A deal for a piece of the massive Leviathan natural gas field offshore Israel is looking increasingly doubtful.

But Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY), Australia’s second-largest oil and gas producer next to global resources behemoth and fellow AE Portfolio Aggressive Holding BHP Billiton Ltd (ASX: BHP, NYSE: BHP), continues to expand its assets and opportunities in a manner designed to generate cash flow for shareholders.

Woodside’s growth strategy is underpinned by strong global demand for natural gas and the increasing role of liquefied natural gas (LNG) in the global gas supply mix.

It’s expected that by 2030 global demand for LNG will be more than double the 2013 level of approximately 240 million metric tons per annum, corresponding to an average annual growth rate of 4 percent to 5 percent.

The Asia-Pacific region makes up about 70 percent of global LNG demand, with purchases by traditional buyers, including Japan and South Korea, complemented by significant demand growth across India and Southeast Asia.

In addition to its use in power generation and commercial and residential applications, LNG is increasingly becoming an important transportation fuel.

Australia–and Woodside in particular–is well placed to meet this growing demand. Seven of the 12 LNG projects under construction globally are in Australia, accounting for more than 70 percent of new capacity under construction worldwide.

That’s not to say the field is clear for total domination, as competition for supply into the Asian market from both traditional and emerging suppliers is on the rise.

By 2016 the US is set to become a global LNG exporter. The first Gulf of Mexico-based liquefaction facility was approved in 2012, and at the end of 2013 there was approximately 20 million metric per annum of new US LNG supply under construction. With potential for at least one more additional project to be approved in 2014, new US supply will approach 40 million metric per annum by 2020.

One of the key challenges for Australian LNG producers in the context of stiffer competition is holding down costs while boosting productivity.

Woodside’s decision to examine floating LNG (FLNG) to develop its Browse gas fields demonstrates its commitment to harness new technologies. FLNG will enable the development of a world-class resource that couldn’t be done economically via a greenfield onshore facility.

Other technology initiatives Woodside is pursuing include construction-led design, subsea compression, deepwater production systems and float-in facilities.

Beyond technology, Woodside is focused on driving down costs through new project management solutions and control of the back-office, identified by the Business Council of Australia as a key area for improvement for the local resources sector. Woodside has launched a productivity program to cut operating and corporate costs and to ensure the company delivers value for its shareholders.

Woodside’s results for the first quarter of 2014 demonstrate the impact of a jump in prices for LNG produced at its AUD15 billion Pluto project in Western Australia, with a 15.9 percent increase in revenue for the three months ended March 31, 2014, to USD1.675 billion from USD1.45 billion a year ago.

Output for the period was up 5 percent to 23 million barrels of oil equivalent from 21.9 million during the prior corresponding period, predominantly due to the re-start of the Vincent floating production, storage and offloading (FPSO) unit in late 2013.

Woodside has been in discussion with customers over re-pricing LNG from Pluto, which output was originally priced according to contracts executed in 2007–in other words, well below current market prices.

CEO Peter Coleman had previously noted that about a quarter of Pluto’s contracted output would be priced at higher rates starting in the March quarter, with the proportion progressively increasing over the ensuing months.

Management has declined to comment in detail on the price hikes because of the sensitivities about the increases for Pluto’s two Japanese customers, Kansai Electric Power Company Inc (Japan: 9503, OTC: KAEPF, ADR: KAEPY) and Tokyo Gas Company Ltd (Japan: 9531, OTC: TKGSF, ADR: TKGSY).

Woodside did reveal that 28 percent of Pluto contract volumes had been sold at higher prices during the recently concluded quarter, with the proportion increasing to about 35 percent during the three months ending June 30, then to about 75 percent in the during the third quarter. That would cover all volumes from the project to be sold under long-term contract.

Although it’s difficult to gauge the impact of new contract prices for LNG from Pluto–much of the output is still being sold at legacy prices, while some is being sold at higher tariffs on the spot market–pricing is headed in a positive direction.

Higher LNG prices drove an increase in average realized prices for Woodside to USD73 per barrel of oil equivalent in the first quarter, up from USD67 a year earlier. Average LNG prices for Pluto improved 36 percent from USD7.80 per thousand cubic feet a year ago to USD10.60.

