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Stock Of The Day - Wodside Petroleum  (HOLD)

The global price of crude Oil is in declining trend. The unfavorable global environment is impacting almost all Oil and Gas companies. In this environment, WPL is able to manage 38% growth in net profit, the operating cash flow also grew by 44 % along with higher dividends per share.  Over the next two financial years, the management of WPL is forecasting to grow its bottom line at an annualized rate of 18.9%. This is a very impressive growth rate and shows that the company should still be considered a strong growth play. WPL purchased Apache’s stakes in the Wheatstone LNG project (soon to start producing), the Balnaves oil project (currently producing) and a 50% stake in a Canadian LNG project (still in planning) at US$2.75 billion. The purchase is great value for money which has been possible due the plummeting oil price. Woodside Petroleum Ltd along with Britain's BG Group will invest up to $1.08 billion to explore for oil and gas in four blocks off the coast of Myanmar's western Rakhine state. This will give Woodside to explore one of the largest Oil and Gas reserve and will increase its existing pile of reserves.


Unit Production Cost (Source - Company Reports)

Given our belief that oil prices will increase from current levels, near-term declines in output will be short lived and are likely to quickly reverse. As such, the dynamic of U.S. tight oil being able to meet a large portion of incremental global supply needs is far from over. The implication is that the highest points on the global cost curve have been crowded out and additional projects from these areas won't be needed until next decade. Of course, U.S. tight oil alone can't meet future supply needs over the next several years, so the marginal barrel will necessarily be produced from a higher-cost resource, which we believe will be higher-quality deep-water projects


Financial Performance (Source - Company Reports)

Woodside is unique among Australian energy companies in that it has successfully managed the development of LNG projects for more than 20 years--unparalleled domestic experience at a complicated and expensive task. Adding to Woodside's competitive advantages are the long-term 20-year off-take agreements with the who's who of Asia's blue chip energy utilities, such as Tokyo Electric, Kansai Electric, Chubu Electric and Osaka Gas. These help ensure sufficient project financing during development and should bring stability to Woodside's cash flows once projects are complete.
 

Reserves + Sales Revenue (Source - Company Reports)

The larger portion of revenue of Woodside is attributed to the sales of natural gas and share is growing year on year. The company has a large reserve of natural gas that will help itself sustaining future production. Woodside enters a low oil price environment in a strong financial position, underpinned by record production of 95.1 MMboe. The company has maintained a 80% dividend payout ratio, and the balance sheet is well positioned to support the future growth.


Comparative Performance  (Source - Company Reports)

Woodside is well-suited to the development challenge. With extensive experience, it remains a stand-out energy investment at the right price. Gas is the fastest growing primary energy market behind coal and the seaborne traded LNG portion of that gas market grows faster still. China is building several import terminals so demand is likely to pick up, helping move LNG pricing towards oil parity on an energy-equivalent basis.


WPL Daily Chart (Source - Thomson Reuters)

Woodside Petroleum has reported a 20 per cent drop in its first quarter revenue for 2015, down to $A1.4 billion from 1.76 billion in the previous quarter. Production volumes were also down, 6.8 per cent lower than the company’s 2014 fourth quarter figures at 21.8 MMboe, due to lower LNG volumes at Pluto and lower oil volumes, both associated with cyclone activities in Western Australia. Woodside Petroleum has restarted its massive Pluto liquefied natural gas (LNG) plant after a drifting oil rig came within five hundred meters of critical gas lines. The restart of operation in Pluto base will help Woodside to achieve its 2015 production target range of 84 million to 91 million barrels of oil.
 
Woodside has been focusing in increasing operating efficiency and reducing the production cost of operation. This effort is clearly visible as in 2014 where WPL is able to reduce the per-unit production cost of both oil and gas. To increase the efficiency in operation and make organization more lean, Woodside Petroleum has shed 300 roles in 2014. This will bring more efficiency in operation hence easing pressure on its bottom line.

WPL has signed a MOU with Adani Enterprise for supplying LNG to India, one of the fastest growing market in LNG space. India has imported about 15 million tons LNG in 2015 and is forecasted to reach more than 35 million tons a year in 2025. This is a huge opportunity for WPL to establish its leadership in global market.  With a strong balance sheet, strategic initiatives, investment for organic expansion, higher dividend payout and focus on expanding its presence in emerging markets like China and India will give a boost to WPL and increase its future potential. Woodside is a beneficiary of continued global economic growth and increased demand for energy. Gas in particular has been the fastest growing primary energy segment globally behind coal. The traded gas segment is faster growing still and Woodside is favourably located on Asia's doorstep. We put a hold recommendation at the current price of $35.42.