest rates are based on USD LIBOR plus 0.9% and USD LIBOR plus 1.15% respectively. Interest is paid at the end of each drawdown period. Japan Bank for International Cooperation (JBIC) facility On 24 June 2008, the Group entered into a two tranche committed loan facility of US$1,000 million and US$500 million respectively. The US$500 million tranche was repaid in 2013. There is a prepayment option for the remaining balance. Interest rates are based on LIBOR. Interest is payable semi-annually in arrears and the principal amortises on a straight-line basis, with equal instalments of principal due on each interest payment date (every six months). Under this 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. 118 Woodside Petroleum Ltd | Annual Report 2017 Medium term notes On 28 August 2015, the Group established a US$3,000 million Global Medium Term Notes Programme listed on the Singapore Stock Exchange. Two notes have been issued under this program as set out below: Maturity date Currency 15 July 2022 11 December 2023 USD CHF Carrying amount (million) Nominal interest rate 200 175 Floating three month USD LIBOR 1% The unutilised program is not considered to be an unused facility. US Bonds The Group has five unsecured bonds issued in the United States of America as defined in Rule 144A of the US Securities Act as set out below: Maturity date 1 March 2019 10 May 2021 5 March 2025 15 September 2026 15 March 2028 Carrying amount US$m Nominal interest rate 600 700 1,000 800 800 8.75% 4.60% 3.65% 3.70% 3.70% Interest on the bonds is payable semi-annually in arrears. C.3 Contributed equity Recognition and measurement 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. (a) Issued and fully paid shares Year ended 31 December 2017 Opening and closing balance Year ended 31 December 2016 Opening balance DRP underwriting agreement Ordinary shares issued at A$26.70 (2015 final dividend) DRP Ordinary shares issued at A$26.40 (2015 final dividend) Share issue costs (net of tax) Amounts at 31 December 2016 Number of shares US$m 842,444,903 6,919 823,910,657 6,547 13,631,075 277 4,903,171 - 842,444,903 93 2 6,919 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 relation to its issued shares. NOTES TO THE FINANCIAL STATEMENTS C. DEBT AND CAPITAL for the year ended 31 December 2017 C.3 Contributed equity (cont.) (b) Shares reserved for employee share plans Year ended 31 December 2017 Opening balance Purchases during the year Vested during the year Amounts at 31 December 2017 Year ended 31 December 2016 Opening balance Purchases during the year Vested during the year Amounts at 31 December 2016 C.4 Other reserves Other reserves Employee benefits reserve Foreign currency translation reserve Hedging reserves Reserve Nature and purpose Number of shares US$m 1,151,175 1,962,899 (1,865,564) 1,248,510 985,802 2,515,145 (2,349,772) 1,151,175 (30) (47) 42 (35) (27) (54) 51 (30) 2017 US$m 2016 US$m 218 793 (14) 997 198 793 (12) 979 Employee benefits reserve Used to record share-based payments Foreign currency translation reserve Hedging reserve associated with the employee share plans and remeasurement adjustments relating to the defined benefit plan. 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. Used to record gains and losses on hedges designated as cash flow hedges and foreign currency basis spread arising from the designation of a financial instrument as a hedging instrument. Gains and losses accumulated in the cash flow hedge reserve are taken to the income statement in the same period during which the hedged expected cash flows affect the income statement. Woodside Petroleum Ltd | Financial Statements 119 NOTES TO THE FINANCIAL STATEMENTS D. OTHER ASSETS AND LIABILITIES for the year ended 31 December 2017 In this section This section addresses other assets and liabilities position at the end of the reporting period including, where applicable, the accounting policies applied and the key estimates and judgements made. D. D.1 D.2 D.3 D.4 D.5 Other assets and liabilities Receivables Inventories Payables Provisions Segment assets and liabilities Page 121 Page 121 Page 121 Page 121 Page 122 Key financial and capital risks in this section Credit risk management Credit risk is the risk that a counterparty will not meet its obligation under a financial instrument or customer contract, leading to 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. 120 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS D. OTHER ASSETS AND LIABILITIES for the year ended 31 December 2017 2017 US$m 2016 US$m Inventories determined to be obsolete or damaged are written down to net realisable value, being the estimated selling price less selling costs. D.1 Receivables (a) Receivables (current) Trade receivables1 Other receivables1 Loans receivable2 Dividend receivable (b) Receivables (non-current) Loans receivable2 Defined benefit plan asset 284 109 87 2 482 141 14 155 198 142 104 2 446 162 10 172 1. Interest-free and settlement terms are usually between 14 and 30 days. 2. Loans receivable are due from non-controlling interests. Recognition and measurement Most 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 uncollectable amounts. Certain receivables are recognised at fair value. Uncollectable amounts are determined using the expected loss impairment model. 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. The Group’s customers are required to pay in accordance with agreed payment terms. Depending on the product, settlement terms are 14 to 30 days from the date of invoice or bill of lading and customers regularly pay on time. There are no significant overdue trade receivables as at the end of the reporting period (2016: nil). Fair value The carrying amount of trade and other receivables approximates their fair value. Foreign exchange risk The Group held US$113 million of receivables at 31 December 2017 (2016: US$101 million) in currencies other than US dollars (predominantly Australian dollars). D.2 Inventories (a) Inventories (current) Petroleum products Goods in transit Finished stocks Warehouse stores and materials (b) Inventories (non-current) Warehouse stores and materials 2017 US$m 2016 US$m 31 51 104 186 - - 20 46 83 149 5 5 Recognition and measurement Inventories include hydrocarbon stocks, consumable supplies and maintenance spares. Inventories are valued at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes direct costs and an appropriate portion of fixed and variable production overheads where applicable. D.3 Payables The following table shows the Group’s payables balances and maturity analysis. < 30 days 30-60 days Total US$m US$m US$m US$m > 60 days Year ended 31 December 2017 Trade payables1 Other payables1 Interest payable2 Total payables Year ended 31 December 2016 Trade payables1 Other payables1 Interest payable2 Total payables 139 368 7 514 114 301 3 418 28 1 - 29 5 - - 5 70 26 52 148 78 - 45 123 237 395 59 691 197 301 48 546 1. Interest-free and normally settled on 30 day terms. 2. Details regarding interest-bearing liabilities are contained in Note C.2. Recognition and measurement 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 reporting period. Fair value The carrying amount of payables approximates their fair value. Foreign exchange risk The Group held US$380 million of payables at 31 December 2017 (2016: US$373 million) in currencies other than US dollars (predominantly Australian dollars). D.4 Provisions Year ended 31 December 2017 At 1 January 2017 Change in provision Unwinding of present value discount Carrying amount at 31 December 2017 Current Non-current Net carrying amount Year ended 31 December 2016 At 1 January 2016 Change in provision Unwinding of present value discount Carrying amount at 31 December 2016 Current Non-current Net carrying amount Restoration of operating locations US$m Employee benefits US$m 1,442 45 37 1,524 17 1,507 1,524 1,574 (170) 38 1,442 35 1,407 1,442 155 22 - 177 148 29 177 141 14 - 155 126 29 155 Other US$m Total US$m 166 (100) 1,763 (33) - 66 55 11 66 37 1,767 220 1,547 1,767 153 13 1,868 (143) - 38 166 41 125 166 1,763 202 1,561 1,763 Woodside Petroleum Ltd | Financial Statements 121 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS D. OTHER ASSETS AND LIABILITIES for the year ended 31 December 2017 Employee benefits 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 expected to be wholly settled within one year after the end of the period in which the employees render the related services are recognised as long-term employee benefits. 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. Liabilities expected to be wholly settled within one year after the end of the period in which the employees render the related services are classified as short-term benefits and are measured at the amount due to be paid. D.4 Provisions (cont.) Recognition and measurement Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Restoration of operating locations Provision is made for the obligation to restore operating locations. The provision is first recognised 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. Restoration provisions are updated annually, with the corresponding movement recognised against the related exploration and evaluation assets or oil and gas properties. 