Company Overview: Woodside Petroleum Ltd (Woodside) is an oil and gas company. The Company is engaged in hydrocarbon exploration, evaluation, development, production and marketing. It operates in three segments: Producing comprising North West Shelf (NWS) Project, Pluto Liquefied Natural Gas (LNG) and Australia Oil; Development comprising Browse floating liquefied natural gas (FLNG) and Wheatstone LNG, and Other. Its Other segment comprises trading and shipping activities and activities undertaken in the United States, Canada, Senegal, Myanmar and other international locations. Its North West Shelf Project is engaged in the exploration, evaluation, development, production and sale of liquefied natural gas, pipeline natural gas, condensate, liquefied petroleum gas and crude oil from the North West Shelf ventures. Its Pluto LNG project is engaged in exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas.


WPL Details

Signed a significant 20-year gas supply agreement with Perdaman Chemicals and Fertilisers Pty Ltd.: Woodside Petroleum Limited (ASX: WPL), Australia's largest independent oil and gas company with a global portfolio and known for the world-class capabilities, is engaged in the exploration, evaluation, development, production, marketing, and sale of hydrocarbons. The company’s portfolio comprises of liquefied natural gas, pipeline natural gas, condensate, liquefied petroleum gas, and crude oil. WPL has inked a gas sale and purchase agreement (GSPA) with Perdaman Chemicals & Fertilisers Pty. Ltd., which is a subsidiary of Perdaman Group, and is in petrochemical space. The agreement is a long-term one that has been signed for the supply of gas for 20 years and comes with an option to extend the supply of gas for a further 5 years. Under the agreement about 125 T/J (tera joules) of gas per day can be supplied and used in Perdaman’s proposed urea plant. This plant has been scheduled for a built-up on the Burrup Peninsula, near Karratha in the Pilbara region of Western Australia. The gas will be supplied from WPL’s Western Australian portfolio, and particularly, from WPL’s proposed development of the Scarborough gas field; while North West Shelf and Pluto facilities on the Burrup will process the gas. As the agreement is subject to several conditions, the supply is anticipated to start sometime between 2023 and 2025 with the urea plant and Scarborough field being brought on stream; and the execution of the agreement follows a memorandum of understanding signed in April 2018. Meanwhile, Perdaman will be building the 2 million tonne per year urea plant to meet demand in the Asia-Pacific region and the plant will remain for 3 years in the construction phase. As of now, many factors will drive the success of the deal and include change in gas prices, Perdaman’s ability to build the plant and get financial support while WPL’s Scarborough and Browse offshore gas resources will still hold value for the stock.


WPL’s Financial Performance (Source: Company Reports and Thomson Reuters)

Near term Projects of the company are on schedule: For Wheatstone LNG Project, the company had carried out the planned shutdown in August to clean & replace strainers in LNG Train 2. The plan was then safely restarted on 29 August 2018. At the end of the September 2018 (third) quarter, the construction of the domestic gas plant was more than 98% complete and the commercial production readiness is expected in the first quarter of 2019. Further, WPL that operates North West Shelf (NWS) Project, has announced about gas production that commenced from Greater Western Flank Phase 2 (GWF-2) Project off the north-west coast of Australia. The project has delivered $630 million below the expected cost of approximately $2.0 billion (100% basis,) and is six months ahead of schedule. GWF-2 that represents the next phase in gas supply to the NWS Goodwyn A platform, is expected to extend the life of the Karratha Gas Plant and contribute to Woodside to achieve the targeted production of 100 MMboe in 2020. The capabilities shown on the GWF-2 Project will be carried forward to accelerate the next phase of growth that includes the proposed developments of the Scarborough and Browse offshore gas resources. The Scarborough and Browse projects are part of the company’s vision for the Burrup Hub, which is expected to unlock the future value of the Karratha Gas Plant and Pluto LNG. Moreover, Greater Enfield Project is on budget and at the end of the September quarter, it was 72% complete. The company has continued with the offshore drilling as per the plan and the company has completed the five development wells in the Laverda field. WPL continues with the subsea infrastructure installation and had installed subsea flowlines in the third quarter 2018. The Ngujima-Yin FPSO commenced dry dock activities for the marine scope of work.