Management also finalized a three-year deal to sell up to six additional cargoes with Kansai Electric in March, and signed new sales deals with Korea Gas Corp (Korea: 036460) and Chubu Electric Power Company Inc (Japan: 9502).

On the Browse FLNG project, Woodside said it had started on an environmental impact statement and expects a draft to be made public in the second half of 2014.

Woodside continued basis of design (BOD) activities for the FLNG development concept. The BOD phase involves studies and work required by the Browse joint venture participants–which include Royal Dutch Shell Plc (London: RDSA, NYSE: RDS/A) and PetroChina Co Ltd (Hong Kong: 857, NYSE: PTR)–to be in a position to consider entering front-end engineering and design (FEED) in the second half of the year.

The Persephone development continued FEED activities with a final investment decision planned the second half of 2014. Persephone is the next major gas development for the North West Shelf Project and involves a subsea tieback to the North Rankin Complex (North Rankin A and North Rankin B).

The AUD2.5 billion Greater Western Flank Phase 1 project continued fabrication, subsea and pipeline installation activities. The project remains on budget and on schedule for start-up in early 2016.

Regarding Leviathan, on Feb. 7, 2014, Woodside and the Leviathan Joint Venturers, including Noble Energy Mediterranean Ltd, Delek Drilling LP, Avner Oil Exploration LP and Ratio Oil Exploration (1992) LP, entered into a memorandum of understanding (MOU).

Management noted that although the parties haven’t executed the definitive agreements contemplated in the MOU, discussions continue with the parties and the Israeli Government with a view to resolving the remaining issues and executing definitive agreements.

Moving forward on Leviathan would entail an investment of approximately AUD2.7 billion for a 25 percent stake in the project.

The latest hurdle of taxation issues is now close to being overcome. But Mr. Coleman recently noted that the changed focus of the development, with pipelined rather than LNG exports of output, will mean less attractive margins. At the same time, the resource’s size and
quality are better than originally assumed.

Woodside didn’t give an update on its full-year output guidance, though it had previously forecast 2014 production of 86 million to 93 million barrels of oil equivalent.

Management expects to maintain its 80 percent payout policy “for the foreseeable future,” subject to the demands of significant new capital investments or material changes in the operating environment.

But this high dividend payout ratio doesn’t come at the expense of growth. Woodside is in the very fortunate position of being able to return cash to investors while still having the capacity to fund new growth opportunities.

Woodside Petroleum is a buy under USD42 on the ASX using the symbol WPL and on the US over-the-counter (OTC) market using the symbol WOPEF.

Woodside also trades as an American Depositary Receipt (ADR) on the US OTC market under the symbol WOPEY. Woodside’s ADR is also a buy under USD42.

Woodside closed at AUD42.10 on the ASX on May 15, 2014, equivalent to USD39.35 based on the prevailing Australian dollar-US dollar exchange rate.

Woodside’s financial year corresponds with the calendar year, Jan. 1 to Dec. 31. The company reports full financial and operating results twice a year; it typically posts first-half results in late-February, with full fiscal year numbers out in late-August.

As for its regular dividend schedule, the board approved and management declared a final dividend in respect of 2013 results of AUD1.03 per share on Feb. 19, 2014. It was paid March 26, 2014, to shareholders of record as of Feb. 28. The shares traded ex-dividend on this declaration as of Feb. 24.

An interim dividend of AUD0.83 was declared Aug. 21, 2013. It was paid Sept. 25, 2013, to shareholders of record as of Aug. 30, 2013. Shares traded ex-dividend on this declaration as of Aug. 26, 2013.

The interim dividend for 2014 will be declared on or about Aug. 20 along with the announcement of operating and financial results for the six months ending June 30.

Dividends paid by Woodside are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January 2013 dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, five rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are four “hold” and four “sell” ratings on the stock at present. The “best consensus” 12-month target price among the 11 analysts that provide such a number is AUD40.10, with a high of AUD43 and a low of AUD37. Including a current annualized dividend rate of AUD1.86 per share, 12-month total return based on Woodside’s May 15 closing price and analysts’ consensus price target is negative 0.3 percent.