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 B.3). Costs incurred that relate to an existing condition caused by past operations and do not have a future economic benefit are expensed. Key estimates and judgements (a) 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. The proportion of the non-current balance not expected to be settled within 15 years is 63% (2016: 61%). (b) Long service leave Long service leave is measured at the present value of benefits accumulated up to the end of the reporting period. The liability is discounted using an appropriate discount rate. Management requires judgement to determine key assumptions used in the calculation including future increases in salaries and wages, future on-cost rates and future settlement dates of employees’ departures. (c) Legal case outcomes Provisions for legal cases are measured at the present value of the amount expected to settle the claim. Management is required to use judgement when assessing the likely outcome of legal cases, estimating the risked amount and whether a provision or contingent liability should be recognised. D.5 Segment assets and liabilities (a) Segment assets NWS Pluto Australia Oil Browse Wheatstone Other segments Unallocated items 2017 US$m 2016 US$m 2,988 11,858 1,086 405 4,663 2,767 1,634 25,401 2,952 12,680 838 393 4,018 2,490 1,382 24,753 (b) Segment liabilities NWS Pluto Australia Oil Browse Wheatstone Other segments Unallocated items 2017 US$m 2016 US$m 648 432 646 7 186 189 7,413 9,521 573 378 704 11 188 171 7,066 9,091 Refer to Note A.1 for descriptions of the Group’s segments. Unallocated assets mainly comprise cash and cash equivalents and the Group’s deferred tax assets. Unallocated liabilities mainly comprise interest-bearing liabilities and deferred tax liabilities. 122 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 In this section This section addresses information on items which require disclosure to comply with Australian Accounting Standards and the Australian Corporations Act 2001 (Cth), however, are not considered critical in understanding the financial performance or position of the Group. This section includes group structure information and other disclosures. E. E.1 E.2 E.3 E.4 E.5 E.6 E.7 E.8 E.9 Other items Contingent liabilities and assets Leases Employee benefits Related party transactions Auditor remuneration Events after the end of the reporting period Joint arrangements Parent entity information Subsidiaries E.10 Other accounting policies Page 124 Page 124 Page 124 Page 126 Page 126 Page 126 Page 126 Page 127 Page 128 Page 130 Woodside Petroleum Ltd | Financial Statements 123 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.1 Contingent liabilities and assets E.3 Employee benefits 2017 US$m 2016 US$m (a) Employee benefits Employee benefits for the reporting period are as follows: Contingent liabilities at reporting date Not otherwise provided for or disclosed in the financial statements Contingent liabilities Guarantees 66 8 74 44 6 50 Contingent liabilities relate predominantly to actual or potential claims on the Group for which amounts are reasonably estimated but the liability is not probable and therefore the Group has not provided for such amounts in these financial statements. Additionally, there are a number of other claims and possible claims that have arisen in the course of business against entities in the Group, the outcome of which cannot be foreseen at present and for which no amounts have been included in the table above. The Group has issued guarantees relating to workers’ compensation liabilities. E.2 Leases Operating lease commitments Rents payable on non-cancellable operating leases, due: Within one year After one year but not more than five years Later than five years 2017 US$m 2016 US$m 207 518 953 1,678 194 660 1,299 2,153 Subject to the joint operation that utilises the lease, the Group’s share of actual payments made under operating leases may be lower than the value of commitments disclosed. The Group leases assets for operations including vessels, helicopters, 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 Group. 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$227 million during the year (2016: US$332 million). A portion of this amount relates to arrangements containing non-lease elements, which are not practicable to separate. Recognition and measurement Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives received are recognised in the income statement as a part of total lease expense. 124 Woodside Petroleum Ltd | Annual Report 2017 Employee benefits Share-based payments Defined contribution plan costs Defined benefit plan expense 2017 US$m 285 21 33 2 341 2016 US$m 239 27 31 2 299 Recognition and measurement The Group’s accounting policy for employee benefits other than superannuation are set out in Note D.4. The policy relating to share-based payments is set out in Note E.3(c). All employees of the Group are entitled to benefits on retirement, disability or death from the Group’s superannuation plan. The majority of employees are party to a defined contribution scheme and receive fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions. Contributions to defined contribution funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is available. The Group also operates a defined benefit superannuation scheme, the membership of which is now closed. The asset for the defined benefit plan at 31 December 2017 was US$14 million (2016: US$10 million). (b) Compensation of key management personnel Key management personnel (KMP) compensation for the financial year is as follows: Short-term employee benefits Post employment benefits Share-based payments Long-term employee benefits Termination benefits (c) Share plans 2017 US$ 10,039,832 227,786 5,663,860 97,305 276,622 16,305,405 2016 US$ 10,651,173 242,776 7,944,266 268,620 425,219 19,532,054 The Group provides benefits to its employees (including KMP) in the form of share-based payments whereby employees render services for shares (equity-settled transactions). Woodside equity plan (WEP) and supplementary Woodside equity plan (SWEP) WEP is available to all Australian-based employees including executives, other than the CEO and any executive directors. The number of Equity Rights (ERs) offered to each eligible employee will be calculated with reference to salary and performance. The linking of performance to an allocation allows the Group to recognise and reward eligible employees for high performance. The ERs have no further ongoing performance conditions after allocation, and do not require participants to make any payment in respect of the ERs at grant or at vesting. SWEP is available to a number of employees identified as being retention critical. Participants do not make any payment in respect of the ERs at grant or at vesting. Each ER entitles the participant to receive a Woodside share on the vesting date three years after the grant date. NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.3 Employee benefits (cont.) Executive incentive plans (EIP) Short term awards (STA) The STA are delivered in the form of restricted shares to executives, including all executive KMP. Restricted shares entitle their holder to receive dividends. There are no further performance conditions for vesting of deferred STA. Participants are not required to make any payments in respect of STA awards at grant or at vesting. Long term awards (LTA) LTA is granted in the form of Variable Pay Rights (VPRs) to executives, including all executive KMP. Vesting of LTA is subject to achievement of relative total shareholder return (RTSR) targets, with 33% measured against the ASX 50 and the remaining 67% tested against an international group of oil and gas companies. Participants are not required to make any payments in respect of LTA awards at grant or at vesting. Year ended 31 December 2017 Opening balance Granted during the year1,2 Vested during the year Forfeited during the year Performance rights at 31 December 2017 Fair value of rights granted during the year Year ended 31 December 2016 Opening balance Granted during the year1,2 Vested during the year Forfeited during the year Performance rights at 31 December 2016 Fair value of rights granted during the year Recognition and measurement All compensation under WEP, SWEP and executive share plans is accounted for as share-based payments to employees for services provided. 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 of share-based payments is recognised, together with the corresponding increase in equity, over the period in which the vesting conditions are fulfilled, ending on the date on which the relevant employee becomes fully entitled to the shares. At each balance sheet date, the Group reassesses the number of awards that are expected to vest based on service conditions. The expense recognised each year takes into account the most recent estimate. The fair value of the benefit provided for the WEP and SWEP are estimated using the Black-Scholes option pricing technique. The fair value of the restricted shares is estimated as the closing share price at grant date. The fair value of the benefit provided for the RTSR VPRs was estimated using the Binomial or Black-Scholes option pricing technique combined with a Monte Carlo simulation methodology, where relevant, using historical volatility to estimate the volatility of the share price in the future. The number of performance rights and movements for all share plans are summarised as follows: Number of performance rights Employee plans Executive plans WEP SWEP STA LTA 5,512,903 2,090,371 (1,595,207) (219,059) 5,789,008 US$m 43 38,270 17,500 (26,310) (11,960) 17,500 US$m - 881,921 210,210 (129,641) (28,342) 934,148 US$m 5 2,951,208 568,234 (114,406) (139,451) 3,265,585 US$m 8 Number of performance rights Employee plans Executive plans WEP SWEP STA LTA 6,116,840 1,925,944 (2,190,958) (338,923) 5,512,903 US$m 38 38,270 - - - 38,270 US$m - 784,270 303,699 (198,818) (7,230) 881,921 US$m 6 2,366,280 587,156 (2,228) - 2,951,208 US$m 7 1. For the purpose of valuation, the share price on grant date for the 2017 WEP allocations was US$22.77 (2016: US$22.13) and the average SWEP was US$23.38. 