Business Roadmap (Source: Company Reports)

North West Shelf Joint Venture signed non-binding preliminary agreements to process third party gas: The North West Shelf Joint Venture has recently signed non-binding preliminary agreements with the Browse Joint Venture and Chevron, which is the leaseholder of the Clio-Acme fields, for the processing of their respective offshore gas resources through the North West Shelf (NWS) facilities on Western Australia’s Burrup Peninsula. WPL, the operator of North West Shelf Project, Browse Joint Venture and Pluto LNG, has signed the preliminary agreements in November 2018. The signatories will now continue negotiations to reach binding, fully termed agreements. The preliminary agreements were a key step towards the realisation of the Burrup Hub concept, that will extend the operating life of the NWS Project’s Karratha Gas Plant for decades beyond 2025. The Browse Joint Venture is expected to anchor tenant supporting that transition and this preliminary agreement has enabled the participants to progress towards an earlier final investment decision to develop the gas resource, targeted for 2020. As per the plan, Gas from Clio-Acme will be brought to the Burrup Hub through the Woodside-operated Pluto offshore infrastructure and then transported through the proposed Pluto-NWS Interconnector pipeline to be processed at the Karratha Gas Plant.

Cooperation Agreement Signed with ENN Group: Woodside has signed a Cooperation Agreement with ENN Group Co Ltd (ENN Group). As per the agreement both the companies will work together to explore a broad range of potential business opportunities. Both of them are now planning to jointly explore the opportunities for cooperation in LNG marketing, trading and shipping and other potential areas for cooperation that include oil and gas exploration and production, liquefaction and regasification projects, and power generation. Meanwhile, ENN Group has recently commissioned the first phase of the Zhoushan LNG import terminal and is focusing to grow its market share in China’s gas distribution and retailing sector, as well as internationally.

Strong Third Quarter 2018 Performance: During the third quarter of 2018, the production at Wheatstone LNG had continued ahead of plan, supported by a 13.8% rise in output compared with the corresponding quarter in 2017.Sales revenue had increased 25.4% during the quarter over the same period to $1,157 million driven by higher prices, although sales volumes were subdued slightly by the timing of Woodside equity sales. The company had delivered the production of 23.1 MMboe for the September 2018 quarter. The company was selected as the preferred execution contractor for the proposed expansion of the Pluto LNG facility during the third 2018 quarter. Work will now include refining the concept and costs for Pluto Train 2, in preparation for the entry into front-end engineering and design, which is targeted for the first quarter of 2019. Moreover, in September, the Browse Joint Venture had confirmed the Browse to North West Shelf development concept.


Production summary for the third quarter 2018 (Source: Company Reports)

The company has now been awarded Contracts for the concept definition engineering design of the FPSO facilities and for the pipeline survey. Execution of preliminary tolling agreements between the North West Shelf Project participants and both the Browse Joint Venture and the Clio-Acme titleholders are expected shortly. Further, WPL has signed three binding domestic gas sales and purchase agreements for 80 petajoules over ten years during the September 2018 quarter. The company during the quarter has also delivered the 5,000th North West Shelf Project LNG cargo and has achieved 99% reliability at the Nganhurra FPSO (Enfield oil). Additionally, WPL in Senegal is on schedule to submit the SNE Field Development and Exploitation Plan and expects to assume operatorship of the development in the fourth quarter. In addition, during the September 2018 quarter, WPL submitted the Evaluation Report to the Government of Senegal for SNE Field Development-Phase 1. The company during the quarter had encountered a significant gas column in the Shwe Yee Htun-2 appraisal well offshore Myanmar.


Investment Scenario (Source: Company Reports)

Stock Recommendation: Meanwhile, WPL stock has fallen 13.50% in three months as on November 27, 2018 after the crude price plunged sharply even though the company posted a positive quarterly update. The global oil prices reached their lowest point in more than a year on the back of concerns about global economic growth and a surge in supply. However, there is an expectation that the upcoming December meeting by the Organization of the Petroleum Exporting Countries could stabilize oil prices. The company’s stock is trading at A$31.54 and has an immediate support at $29.2 and resistance at $36.75 level. The Greater Western Flank Phase 2 (GWF-2) Project off the north-west coast of Australia has commenced gas production very recently. WPL has also signed a significant 20-year gas supply agreement with Perdaman Chemicals and Fertilisers Pty Ltd. The group has been able to reduce debt levels relative to cash (25% rise in net cash as at 1H 18 with 20% rise in total distributions). The growth driven outlook is now expected to boost intrinsic value in the long run, post the latest price dip that was witnessed in view of volatile oil price scenario. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 31.54, as we see potential from many developments and supply agreements paving the path for future and supporting the stock price.
 

WPL Daily Chart (Source: Thomson Reuters)

 
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