WPL 0.22% $18.32 woodside petroleum ltd

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    Woodside covers super fund hole
    By Paul Armstrong
    Business editor

    PLUNGING world stockmarkets have forced Woodside Petroleum to inject about $60 million into its employees' superannuation scheme in the past two years to prevent the fund becoming insolvent.

    Figures contained in the company's latest annual report indicate the fund's investment portfolio has been ravaged by the impact of the bear market, forcing Woodside to plug the gap between the assets and its potential liabilities.

    The report indicates Woodside had to pump about $20 million into the fund in 2001 and a whopping $40 million in 2002, when the Australian sharemarket fell 11 per cent.

    The cash drain comes straight off the oil and gas giant's profit, which reached $909 million in 2001 but plunged to a $92 million loss last year due to substantial accounting charges.

    The money was injected into Woodside's defined benefits super scheme, under which members receive a guaranteed retirement income based on their salary regardless of the fund's investment performance.

    If the investment returns are insufficient to meet these liabilities, as happened in the past two years, the employer has to cover the difference.

    Woodside closed the fund to new members in 1999, but it has to honour the guaranteed return to the remaining 600 members.

    Its other employees are in a market-linked fund such as that used by most Australian workers. The returns paid to members of these funds depend entirely on the performance of the investments.

    The key difference is that in a defined benefits scheme, the risk lies with the employer. In a market-linked fund, the risk rests with the members.

    News of the huge drain on Woodside's profit comes a week after The West Australian revealed the State Government Employees' Superannuation Board had been hit hard by falling stockmarkets.

    The GESB has seen $72 million surplus in its defined benefits scheme all but wiped out, raising the prospect that the State Government might have to inject funds to offset losses.

    Woodside's annual report also reveals the company will be almost completely exposed to spot oil prices by the end of the year.

    This is the result of its plan to wind-down its oil price hedging program. The hedging has forced Woodside to sell much of its production for about $US20 a barrel or less in recent years, denying it the substantial extra profit that would have been made if it sold at spot prices.

    Woodside has been heavily criticised in the past for the hedging. But much of it was put in place at the insistence of its banks, which demanded increased certainty about the company's profits.

    Woodside is not expected to rebuild its hedge book despite the current strength in oil prices.

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