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This large oil and gas producer is in an expansion mode and has a special reward in stock for its shareholders, says David Dittman of Personal Finance.

Woodside Petroleum (WOPEY)—Australia’s second-biggest oil and gas producer—has significant cash on its balance sheet—A$2.4 billion as of December 31.

Its focus of late has been on liquefied natural gas (LNG), with eyes also on expanding its business beyond Australia. Oil exploration is concentrated on offshore assets.

In mid-April, the company announced that it would not go forward with the proposed onshore development of the 12 million metric tons per annum, $46 billion Browse LNG project at James Price Point near Broome, Western Australia. Woodside, the operator of the East and West Browse joint ventures, has a 34% equity stake in East Browse and 17% in West Browse.

Woodside said it will study alternatives, including a smaller plant at James Price Point, a floating LNG project, and saving the gas to process at a later date through the North West Shelf plant at Karratha.

One of its partners in the Browse venture, Royal Dutch Shell (RDS.A), is a proponent of the floating-platform option. Shell, through Shell Development Australia, has a 27% stake in the project. Woodside hasn’t abandoned Browse, an asset that still holds significant value for the company.

The company also recently ended talks with other owners of gas resources to secure new supplies for an expansion of its Pluto LNG project, the first phase of which, after coming online in April 2012, has led to significant increases in production and cash flow.

In late 2012, Woodside delayed a proposed second phase after a drilling campaign failed to find enough gas to support it. Woodside noted that it’s “continuing in the pursuit of expansion gas” and has further drilling planned in the region.

Rather than let its already ample cash pile continue to grow on a balance sheet simultaneously strengthened by recent debt reduction, Woodside declared a special dividend of 63 cents per share, which will be paid May 29. The dividend will be fully franked for Australian taxation purposes. Woodside’s dividends are determined and declared in US dollars.

Management has also adjusted regular dividend policy. Effective immediately, the company will target a dividend payout ratio of 80% of underlying net profit after tax, up from approximately 50%.

Driven by an impressive start for its $15.5 billion Pluto LNG project, Woodside reported 2012 underlying net profit surged by 25% to $2.06 billion, while statutory net profit after tax (NPAT) was up 98% to $2.98 billion.

Overall production for 2012 was up by 31% to 84.9 million barrels of oil equivalent, while annual sales climbed 31% and revenue ticked up by 30% to $6.22 billion. Management boosted the final dividend in respect of these 2012 results by 18.2%.

Based on the new 80% payout ratio, Woodside is on track to yield 6% to 7% based on the current market price. A rebound for black gold as global growth gets back on track will also certainly help Woodside.

Gearing—or net debt as a percentage of total capital—is also on track to decline, from 17% as of the end of 2012 to 11% by the end of 2015.

Based on management’s recent moves, it’s fair to say Woodside is more focused on returning cash to shareholders, reducing debt, and positioning for growth opportunities more than three years out on the horizon.

The stock drifted downward, but bounced markedly following management’s announcement of the special dividend and the new payout ratio policy.

Woodside’s assets are world-class, more than capable of supporting its now-current dividend aspirations as well as longer-term growth. It’s also providing ample yield in a yield-starved world.

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Tickers Mentioned: Tickers: WOPEY, RDS/A

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