2. For the purpose of valuation, the share price on grant date for the 2017 STA and LTA allocations was US$22.49 (2016: US$20.88). For more detail on these share plans and performance rights issued to KMPs, refer to the Remuneration Report on pages 80-83 and pages 90-92. Woodside Petroleum Ltd | Financial Statements 125 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.4 Related party transactions (b) Interest percentage in joint operations Transactions with directors There were no transactions with directors during the year other than those disclosed in Note E.3(b). E.5 Auditor remuneration The auditor of Woodside Petroleum Ltd is Ernst & Young (EY). (a) Amounts received or due and receivable for an audit or review of the financial statements of the entity and any other entity in the Group by: 2017 2016 US$'000 US$'000 EY Australia Other EY firms 1,734 182 1,916 1,526 144 1,670 (b) Amounts received or due and receivable for non-audit services in relation to the entity or any other entity in the Group by: EY Australia for other assurance services EY Australia for other advisory services EY Australia for taxation services Other EY firms for other assurance services 439 326 164 51 980 437 151 149 25 762 E.6 Events after the end of the reporting period Woodside entered into a binding Sale and Purchase Agreement to acquire a 50% interest in permit WA-1-R. Refer to Note B.5 for further details of the transaction. On 14 February 2018, Woodside launched a A$2.5 billion rights issue. Refer to the announcement for further details on the offer. Woodside Energy (Korea II) Pte. Ltd. was incorporated in Singapore on 23 January 2018. It is a wholly-owned subsidiary of Woodside Energy Holdings Pty Ltd. Producing and developing assets Oceania North West Shelf Enfield and Vincent Stybarrow Balnaves Pluto Wheatstone Exploration & evaluation assets Oceania Browse Basin1 Carnarvon Basin Bonaparte Basin Outer Canning Basin New Zealand Africa Morocco Gabon2 Senegal The Americas Peru Kitimat Nova Scotia Asia Republic of Korea Myanmar Europe Ireland Canary Islands Group Interest % 2017 2016 12.5 - 50.0 60.0 50.0 65.0 90.0 13.0 - 65.0 12.5 - 50.0 60.0 50.0 65.0 90.0 13.0 - 65.0 30.6 15.8 - 90.0 26.7 - 35.0 - 70.0 30.6 - 60 15.8 - 75.0 26.7 - 35.0 55.0 70.0 25.0 21.3 - 40.0 35.0 35.0 50.0 - 25.0 40.0 35.0 35.0 50.0 20.0 - 40.0 - 55.0 50.0 40.0 - 55.0 60.0 - 90.0 - 60.0 - 90.0 30.0 E.7 Joint arrangements (a) Interest percentage in joint ventures 1. One permit within the Browse Basin was surrendered in 2017. 2. As at 31 December 2017 the Likuale block farm-in is pending final government approval and subsequent execution of the documents. Diaba was successful in obtaining government approval from the prior year. Post 31 December 2017 full government approval was obtained. The principal activities of the joint operations above are exploration, development and production of hydrocarbons. Entity North West Shelf Gas Pty Ltd Marketing services for Principal activity North West Shelf Liaison Company Pty Ltd China Administration Company Pty Ltd North West Shelf Shipping Service Company Pty Ltd ventures in the sale of gas to the domestic market. Liaison for ventures in the sale of LNG to the Japanese market. Marketing services for ventures in the sale of LNG to international markets. LNG vessel fleet advisor. North West Shelf Lifting Coordinator Pty Ltd Coordinator for venturers for all equity liftings. Group Interest % 2017 2016 16.67 16.67 16.67 16.67 16.67 16.67 16.67 16.67 16.67 16.67 Key estimates and judgements Accounting for interests in other entities Judgement is required in assessing the level of control obtained in a transaction to acquire an interest in another entity; depending upon the facts and circumstances in each case, Woodside may obtain control, joint control or significant influence over the entity or arrangement. Judgement is applied when determining the relevant activities of a project and if joint control is held over them. Relevant activities include, but are not limited to, work program and budget approval, investment decision approval, voting rights in joint operating committees, amendments to permits and changes to joint arrangement participant holdings. Transactions which give Woodside control of a business are business combinations. If Woodside obtains joint control of an arrangement, judgement is also required to assess whether the arrangement is a joint operation or a joint venture. If Woodside has neither control nor joint control, it may be in a position to exercise significant influence over the entity, which is then accounted for as an associate. 126 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.7 Joint arrangements (cont.) E.8 Parent entity information Recognition and measurement Joint arrangements are arrangements in which two or more parties have joint control. Joint control is the contractual agreed sharing of control of the arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified as a joint operation, and as such the Group recognises its: • assets, including its share of any assets held jointly; • liabilities, including its share of any liabilities incurred jointly; • revenue from the sale of its share of the output arising from the joint operation; • share of revenue from the sale of the output by the joint operation; and • expenses, including its share of any expenses incurred jointly. To the extent the joint arrangement provides the Group with rights to the net assets of the arrangement, the investment is classified as a joint venture and accounted for using the equity method. Joint arrangements acquired which are deemed to be carrying on a business are treated as business combinations and are accounted for under AASB 3 Business Combinations. Joint arrangements which are not deemed to be carrying on a business are treated as asset acquisitions. Woodside Petroleum Ltd: Current assets Non-current assets Non-current liabilities Net assets Issued and fully paid shares Shares reserved for employee share plans Employee benefits reserve Foreign currency translation reserve Retained earnings Total shareholders' equity Profit of parent entity Total comprehensive income of parent entity 2017 US$m 2016 US$m 345 7,812 (700) 7,457 6,919 (35) 123 296 154 7,457 853 857 278 7,732 (571) 7,439 6,919 (30) 127 296 127 7,439 635 635 Guarantees Woodside Petroleum Ltd and Woodside Energy Ltd (a subsidiary company) are parties to a Deed of Cross Guarantee as disclosed in Note E.9. 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 (Cth). 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 C.2. Woodside Petroleum Ltd has guaranteed certain obligations of subsidiaries to unrelated parties on behalf of their performance in contracts. No liabilities are expected to arise from these guarantees. Woodside Petroleum Ltd | Financial Statements 127 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 Name of entity Metasource Pty Ltd Woodside Finance Limited Woodside Petroleum (Northern Operations) Pty Ltd Woodside Petroleum (Timor Sea 19) Pty Ltd Woodside Petroleum (Timor Sea 20) Pty Ltd Woodside Petroleum (W.A. Oil) Pty Ltd Woodside Petroleum Holdings Pty Ltd Mermaid Sound Port and Marine Services Pty Ltd Notes (2,4) (2,4) (10) (2,4) (2,4) (10) (2,4) (2,4) 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 2017. 3. Pursuant to ASIC Instrument 2016/785, relief has been granted to the controlled entity, Woodside Energy Ltd, from the Corporations Act 2001 (Cth) requirements for the preparation, audit and publication of accounts. As a condition of the Instrument, Woodside Petroleum Ltd and Woodside Energy Ltd are parties to a Deed of Cross Guarantee. 4. All subsidiaries are wholly owned except those referred to in Notes 5, 6, 7 and 8. 5. Kansai Electric Power Australia Pty Ltd and Tokyo Gas Pluto Pty Ltd each hold a 5% interest in the shares of these subsidiaries. These subsidiaries are controlled. 6. As at 31 December 2017, Woodside Energy Holdings Pty Ltd held a 99.99% interest in the shares of Woodside Energy (Tanzania) Limited and Woodside Energy Ltd held the remaining 0.01% interest. 7. As at 31 December 2017, Woodside Energy Holdings (South America) Pty Ltd held a 99.99% interest in the shares of Woodside Energia (Brasil) Investimento em Exploracao de Petroleo Ltda and Woodside Energy Ltd held the remaining 0.01% interest. 8. As at 31 December 2017, Woodside Energy International (Canada) Limited and Woodside Energy (Canada LNG) Limited were the general partners of the KM LNG Operating General Partnership holding a 99.99% and 0.01% partnership interest, respectively. 9. Woodside Energy (Indonesia) Pty Ltd was incorporated on 29 June 2017. Woodside Energy (Indonesia II) Pty Ltd and Woodside Energy (Indonesia III) Pty Ltd were incorporated on 4 September 2017. 