Oil prices are up some 35% so far this year, give or take a percentage point or five as the price bounces around.

Up till yesterday Woodside Petroleum shares were up around 16%-17%, depending on the oil price, in a market off around 23%.

In many respects Woodside was a good example of the way some oil companies have had a very enjoyable first half, while those in base metals and mineral sands have done it much tougher.

Now with oil prices looking toppy and possible sliding (and joining metal prices in easing), the resources sector is only being held up by the strong coal and iron ore prices won in 2009 negotiations. That’s not much to hold the market up.

Woodside shares fell yesterday as the oil price weakened for a second day, trading down to around $US136 a barrel. It should weaken further Friday after oil fell under $US130 a barrel.

But the company revealed that it had performed better than expected with a 52% improvement in second quarter sales, thanks to higher production and those surging oil prices.

But the shares finished off $1.05 at $58.50, after trading as low as $58.10 on a day when the overall market edged higher for a second day.

Woodies shares touched an all time high of more than $70 dollars earlier this year in the enthusiasm over the impact the higher oil price would have on its returns.

There has been a sizeable improvement but the question now is, will it be repeated in coming quarters, or is the weakening oil price bound to fall further, dragging Woodside’s returns lower.

We shouldn’t forget the damage an Aussie dollar around 96-98 US cents makes to returns for resource companies like Woodside selling in US dollars.

Woodside said production for the three months to June rose 14% to 19.3 million barrels of oil equivalent (MMboe), from the 17MMBoe produced in the second quarter of 2007.

This helped pushed June quarter revenue to $1.475 billion, from $970 million last year.

“Revenue was up 52% over the corresponding quarter last year driven by higher commodity prices and additional production,” Woodside said.

For the 2008 calendar half year, production was up 4% to 36.5MMboe compared to last year while revenue rose a sweet 38% to $2.574 billion.

Woodside maintained its forecast of an increase in full-year output in 2008 of as much as 22% (which would make a change after the past two years of not meeting production targets for various reasons.). That will see between 80 million and 86 million barrels of oil equivalent produced.

Helping Woodside was the start to production at the 50% owned Stybarrow field off north-western Western Australia last November. Production from the delayed Neptune project in the Gulf of Mexico started earlier this month, instead of last April, while output from the Vincent field offshore north-western WA is set to start flowing next month..

So there should be a sizeable boost in second half output, as anticipated by the company maintaining its forecast. In that case an easing in prices won’t make too much of a dent in revenue for the next two quarters, especially if the easing commodity prices also drop the value of the Aussie dollar.

Compared to this time last year, oil prices are up more than 80% (and at $US145 a barrel, were well over 90% higher), so by any measurement there is going to be a tremendous boost for Woodside in 2008.

Woodside plans a 32-day shutdown at its North West Shelf liquefied natural gas Train 4 plant for routine maintenance from next month. That will cut LNG shipments and revenues.

Woodside is continuing early work on its $12 billion LNG project called Pluto which is off the Northwest Shelf of WA, while it is stepping up work on finding more gas to expand the project.

Those plans took a hit when an exploration well turned up dry. The quarterly report said gas had not been found in the Bellatrix-1 well. It follows the same outcome at its Ixion-1 well earlier this year.

It has also proposed LNG ventures at the Sunrise field in the Timor Sea and in the Browse Basin off the far northwest coast. There were reports yesterday that a decision on the Sunrise development might come next year.

And last night the company’s CEO, Don Volte was claiming the proposed greenhouse gas trading system would discriminate against Woodside and other LNG export projects and force their sponsors to abandon them.

This Information is provided to you by the Australasian Investment Review (AIR).
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