Woodside informed the market yesterday it will adopt the "successful efforts" approach to exploration costs, which is the method used by most international oil and gas companies.

Under this approach, exploration spending is written off in the same period as it is incurred unless an exploration well is successful. In that case, the exploration costs can be written off against income generated over the life of a project.

"The adoption of this accounting approach will result in a total one-off reduction in Woodside's accumulated exploration and evaluation costs of between $700 million and $800 million after tax, reducing the company's reported net profit for 2002 by that amount," Woodside said.

Analysts believe the decision by Woodside reflects two phenomena, namely, Woodside's determination to be compared more favourably by its international peers as well the improving hit rate for oil drilling due to advances in exploration technology.

With the hit rate from greenfield drilling raising dramatically, companies are now spending less on drilling and more on preliminary work such as seismic acquisition and interpretation.

"Woodside's current exploration budget has been lifted from $200 million to $250 million, which means about $200 million a year will be written off," said commentator, Trevor Skyes.

"In the past write-offs have varied widely, but over the past three years have averaged about $70 million, which means the net increase in write-offs in future will be about $130 million a year and will be far more predictable.

"However, by dumping its historic capitalised exploration, Woodside will lower amortisation charges."

Despite proffering the advantages of the new accounting method, Woodside's shares fell 50c or 4% to $11.92 as investors took flight in a generally weaker market.