10. These subsidiaries were deregistered on 18 November 2017. All subsidiaries were incorporated in Australia unless identified with one of the following symbols: The Netherlands ¥ Tanzania l Brazil n Cameroon z New Zealand t Canada £ France y Singapore º Spain p England and Wales q USA Classification Subsidiaries are all the entities over which the Group has the power over the investee such that the Group is able to direct the relevant activities, has exposure, or rights, to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor’s returns. E.9 Subsidiaries (a) Subsidiaries Name of entity Ultimate Parent Entity Woodside Petroleum Ltd Subsidiaries Company name Woodside Energy Ltd Woodside Browse Pty Ltd Woodside Burrup Pty Ltd Burrup Facilities Company Pty Ltd Pluto LNG Pty Ltd Burrup Train 1 Pty Ltd Woodside Energy (Algeria) Pty Ltd Woodside Energy Australia Asia Holdings Pte Ltd y Woodside Energy (Carbon Capture) Pty Ltd Woodside Energy Holdings International Pty Ltd Woodside Energy Mediterranean Pty Ltd Woodside Energy International (Canada) Limited t Woodside Energy (Canada LNG) Limited t Woodside Energy (Canada PTP) Limited t KM LNG Operating General Partnership t KM LNG Operating Ltd t Woodside Energy Holdings Pty Ltd Woodside Energy Holdings (USA) Inc q Woodside Energy (USA) Inc q Gryphon Exploration Company q Woodside Energy (Cameroon) SARL n Woodside Energy (Gabon) Pty Ltd Woodside Energy (Indonesia) Pty Ltd Woodside Energy (Indonesia II) Pty Ltd Woodside Energy (Indonesia III) Pty Ltd Woodside Energy (Ireland) Pty Ltd Woodside Energy (Korea) Pte Ltd y Woodside Energy (Myanmar) Pte Ltd y Woodside Energy (Morocco) Pty Ltd Woodside Energy (New Zealand) Limited z Woodside Energy (New Zealand 55794) Limited z Woodside Energy (Peru) Pty Ltd Woodside Energy (Senegal) Pty Ltd Woodside Energy (Tanzania) Limited ¥ Woodside Energy Holdings (South America) Pty Ltd Woodside Energia (Brasil) Investimento em Exploracao de Petroleo Ltda l Woodside Energy Holdings (UK) Pty Ltd Woodside Energy (UK) Limited p Woodside Energy Holdings (Senegal) Limited p Woodside Energy (Senegal) B.V. Woodside Energy (France) SAS £ Woodside Energy Iberia S.A. º Woodside Energy (N.A.) Ltd p Woodside Energy (Julimar) Pty Ltd Woodside Energy (Kenya) Pty Ltd Woodside Energy (M.E.) Pty Ltd Woodside Energy Middle East and Africa Pty Ltd Woodside Energy (Norway) Pty Ltd Woodside Energy (SL) Pty Ltd Woodside Energy Technologies Pty Ltd Woodside Energy Trading Singapore Pte Ltd y WelCap Insurance Pte Ltd y Woodside Energy Shipping Singapore Pte Ltd y Woodside Guangdong Shipping (One) Pty Ltd Woodside Guangdong Shipping (Two) Pty Ltd Woodside West Africa Pty Ltd 128 Woodside Petroleum Ltd | Annual Report 2017 Notes (1,2,3) (2,3,4) (2,4) (2,4) (5) (5) (5) (2,4) (4) (2,4) (2,4) (2,4) (4) (4) (4) (4,8) (4) (2,4) (4) (4) (4) (4) (2,4) (2,4,9) (2,4,9) (2,4,9) (2,4) (4) (4) (2,4) (4) (4) (2,4) (2,4) (6) (2,4) (7) (2,4) (4) (4) (4) (4) (4) (4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (2,4) (4) (4) (4) (2,4) (2,4) (2,4) NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.9 Subsidiaries (cont.) (c) Deed of Cross Guarantee and Closed Group (b) Subsidiaries with material non-controlling interests The Group has two Australian subsidiaries with material non-controlling interests (NCI). Name of entity Burrup Facilities Company Pty Ltd Burrup Train 1 Pty Ltd Principal place of business Australia Australia % held by NCI 10% 10% The NCI in both subsidiaries is 10% held by the same parties (refer to Note E.9(a) footnote 5 for details). The summarised financial information (including consolidation adjustments but before intercompany eliminations) of subsidiaries with material NCI is as follows: 2017 US$m 2016 US$m Burrup Facilities Company Pty Ltd Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated balance of NCI Revenue Profit Profit allocated to NCI Dividends paid to NCI Operating Investing Financing Net increase/(decrease) in cash and cash equivalents Burrup Train 1 Pty Ltd Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated balance of NCI Revenue Profit Profit allocated to NCI Dividends paid to NCI Operating Investing Financing Net increase/(decrease) in cash and cash equivalents 617 5,196 (79) (515) 5,219 522 1,130 558 56 (51) 853 (15) (838) - 581 3,021 (158) (366) 3,078 308 1,921 398 40 (38) 572 (1) (571) - 673 5,609 (647) (468) 5,167 517 1,187 607 61 (50) 920 (7) (913) - 698 3,244 (544) (334) 3,064 306 2,017 442 44 (31) 672 (9) (663) - 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 (Cth) requirements for the preparation, audit and publication of accounts, pursuant to ASIC Instrument 2016/785. The two entities represent a Closed Group for the purposes of the Instrument. 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 and Statement of Retained Earnings Profit/(loss) before tax Taxes Profit/(loss) after tax Retained earnings at the beginning of the financial year Dividends Retained earnings at the end of the financial year Closed Group Consolidated Statement of Financial Position Current assets Cash and cash equivalents Receivables Inventories Tax receivable Total current assets Non-current assets Inventories Other financial 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 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 held for employee share plan Other reserves Retained earnings Total equity 2017 US$m 2016 US$m 220 (108) 112 2,716 (826) 2,002 (578) (127) (705) 4,061 (640) 2,716 94 418 63 29 604 - 28,371 1,001 3,750 140 25 33,287 33,891 475 17 38 139 669 48 1,288 64 20 1,420 2 25,920 945 3,581 66 28 30,542 31,962 302 17 45 112 476 22,068 402 15 52 921 23,458 24,127 9,764 19,638 422 14 72 878 21,024 21,500 10,462 6,919 (35) 878 2,002 9,764 6,919 (30) 857 2,716 10,462 Woodside Petroleum Ltd | Financial Statements 129 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E.10 Other accounting policies (a) Summary of other significant accounting policies Derivative financial instruments Derivatives that are designated within qualifying hedge relationships are initially recognised at fair value on the date the contract is entered into. For relationships designated as fair value hedges, subsequent fair value movements of the derivative are recognised in the income statement. For relationships designated as cash flow hedges, subsequent fair value movements of the derivative for the effective portion of the hedge are recognised in other comprehensive income and accumulated in reserves in equity; fair value movements for the ineffective portion are recognised immediately in the income statement. Costs of hedging have been separated from the hedging arrangements and deferred to other comprehensive income and accumulated in reserves in equity. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. Tax consolidation The parent and its wholly owned Australian controlled entities have elected to enter a tax consolidation, with Woodside Petroleum Ltd as the head entity of the tax consolidated group. The members of the tax consolidated group are identified in Note E.9. The tax expense/(benefit), 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. Entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the tax funding agreement, Woodside Petroleum Ltd and each of the entities in the tax consolidated group have agreed to pay or receive a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. 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. (b) New and amended standards and interpretations issued but not yet effective A number of new standards, amendment of standards and interpretations have been issued but are not yet effective and have not been adopted by the Group as at the financial reporting date. The Group has reviewed these standards and interpretations, and with the exception of the items listed below, none of the new or amended standards will significantly affect the Group’s accounting policies, financial position or performance. Application date of the standard Periods beginning on or after 1 January 2018 Title AASB 15 Revenue from Contracts with Customers AASB 16 Leases Periods beginning on or after 1 January 2019 Summary AASB 15 provides a single, principles-based five-step model to be applied to all contracts with customers. Guidance is provided on topics such as the point at which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures regarding revenue are also introduced. The Group plans to adopt the new standard on 1 January 2018 using the retrospective approach with practical expedients. The new standard will only be applied to contracts that remain in force at transition date. Based on assessments undertaken to date, the Group has noted potential impacts in respect of provisionally priced transactions and entitlement accounting. The Group has estimated that the transition to AASB 15 will not have a material impact to the financial statements of the Group. AASB 16 provides a new lessee accounting model which requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. AASB 16 contains disclosure requirements for lessees. The Group has completed an initial assessment of the impact of AASB 16 and determined that it will have a material impact on the Group’s balance sheet. The Group is continuing its work on the final impact of this standard. 