What's New? Although Woodside is Australia's premier oil and gas producer, the company is certainly not mature. Woodside is in the midst of a transformational development phase. This is both in terms of production volume and product type, with the company's future firmly hitched to liquefied natural gas (LNG).

On this front, Woodside spent about $5.7 billion on development during 2009. Add exploration to the mix and Woodside's capital expenditure exceeded $6 billion. This is a hefty bill for a company that generated operating cashflow of only $1.9 billion during the year. Such an imbalance is not normally a positive feature.

In Woodside's case though, the capital expenditure is not disappearing into ill-advised acquisitions or other such activity. Indeed, the key Pluto development soaked up some $4.2 billion of last year's tab. The project's cash demands will fall this year, with Woodside's total capital expenditure set to decrease to about $4.7 billion.

A large unfunded capital expenditure requirement can weigh heavily on a company due to the market's expectation that a capital raising is imminent. This has been the case for Woodside in the past but is unlikely to cause any major concern this year.

Last year's equity capital raising brought in $1.2 billion and Woodside closed out the year with $2.9 billion in cash and undrawn debt facilities. The sale of the Otway gas assets will bring in an additional $700 million and cover the 2010 development budget.

The Outlook Stage one of the huge Pluto project is on track to begin producing gas towards the end of this year. First LNG production from Train 1 will then follow in early 2011. The recent unrest among Pluto's workforce does pose a threat to the project's timely delivery. CEO Don Voelte touched on this during the analyst call, stating the company has a "mitigation plan in place, to ensure customer LNG delivery obligations are met". He pointed out the recent strikes have not been fully supported by the company's workers. It is his view the unions are testing the boundaries of the new IR laws, which followed the reversal of Work Choices. If this is the case, things should settle down in the months ahead.

Price Since touching a recent low of $41.09 on February 1, Woodside has rebounded strongly. The stock has subsequently found resistance around $45. Should the stock overcome this resistance, we would expect it to mount an assault on the January 11 high of $49.28.

Worth Buying? Despite the swathe of LNG projects that have cropped up in recent years, a considerable imbalance remains between supply and demand over the next decade. Global LNG demand is forecast to more than double to about 400mtpa (million tonnes per annum) by the 2020s. Contracted supply hovers about 250mtpa until about 2019 before falling away.

The addition of new projects will narrow the supply shortfall to some extent. Nevertheless, the global industry will need to find an additional 15mtpa-20mtpa to meet forecast demand. Voelte neatly illustrated what this means by stating it equates to a new Gorgon and Pluto every year. This is simply not happening and Woodside's current development program looks set to deliver robust returns for shareholders over the longer term.

Colin Whitehead is an analyst at Fat Prophets sharemarket research.