The change in guard comes at a tricky time for Australia's top independent gas producer.
Woodside is preparing to make a final investment decision on its prized Scarborough gas project, while it also tackles the challenges of a long-term transition towards cleaner energy.
"It'll be a challenging role going ahead, as it has been for Peter over the best part of the last 10 years," Woodside Chairman Richard Goyder told Reuters.
Coleman, who took the helm at Woodside in May 2011 and saw the company through two oil price crashes, said it is the right time for a leadership change, although he said it was "frustrating" he would not be able to see Scarborough through to development.
"You know it's a fabulous project and it's going to be one that transforms Woodside," Coleman told Reuters.
Woodside is looking to develop the Scarborough gas field off the coast of Western Australia, aiming for its first shipment of liquefied natural gas (LNG) in 2026. It is looking to sell down some assets to avoid having to sell new shares to help fund the $11 bln gas project.
A new boss might want to change plans for Scarborough and send the gas into the North West Shelf LNG plant rather than into an expansion of Woodside's Pluto LNG plant, analysts said.
The board would look at internal and external candidates, Goyder said, but he declined to comment on potential candidates.
Credit Suisse said in a research note Santos CEO Kevin Gallagher was a potential choice given his "popularity with equity investors and familiarity with Woodside's business." He previously ran Woodside's North West Shelf LNG asset.
Another potential external candidate could be former head of Shell Australia Zoe Yujnovich, the bank said, adding that the lead internal candidate would be Meg O'Neill, Woodside's head of development and marketing.
(Reporting by Sonali Paul; Additional reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Chris Reese, Kim Coghill and Ana Nicolaci da Costa)
By Sonali Paul