130 Woodside Petroleum Ltd | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 NOTES TO THE FINANCIAL STATEMENTS E. OTHER ITEMS for the year ended 31 December 2017 E10. Other accounting policies (cont.) (c) New and amended Accounting Standards and Interpretations early adopted The following Australian Accounting Standard was adopted early by the Group as of 1 January 2017: Title AASB 9 Financial Instruments Application date by the Group Summary Period beginning on 1 January 2017 AASB 9 and the related amendments to other accounting standards introduced three significant areas of change from AASB 139 Financial Instruments: Classification and Measurement: • a new model for classification and measurement of financial assets and liabilities; • a new expected loss impairment model for determining impairment allowances; and • a redesigned approach to hedge accounting. Items previously classified as loans and receivables under AASB 139 are now classified as financial assets at amortised cost or financial assets at fair value. There has been no impact to the Group’s financial statement presentation. Based on historical and expected losses, the expected loss impairment model had an immaterial impact on the Group. AASB hedging requirements were retrospectively applied to all qualifying hedge relationships in place as at 1 January 2017. Costs of hedging have been separated from the hedging arrangements and deferred to other comprehensive income. This had an immaterial impact on adoption. The accounting policies for financial instruments and hedging have been updated to align with AASB 9 and consequential adjustments to other standards. Woodside Petroleum Ltd | Financial Statements 131 NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2017 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 2017 Remuneration Report, comply with Australian Accounting Standards and the Corporations Act 2001 (Cth); (b) the financial statements and notes thereto give a true and fair view of the financial position of the Group as at 31 December 2017 and of the performance of the Group for the financial year ended 31 December 2017; (c) the financial statements and notes thereto also comply with International Financial Reporting Standards as disclosed in the ‘About these statements’ section within the notes to the 2017 Financial Statements; (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 E.9 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 (Cth) for the year ended 31 December 2017. For and on behalf of the Board M A Chaney, AO Chairman Perth, Western Australia 14 February 2018 P J Coleman Chief Executive Officer and Managing Director Perth, Western Australia 14 February 2018 132 Woodside Petroleum Ltd | Annual Report 2017 INDEPENDENT AUDIT REPORT Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Independent Auditor's Report to the Shareholders of Woodside Petroleum Ltd Report on the audit of the financial report Opinion We have audited the financial report of Woodside Petroleum Ltd (the Company), including its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the Company's financial position as at 31 December 2017 and of its financial performance for the year ended on that date. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation TH:CT:WOODSIDE:017/2017 Woodside Petroleum Ltd | Financial Statements 133 Independent audit report (cont.) 1. Impairment of non-current assets Why significant How our audit addressed the key audit matter Australian Accounting Standards require the Group to assess throughout the reporting period whether there is any indication that an asset may be impaired. If any indication exists, the Group must estimate the recoverable amount of the asset. At year end, the Group has concluded, based on this assessment, that there were no indicators of impairment or reversal of previous impairments for any of its Cash Generating Units (CGUs). As a result no impairment or reversal of impairment was recognised during the year. The assessment of indicators of impairment and reversal of impairment is complex and highly judgmental, and includes modelling a range of assumptions and estimates that are affected by expected future performance and market conditions, Accordingly, this matter was considered to be a key audit matter. Key assumptions, judgements and estimates used in the Group’s assessment of impairment and reversal of impairment of non-current assets are set out in the financial report in notes B.3 and B.4. We evaluated the assumptions, methodologies and conclusions used by the Group in assessing for indicators of impairment, in particular, those relating to the determination of CGUs, forecast cash flows and inputs used to formulate them. This included assessing, in conjunction with our valuation specialists, the discount rates, foreign exchange rates and commodity prices with reference to market prices (where available), market research, market practice, market indices, broker consensus and historical performance. We used the work of the Group’s internal experts with respect to the hydrocarbon reserve assumptions used in the cash flow forecasts. This included understanding the reserve estimation processes carried out, the Group’s internal certification process for technical and commercial experts who are responsible for reserves, the design of the Group’s Petroleum Resources Management procedures and its alignment with the guidelines prepared by the Society of Petroleum Engineers. We agreed the updated reserves and resources estimates to the assessment of impairment indicators, calculation of depreciation, depletion and amortisation and decommissioning provisions. We also examined the competence and objectivity of the Group’s experts, the scope and appropriateness of their work. We assessed whether key reserves economics assumptions were consistent with other operational information. We agreed cost assumptions to the latest approved budgets and forecasts. We also focused on the adequacy of the financial report disclosures regarding the assumptions to which the Group’s assessment of indicators of impairment and reversal of impairment of non-current assets are most sensitive. These have been disclosed in Note B.4. 2. Accounting for petroleum resources rent tax (PRRT) assets Why significant How our audit addressed the key audit matter The consolidated financial statements of the Group include deferred tax assets arising from PRRT and associated PRRT tax benefits. The determination of the quantum, likelihood and timing of the realisation of deferred tax assets arising from PRRT is highly judgemental and assessed on a basis consistent with the impairment assumptions set out above as well as other factors such as the long term bond rate applied to the timing of deductible expenditure. As such, this matter was considered to be a key audit matter. The Group’s disclosures about PRRT are included in the summary of significant accounting policies in Note A.5. We considered the application of the judgements and methodologies used by the Group to calculate the deferred tax assets arising from PRRT and estimate their utilisation in the future. In particular we assessed those judgements and methodologies relating to the estimation of future PRRT assessable profits, the interpretation of PRRT legislation and the consistency in application of forecasted performance with other forecasts made, including modelling of impairment indicators. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s Annual Report for the year ended 31 December 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation TH:CT:WOODSIDE:017/2017 134 Woodside Petroleum Ltd | Annual Report 2017 If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors 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 control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ► ► ► ► ► Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the business activities within the entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation TH:CT:WOODSIDE:017/2017 Woodside Petroleum Ltd | Financial Statements 135 Independent audit report (cont.) We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the audit of the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 76 to 95 of the directors' report for the year ended 31 December 2017. In our opinion, the Remuneration Report of Woodside Petroleum Ltd for the year ended 31 December 2017, complies with section 300A of the Corporations Act 2001. Responsibilities 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. Ernst & Young T S Hammond Partner Perth 14 February 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation TH:CT:WOODSIDE:017/2017 136 Woodside Petroleum Ltd | Annual Report 2017 R E D L O H E R A H S N O I T A M R O F N I An aerial view of a river system in the Pilbara. SHAREHOLDER STATISTICS As at 7 February 2018 Number of shareholdings There were 207,257 shareholders. All issued shares carry voting rights on a one-for-one basis.. Distribution of shareholdings Size of shareholding 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–9,999,999,999 Total *Small differences are due to rounding. Number of holders Number of shares % of issued capital 6.97 58,684,124 149,385 51,262 4,558 1,940 112 207,257 105,593,372 31,788,297 37,863,582 608,515,528 842,444,903 12.53 3.77 4.50 72.23 100.00 Unmarketable parcels There were 2,880 members holding less than a marketable parcel of shares in the company. Twenty largest shareholders HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Bnp Paribas Nominees Pty LtdNational Nominees Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Pacific Custodians Pty Limited Citicorp Nominees Pty Limited Australian Foundation Investment Company Limited AMP Life Limited UBS Nominees Pty Ltd Argo Investments Limited Navigator Australia Ltd UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited-GSCO ECA Milton Corporation Limited Nulis Nominees (Australia) Limited RBC Investor Services Australia Nominees Pty Limited Shares held % of issued capital 28.91 243,558,207 124,687,636 89,643,526 40,294,356 32,329,788 11,618,057 9,313,653 5,294,330 4,054,528 3,463,313 3,282,886 3,133,187 2,039,468 1,700,873 1,421,973 1,349,850 1,222,911 1,213,723 1,077,347 1,075,684 14.80 10.64 4.78 3.84 1.38 1.11 0.63 0.48 0.41 0.39 0.37 0.24 0.20 0.17 0.16 0.15 0.14 0.13 0.13 Total 581,775,296 69.06 Substantial shareholders as disclosed in substantial shareholder notices given to the company are as follows: Blackrock Group (Blackrock Inc. and subsidiaries) 42,571,644 5.05 Blackrock Group’s substantial shareholder notice was given on 20 November 2017. There has been no notice of a change of interest of the substantial shareholder since that date. 138 Woodside Petroleum Ltd | Annual Report 2017 Annual General Meeting The 2018 Annual General Meeting (AGM) of Woodside Petroleum Ltd will be held at 10.00 am (AWST) on 19 April 2018, 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. Refer to Woodside's website for copies of the Chairman's and CEO's speeches (www.woodside.com.au). Shareholders who reside outside the USA, the UK and Australia may elect to receive their dividend electronically in their local currency using the share registry’s Global Wire Payment Service. For a list of currencies offered and how to subscribe to the service, please contact the share registry. Refer to Woodside's website for the history of dividends paid by the company (www.woodside.com.au). 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. Share registry enquiries Investors seeking information about their shareholdings should contact the company’s share registry: Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth WA 6000 Postal address: GPO Box D182 Perth WA 6840 Telephone: 1300 558 507 (within Australia) +61 3 9415 4632 (outside Australia) Facsimile: +61 3 9473 2500 Email: Website: web.queries@computershare.com.au 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. Refer to the share registry website for details of shareholdings (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 this is our functional and presentation currency. Woodside pays its dividends in Australian dollars, unless a shareholder’s registered address is in the United Kingdom (UK), where they are paid in UK pounds sterling, or in the United States of America (USA), where they are paid in US dollars. Shareholders may have their dividends paid directly into any bank or building society account in Australia, the USA or the UK. 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 (investorcentre.com/wpl). Shareholders must make an election to alter their dividend currency by the business day after the record date for the dividend. Refer to the share registry website to change details (www.investorcentre.com/wpl). Australian Securities Exchange listing Woodside Petroleum Ltd securities are listed on the ASX under the code WPL. American Depositary Receipts Citbank (Citi) sponsors a level-one American Depositary Receipts (ADR) program in the USA. One Woodside share equals one ADR and trades over the counter under the symbol ‘WOPEY’. ADR holders should deal directly with Citi on all matters related to their ADRs. Enquiries should be directed to: Citibank Shareholder Services PO Box 43077 Providence Rhode Island 02940-3077 Contact information USA Toll Free Number: 1-877-CITI-ADR Number for international callers: +1 781 575 4555 Facsimile: +1 201 324 3284 Email: citibank@shareholders-online.com Investor Relations enquiries Requests for specific information on the company can be directed to Investor Relations: 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 Email: Website: woodside.com.au investor@woodside.com.au Woodside Petroleum Ltd | Shareholder information 139 London 3rd Floor, Pollen House 10-12 Cork Street London W1S 3NP UNITED KINGDOM T: + 44 20 7009 3900 Seoul 11F, Kwanghwamun Building 149, Sejong-daero, Jongno-gu Seoul 03186 REPUBLIC OF KOREA T: +822 739 3290 F: +822 739 3293 Singapore 12 Marina View Asia Square Tower 2 #18-03 Singapore 018961 SINGAPORE T: +65 6709 8000 Tokyo Imperial Tower 1-1 Uchisaiwaicho 1-Chome Chiyoda-ku Tokyo 100-0011 JAPAN T: +813 3501 7031 F: +813 3581 2689 Yangon Level 6, Vantage Tower 623 Pyay Road Kamaryut Township Yangon MYANMAR (BURMA) T: +95 1 230 7460 F: +95 1 230 7461 Business directory Registered Office Perth Woodside Petroleum Ltd 240 St Georges Terrace Perth WA 6000 AUSTRALIA Dakar 1st Floor SIA Building Route de Ngor Les Almadies, Dakar SENEGAL T: +221 338 397 050 T: +61 8 9348 4000 Postal address: GPO Box D188 Perth WA 6840 AUSTRALIA BUSINESS DIRECTORY Dili Palm Business and Trade Centre Block E01-06 Surikmas, Fatumeta, BairroPite Dili TIMOR-LESTE Beijing 32/F, Full Tower, 3206 No. 9 East Third Ring Road Chaoyang District Beijing 100020 CHINA T: +8610 8591 0577 F: +8610 8591 0579 Broome Unit 28 Shiba Lane Broome WA 6725 AUSTRALIA T: 1800 036 654 Postal address: PO Box 2751 Broome WA 6725 AUSTRALIA Calgary Suite 3750 421-7th Avenue SW Calgary Alberta T2P 4K9 CANADA T: +1 855 956 0916 Postal address: PO Box 22240 Bankers Hall Calgary Alberta T2P 4J6 CANADA T: + 670 3310804 Dublin Hamiliton House 28 Fitzwilliam Place Dublin 2 IRELAND Houston Sage Plaza 5151 San Felipe, Suite 980 Houston TX 77056 USA T: +1 713 401 0000 F: +1 713 401 0088 Karratha The Quarter HQ Level 3, 24 Sharpe Avenue Karratha WA 6714 AUSTRALIA T: +61 8 9158 8100 Postal address: PO Box 517 Karratha WA 6714 AUSTRALIA 140 Woodside Petroleum Ltd | Annual Report 2017 In December 2017, Woodside’s Karratha town office moved to a new location at The Quarter HQ – the City of Karratha’s central business hub. Woodside Petroleum Ltd | Shareholder information 141 Key announcements 2017 Events calendar 2018 February Richard Goyder to succeed Michael Chaney as Chairman May June Full-year 2016 results and briefing 2017 Investor Briefing Day Change of Joint Company Secretary Long-term LNG sale and purchase agreement with Pertamina Offshore Senegal development updated March Senegal reaffirms completion of transaction August October Half-Year 2017 Results and Briefing Pack Wheatstone commences LNG production Key calendar dates for Woodside shareholders in 2018. Please note dates are subject to review. February 14 Full-year 2017 results 14 Annual Report 2017 released 22 Ex-dividend date for final dividend 23 Record date for final dividend 8 Sustainable Development Report 2017 released 22 Payment date for final dividend April 17 Annual General Meeting Proxy returns close at 10.00 am (AWST) 18 First quarter 2018 report 19 Annual General Meeting 23 2018 Investor Briefing Day (Sydney) 30 Half-year end 19 Second quarter 2018 report 15 Half-year 2018 report 18 Third quarter 2018 report May June July August October December 31 Year-end 2018 Unreasonable prejudice As permitted by sections 299(3) and 299A(3) of the Corporations Act 2001 (Cth), we have omitted certain information from this operating and financial review in relation to our business strategy, future prospects and likely developments in our operations and the expected results of those operations in future financial years. We have done this on the basis that such information, if disclosed, would be likely to result in unreasonable prejudice to Woodside (for example, because the information is premature, commercially sensitive, confidential or could give a third party a commercial advantage). The omitted information relates to our internal budgets, forecasts and estimates, details of our business strategy, and LNG contractual pricing. Forward-looking statements This report contains forward-looking statements, including statements of current intention, statements of opinion and expectations regarding Woodside’s present and future operations, possible future events and future financial prospects. Such statements are not statements of fact and may be affected by a variety of known and unknown risks, variables and changes in underlying assumptions or strategy that could cause Woodside’s actual results or performance to differ materially from the results or performance expressed or implied by such statements. There can be no certainty of outcome in relation to the matters to which the statements relate, and the outcomes are not all within the control of Woodside. Further information on some important factors that could cause actual results or performance to differ materially from those projected in such statements is contained in the 'Risk' section on pages 62–63. Woodside makes no representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any forward-looking statement or any outcomes expressed or implied in any forward- looking statement. The forward-looking statements in this report reflect expectations held at the date of this report. Except as required by applicable law or the Australian Securities Exchange (ASX) Listing Rules, Woodside disclaims any obligation or undertaking to publicly update any forward-looking statements, or discussion of future financial prospects, whether as a result of new information or of future events. 142 Woodside Petroleum Ltd | Annual Report 2017 Glossary, units of measure and conversion factors Glossary $, $m 1P 2C 2P Acquisition costs AGM APPEA Appraisal well ASX AUD Average unit cash cost of sales Brent Cash-margin CDP Condensate cps CWLH DBNGP DGJV DRP EBIT EBITDA EEP EPS Equity-lifted LNG Farm-in FEED FEL FID First half, second half Flaring FLNG FPSO Free cash flow FSRU GDP Gearing gFPSO US dollars unless otherwise stated, millions of dollars Proved reserves Best Estimate of Contingent resources Proved plus Probable reserves 2017 acquisition expenditure divided by contingent resources (2C) added through 2017 acquisition activity Annual General Meeting Australian Petroleum Production & Exploration Association A well drilled to follow up a discovery and evaluate its commercial potential Australian Securities Exchange Australian dollars Average unit cash cost of sales includes production costs, royalty and excise, shipping and direct sales costs, carbon costs and insurance; excludes exploration and evaluation, general administrative and other costs, depletion, depreciation and amortisation, PRRT and income tax Intercontinental Exchange (ICE) Brent Crude deliverable futures contract (oil price) Gross profit net of other revenue, oil and gas properties depreciation and amortisation, inventory movement and trading costs, divided by sales revenue Climate Disclosure Project Hydrocarbons that are gaseous in a reservoir but that condense to form liquids as they rise to the surface Cents per share Cossack, Wanaea, Lambert and Hermes Dampier to Bunbury Natural Gas Pipeline Domestic Gas Joint Venture Dividend Reinvestment Plan EBIT is calculated as a profit before income tax, PRRT and net finance costs EBITDA is calculated as a profit before income tax, PRRT, net finance costs and depreciation and amortisation Employee equity plan Earnings per share The proportion of LNG which Woodside is entitled to lift and sell, in its own right, as a result of its participating interest in the relevant project Where one company acquires an interest in an exploration permit or production licence by paying some of the past or future costs of another company that is relinquishing its interest Front-end engineering and design. Preliminary design and cost and schedule confirmation before a FID Frontier Exploration Licence Final investment decision Halves of the calendar year (i.e. H1 is 1 January to 30 June, H2 is 1 July to 31 December) The controlled burning of gas found in oil and gas reservoirs Floating liquefied natural gas Floating production storage and offloading Cash flow from operating activities less cash flow from investing activities Floating storage regasification unit Gross domestic product Net debt divided by net debt and equity attributable to the equity holders of the parent Gas floating production storage and offloading Gross margin GWF H1, H2 HSEQ Infill well IOGP ISO JCC JV KGP KLE LHS LNG LPG LTIF MOU NASA Net debt NPAT NWS PEP PRRT PSE Q1, Q2, Q3, Q4 RAP Return on equity RFSU RHS ROACE RSSD SNE SPA Spudded Tier 1 PSE Tier 2 PSE TRIR TSR Unit production costs UNSDG USA USD WA Gross profit divided by operating revenue. Gross profit excludes income tax, PRRT, net finance costs, other income and other expenses (refer to section A.1 of the Financial Statements for data) Greater Western Flank Halves of the calendar year (H1 is 1 January to 30 June and H2 is 1 July to 31 December) Health, safety, environment and quality Well drilled for the purpose of increasing production International Association of Oil and Gas Producers International Organisation for Standardisation The Japan Customs-cleared Crude is the average price of customs-cleared crude oil imports into Japan as reported in customs statistics (also known as ‘Japanese Crude Cocktail’) and is used as the reference price for long-term supply LNG contracts Joint venture Karratha Gas Plant Karratha life extension Left hand side Liquefied natural gas Liquefied petroleum gas Lost time injury frequency Memorandum of understanding National Aeronautics and Space Administration Total debt less cash and cash equivalents Net profit after tax North West Shelf Petroleum exploration permit Petroleum Resources Rent Tax Process safety event Quarters of the calendar year (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 Return on shareholder funds is calculated as NPAT (excluding non-controlling interests) divided by equity attributable to the equity holders of the parent Ready for start-up Right hand side Return on average capital employed is calculated as EBIT divided by average non-current liabilities and average equity attributable to equity holders of the parent Rufisque, Sangomar, Sangomar Deep Offshore The oil field offshore Senegal in the Sangomar Deep Block Sales and purchase agreement Commenced well-drilling process A typical Tier 1 PSE is loss of containment of hydrocarbons greater than 500 kg (in any one-hour period) A typical Tier 2 PSE is loss of containment of hydrocarbons greater than 50 kg but less than 500 kg (in any one-hour period) Total recordable injury rate. The number of recordable injuries (fatalities + lost workday cases + restricted workday cases + medical treatment cases) per 1,000,000 hours worked Total shareholder return Production costs ($ million) divided by production volume (MMboe) United Nations Sustainable Development Goals United States of America US dollars Western Australia Woodside Petroleum Ltd | Shareholder information 143 Conversion factors Product Pipeline Natural Gas Liquefied Natural Gas (LNG) Condensate Oil Liquefied Petroleum Gas (LPG) Natural Gas Factor Conversion factors¹ 1 TJ 163.6 boe 1 tonne 8.9055 boe 1.000 boe 1 bbl 1 bbl 1.000 boe 1 tonne 8.1876 boe 1 MMBtu 0.1724 boe 1. Minor changes to some conversion factors can occur over time due to gradual changes in the process stream. Glossary, units of measure and conversion factors cont. Units of measure barrel bbl barrels per day bbl/d billion cubic feet Bcf billion cubic metres BCM barrel of oil equivalent boe billions barrel of oil equivalent bboe CO₂ equivalent CO₂e thousands of pascals kPa thousands of tonnes kt thousands of tonnes per day kt/d million standard cubic feet mmscf million barrels MMbbl million barrels of oil equivalent MMboe million British thermal units MMBtu million standard cubic feet per day mmscf/d millions of Pascals MPa millions of tonnes per annum mtpa pounds per square inch psi tonnes t trillion cubic feet Tcf tonnes of CO₂ equivalent tCO₂e terajoules TJ 144 Woodside Petroleum Ltd | Annual Report 2017 Index A American Depositary Receipts 139 Annual General Meeting (AGM) 139, 143 Anti-bribery and corruption 51, 53, 63 Areas of activity 16 Australia Oil 17, 146, 148 B Balance sheet 13, 21, 63, 79, 126 Balnaves 20, 79 Board of Directors 72–73 Brent oil price 21 Browse LNG 5, 9, 12–13, 21, 37, 43, 65, 67, 79, 84, 129, 146 C Cameroon 129 Canada 39, 65–67, 129 CEO remuneration 88 Chairman’s report 1 Compass (workplace culture) 55, 73 Compliance 14, 39, 51, 53, 62–63, 73–74, 83 Contingent resources 64–65, 143 Conversion factors 67, 143–144 Corporate governance 73 Credit rating 121 D Directors’ declaration 133 Diversity 35, 49, 51, 55, 73, 79, 82 Dividend 1, 7, 10, 13, 21, 25, 74, 139, 142 Dividend Reinvestment Plan 139, 143 Drilling 2, 8, 12–14, 21, 26, 28–31, 34, 38, 43–44, 62, 67, 84 E Effective income 20 Effective income tax 20, 148 Emissions 2, 13, 23, 49, 57, 59, 79 Employees 32, 123, 126 Events calendar 1, 142 Exchange rate 21, 88 Executives 51, 75, 77, 78, 80–87, 89, 92, 94–95, 126 External auditor relationship 73 F Financial position ii, 101, 110, 118, 130–131 Financial Statements 1, 74–75, 78, 104, 109, 125, 131, 133 Floating LNG (FLNG) 36, 67, 143 Free cash flow 4, 13, 21, 143 G Gabon 21, 29, 31, 84, 129 Gearing 21, 25, 143, 148 Global exploration 2 Goodwyn A 34, 56–57, 146 Greater Enfield 142, 146 Greater Western Flank 24, 34, 143, 146 H Health and safety 62, 79, 80 I Independent audit report 134 Indigenous 52–54, 55, 82, 84 K Karratha Gas Plant (KGP) 43, 56–57, 59, 143 Kitimat LNG 16 L Long-term award (LTA) 80–83, 85, 90, 95 M Morocco 29, 31, 129 Myanmar 2, 5, 8, 10, 12–13, 21, 26, 28–31, 52, 59, 65, 67, 79, 84, 146, 129 N Net profit after tax (NPAT) 6, 20–21, 78–80, 83, 143, 148 New Zealand 16, 129 Nganhurra FPSO 44, North Rankin Complex 34, 146 North West Shelf Project ii, 35, 43, 48, 67, 143 O Okha FPSO 17, 44, 146 Operating and Financial Review 1, 19, 142 P Payout ratio 21, 25 Peru 16, 129 Pluto LNG ii, 2, 5, 17, 20–21, 24, 27, 29, 32, 35–36, 40, 42, 49, 56–57, 60, 79, 129, 146, Production 2, 4, 6, 8–9, 13, 20–21, 24, 27, 29, 33–38, 42–45, 48–49, 56, 59, 62–63, 65, 67, 74, 79–80, 83–84, 142–143, 147, 148 Proved plus probable reserves 67, 143, 147 Proved reserves 67, 114 R Realised prices 20 Reconciliation Action Plan (RAP) 53, 55, 143 Remuneration Report 74–75, 77–78, 95 Reserves and resource statement 67 Reserves replacement ratio 64, 67 Return on equity 20, 143 Risk management 104, 106, 121 S Sales revenue 20, 143, 147 Scarborough 2, 8, 9, 12–13, 17, 21, 36, 65, 67, 84, 146 Security 14, 139 Seismic 20, 29, 31, 42 Senegal 2, 5, 10, 12–13, 21, 24, 26, 29–31, 38, 52, 65, 67, 79, 84, 129, 142–143, 146, Shareholdings: distribution 138 Share plans 125 Share registry: enquiries 139 Short-term award (STA) 80–86, 95, 126 Spain (Canary Islands) 129 Strategy 1, 14, 24, 55, 70 Sunrise 24, 39, 65, 67, 146 T Tanzania 129 Technology 14, 56, 71, 78, 83, 89 Timor-Leste 140 Total recordable injury rate (TRIR) 58, 79, 84, 143 Total shareholder return (TSR) 81, 95, 143 Turnaround 20, 21, 42, 44 Turnover 54–55, 84 U United States of America (USA) 16, 70, 139, 140, 143, 129 V Vincent 34, 44, 45, 67 Vision 13, 51, 53, 73, 81 Volume weighted average 20 Volunteering 52 W Wheatstone 2, 5, 8, 12–13, 20–21, 24, 33, 45, 48, 49, 64, 65–67, 79, 84, 142, 146–147 X Xena 67 Woodside Petroleum Ltd | Shareholder information 145 Asset facts PRODUCING FACILITIES Australia North West Shelf Karratha Gas Plant North Rankin Complex Goodwyn A Platform Role Operator Operator Operator Equity 16.67% 16.67% 16.67% Angel Platform Operator 16.67% Product LNG, pipeline natural gas, condensate and LPG LNG, pipeline natural gas, condensate and LPG LNG, pipeline natural gas, condensate and LPG LNG, pipeline natural gas, condensate and LPG International Canada Kitimat LNG Role Non-operator Equity 50% Product Pipeline natural gas Pluto LNG Pluto LNG Platform Pluto LNG Plant Australia Oil Ngujima-Yin FPSO Nganhurra FPSO Okha FPSO Wheatstone LNG Role Operator Operator Role Operator Operator Operator Non-operator Equity 90% 90% Product LNG and condensate LNG and condensate Equity 60% Product Oil 60% Oil 33.33% 13% Condensate and oil LNG, pipeline natural gas and condensate PROJECTS Australia Greater Enfield Project Wheatstone LNG Julimar-Brunello Project – Phase 2 Greater Western Flank Phase 2 Role Operator Equity 60% Product Oil Non-operator 13% Operator 65% Operator 16.67% LNG, pipeline natural gas and condensate LNG, pipeline natural gas and condensate LNG, pipeline natural gas and condensate DEVELOPMENTS Australia Scarborough/ Thebe Role Operator and non-operator Browse Sunrise LNG International USA Port Arthur LNG Canada Kitimat LNG Senegal SNE-Phase 1 Operator Operator Role Non-operator Role Non-operator Role Development Equity 25%–50% 30.60% 33.44% Equity Project Equity 50% Development Agreement Lead Equity 35% EXPLORATION Australia and Asia-Pacific Australia Various titles1 Role Operator and non-operator Equity Various equities New Zealand PEP-55794 Myanmar AD-5 and A-7 AD-7 and A-6 AD-2 and A-4 AD-1, AD-6 and AD-8 Role Operator Role Operator Joint operator Non-operator Joint operator Equity 70% Equity 55% and 45% 40% 45% 50% Product Oil or gas Product Oil or gas Product Gas prone prone basin prone basin basin Gas prone basin Gas prone basin Gas prone basin Atlantic margins Senegal Rufisque, Sangomar and Sangomar Deep Role Non-operator Equity 35% Product Oil prone basin Sub-Saharan Africa Morocco Rabat Deep I-VI Role Non-operator Equity 25% Ireland FEL 3/14, 5/13, 5/14 and LO 16/14 Role Operator Equity 60%–90% Product Oil prone basin Product Oil or gas prone basin Latin America Peru Block 108 Role Non-operator Equity 35% Product Oil prone basin Gabon Doukou Dak (F15), Luna Muetse (E13), Diaba Block and Likuale (F14)2 Role Non-operator Equity 21.25%–40% Product Oil prone basin 1. For further information on Woodside’s Australian titles, please refer to the titles register website (neats.nopta.gov.au). 2. The transaction remains subject to satisfaction of conditions precedent. 146 Woodside Petroleum Ltd | Annual Report 2017 Summary charts Product view Investment Gas and condensate* Oil* Exploration and other 2017 52% 24% 24% 2016 63% 24% 13% *Indicative only as some assets produce oil and gas. Regional view Investment Australia Canada Rest of world 2017 76% 4% 20% 2016 69% 7% 24% Our investment expenditure was primarily directed at Wheatstone LNG, the Greater Enfield and NWS subsea tieback projects and exploration. The majority of our 2017 investment was in Australia. Production Natural gas* Oil Condensate 2017 83% 8% 9% 2016 83% 7% 10% * Includes LNG, LPG and pipeline gas. Production Australia Canada Rest of world 2017 98% 2% 0% 2016 98% 2% 0% The majority of our production is from natural gas produced through the Pluto LNG and NWS facilities. Australian assets continue to provide the majority of Woodside’s production volumes. Sales revenue Natural gas* Oil Condensate 2017 78% 11% 11% 2016 81% 8% 11% Sales revenue Australia Canada Rest of world 2017 99% <1% 0% 2016 99% <1% 0% * Includes LNG, LPG and pipeline gas. * Includes LNG, LPG and pipeline gas. Gas, largely sold as LNG, continues to provide the majority of our sales revenue. The majority of our revenue is currently derived from Australia. Reserves (Proved plus Probable) Reserves (Proved plus Probable) Dry gas Oil Condensate 2017 86% 5% 9% 2016 86% 5% 9% Australia Canada Rest of world 2017 99% 1% 0% 2016 99% 1% 0% Gas represents the largest portion of Woodside’s Proved plus Probable reserves. The majority of Woodside’s Proved plus Probable reserves are located in Australia. Woodside Petroleum Ltd | Shareholder information 147 Ten-year comparative data summary Profit and Loss (USDm)1 Balance Sheet (USDm)1 Cash Flow (USDm) and Capital Expenditure (USDm)1 Volumes Other ASX Data Operating Revenues Australia Pipeline Gas Australia LNG Australia LPG Australia Condensate Australia Oil Australia LNG Processing Revenue Australia Trading Revenue Other Hydrocarbon Revenue Other International Total EBITDAX EBITDA2 EBIT Exploration and Evaluation Depreciation and Amortisation Amortisation of Licence Acquisition Costs Impairment/(Impairment Reversal) Net Finance Costs Tax Expense Non-controlling Interest Reported NPAT Reported EPS (cents)3 DPS (cents) Total Assets Debt Net Debt Shareholder Equity Cash flow from Operations Cash flow from Investing Cash flow from Financing Capital Expenditure Exploration and Evaluation Oil and Gas Properties and Property, Plant and Equipment ROACE4 Return on Equity Gearing Sales (million boe) Australia Pipeline Gas Australia LNG Australia LPG Australia Condensate Australia Oil Other International Total (million boe) Production (million boe) Australia Pipeline Gas Australia LNG Australia LPG Australia Condensate Australia Oil Other International Total (million boe) Reserves (Proved plus Probable) Gas (Tcf) Reserves (Proved plus Probable) Condensate (MMbbl) Reserves (Proved plus Probable) Oil (MMbbl) Other Employees Shares (%) (%) (%) High (A$) Low (A$) Close (A$) Number (000’s) Number of Shareholders Market Capitalisation (USD equivalent at reporting date) Market Capitalisation (AUD equivalent at reporting date) Finding Costs ($/boe) (3 year average) 5 Reported Effective Income Tax Rate Net Debt/Total Market Capitalisation 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 137 2,631 34 413 390 192 53 47 11 3,908 3,031 2,854 1,650 177 1,188 16 - 84 446 96 1,024 122 98 25,401 5,065 4,747 15,050 2,400 (1,568) (805) 292 2,751 34 413 302 202 70 - 11 4,075 3,004 2,734 1,388 270 1,320 26 - 48 367 105 868 104 83 24,753 4,973 4,688 14,839 2,587 (2,473) 51 295 3,095 34 421 650 180 354 - 1 5,030 3,443 3,063 441 380 1,517 22 1,083 85 243 87 26 3 109 23,839 4,441 4,319 14,226 2,475 (5,555) (58) 376 4,563 80 901 1,133 198 161 - 23 7,435 5,853 5,568 3,672 285 1,441 21 434 163 993 102 2,414 293 255 24,082 2,586 (682) 15,876 4,785 (617) (3,119) 366 3,347 88 1,000 896 150 - - 79 5,926 4,460 4,188 2,538 272 1,218 45 387 179 545 65 1,749 213 249 23,770 3,764 1,541 15,225 3,330 (1,059) (2,470) 367 2,834 125 903 1,918 125 - - 76 6,348 5,528 5,162 3,795 366 1,184 26 157 137 614 61 2,983 366 130 24,810 4,340 1,918 15,148 3,475 161 (1,252) 375 1,509 127 860 1,795 - - - 136 4,802 3,423 2,864 2,212 559 627 28 (3) 26 677 2 1,507 190 110 23,231 5,102 5,061 12,658 2,242 (3,533) 362 309 1,310 115 708 1,579 - - - 172 4,193 3,431 3,126 2,256 305 749 24 97 (18) 697 2 1,575 204 105 20,196 4,915 3,952 11,091 2,104 (2,941) 608 378 769 94 571 1,496 - - - 179 3,487 3,427 3,209 2,303 218 752 35 119 12 823 (6) 1,474 210 95 17,753 4,939 3,732 8,812 1,483 (4,708) 4,207 320 1,007 112 669 2,685 - - - 252 5,045 4,017 3,765 2,852 252 732 49 132 19 1,287 - 1,546 225 100 10,317 2,044 1,946 4,633 3,224 (3,892) 684 778 703 273 418 328 965 1,305 261 1,039 7.1 6.8 24.0 6.0 60.4 0.6 7.6 6.9 1.3 82.8 6.0 61.7 0.6 8.0 6.8 1.3 84.4 6.54 117.0 69.9 1,214 6.2 5.8 24.0 12.9 63.6 0.7 9.3 6.9 1.6 95.0 12.9 63.7 0.7 9.3 6.7 1.6 94.9 7.09 4,309 2.0 0.2 23.3 13.2 57.6 0.7 8.5 12.5 0.2 92.7 13.1 57.5 0.7 8.4 12.3 0.2 92.2 7.59 124.2 74.4 133.5 42.6 425 17.5 15.2 (4.5) 13.3 58.3 0.8 9.4 11.2 0.2 93.2 13.3 60.3 0.8 9.1 11.4 0.2 95.1 6.65 117.1 54.1 166 420 12.0 11.5 9.2 14.0 52.4 0.9 9.5 8.0 0.9 85.7 13.9 53.6 0.9 9.5 8.2 0.9 87.0 7.09 383 1,145 18.3 19.7 11.2 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 7.51 2,651 11.8 11.9 28.6 14.0 22.4 1.1 7.8 15.7 2.9 63.9 14.0 22.6 1.2 7.9 16.0 2.9 64.6 7.80 2,933 13.5 14.2 26.3 14.8 22.7 1.3 9.1 19.8 4.5 72.2 14.8 23.2 1.4 9.1 19.7 4.5 72.7 8.02 125.2 67.0 130.9 95.9 138.7 108.5 154.7 117.5 3,992 19.0 16.7 29.8 18.4 21.3 1.5 9.7 24.3 5.5 80.7 18.4 21.5 1.5 9.5 24.5 5.5 80.9 7.79 147.8 136.1 4,031 37.1 33.4 29.6 18.9 17.0 1.2 7.9 29.8 5.4 80.2 18.9 17.4 1.2 7.9 30.5 5.4 81.3 7.90 151.4 168.8 3,597 33.97 28.16 33.08 3,511 31.88 23.94 31.16 842,445 842,445 214,350 209,383 3,456 38.33 26.20 28.72 823,911 225,138 3,803 44.23 33.71 38.01 823,911 227,798 3,856 3,997 3,896 50.85 38.16 39.54 29.76 30.09 33.29 30.62 33.88 38.90 823,911 805,672 823,911 217,383 208,277 205,868 3,650 49.28 40.56 42.56 783,402 201,134 3,219 53.87 31.19 47.20 748,599 175,257 3,124 70.51 26.81 36.70 698,553 141,035 21,762 18,922 17,250 25,664 28,579 28,983 25,287 33,745 31,567 17,717 27,868 26.21 34.2 21.8 26,251 39.06 35.9 24.8 23,663 107.45 49.8 25.0 31,317 44.09 30.1 (2.7) 32,050 30.43 29.8 5.4 27,914 14.09 27.2 6.6 24,670 12.67 30.5 20.0 33,342 6.12 25.2 11.6 35,334 5.71 33.7 11.8 25,637 3.35 32.6 11.0 (%) (%) 1. Comparative financial information prior to 2010 has been converted on a consistent basis in accordance with Note 1(o) to the 2010 Financial Report. Cash flow and capital expenditure have been converted using a consistent approach adopted on a conversion of expenses. 2. The calculation for EBITDA has been updated to include impairment and amortisation of licence acquisition costs. 2008 to 2013 EBITDA numbers have been restated to reflect this change in calculation. 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: 2017: 840,928,530; 2016: 835,011,896; 2015: 822,943,960; 2014: 822,771,118; 2013: 822,983,715; 2012: 814,751,356; 2011: 791,668,973; 2010: 773,388,154; 2009: 703,310,697; 2008: 685,179,496. 4. The calculation for ROACE has been revised in 2014 to use EBIT as the numerator, in addition to a change in the composition of capital employed. ROACE for 2008 to 2013 has been restated to include this change. 5. Finding cost methodology is in accordance with the FAS69/SEC industry standard. 148 Woodside Petroleum Ltd | Annual Report 2017 Annual Report 2017 Head Office: Woodside Petroleum Ltd 240 St Georges Terrace Perth WA 6000 Postal address: GPO Box D188 Perth WA 6840 Australia T: +61 8 9348 4000 F: +61 8 9214 2777 E: companyinfo@woodside.com.au Woodside Petroleum Ltd ABN 55 004 898 962 woodside.com.au