Company Profile - Incorporated in 1954 and named after the small Victorian town of Woodside, Woodside’s early exploration focus move d from Victoria’s Gippsland basin to Western Australia’s Carnarvon basin. First LNG production from the North West Shelf came in 1984. BHP Billiton and Shell each had 40% shareholdings before BHP sold out in 1994 and Shell sold down to 34%. In 2010 shell further reduced to 24% and effectively raised the for sale sign. Woodside has the potential to become the most LNG leveraged company globally if development projects progress. As of December 31, 2011, the Company produced around 700,000 barrels of oil equivalent each day from a portfolio of facilities, which it operates on behalf of some of the major oil and gas companies. It operating facilities include six liquefied natural gas (LNG) trains, five offshore platforms and four oil floating production storage and offloading (FPSO) vessels.
 
Analysis - Woodside reported ,marginally lower than expected December quarter production of 23.2 Million barrels of oil equivalent or mboe due to Vincent’s floating production storage  and offloading or FPSO, vessel restarting operations a bit later than anticipated following  nearly a year of shipyard maintenance. Vincent is now producing at nearly 30,000 barrels of oil per day with Woodside’s 60% equity share set to deliver about 6.5 Million barrels annually.
 
Pluto operated at 4.8 MTPA in the quarter compared to the average annual expectation of 4.3 MTPA, there we 18 shipments compared to 12 in quarter 3. Revenue for the quarter was higher at US$1648 Million compared to US$1338 due to higher volumes and a once off adjustment for Pluto volumes already delivered. The North West Shelf (NWS) LNG price averaged US$687/t and Pluto US$589/t.
 
Woodside has got some great growth projects which include Leviathan which is currently pending resolution of Israel government’s tax policy expected in the second half of the year. Browse FLNG, The basis of design continues with the objective of entering FEED in second half of 2014. Vincent oil field restarted with current production around 30Kbopd. Acreage has been awarded to Woodside in Ireland and NZ, divestment of non-core US acreage continues. Capex remains minimal for Woodside in the absence of new projects with US$201 Million spent in the quarter on exploration and NWS developments. Total capex in 2013 was US$900 Million the lowest since 2004.
 
Production of 23.2 mboe takes the full year total to 87.0 mboe with increases in Q4 from the Vincent re-start at the end of November 2013, offset by normal decline from other fields. Pluto had a strong quarter. The plant operated at a rate of 4.8 MTPA, compared with the average annual expectation of 4.3 MTPA, there were 18 deliveries versus 12 in Quarter 3 2013. WPL’s revenue rose strongly to US$1.648 Billion versus US$1,338 Million in Quarter 3. Realised oil prices were US$109/bbl, and condensate US$108/bbl. NWS LNG prices were US$687/t and Pluto US$589/t. CAPEX continues to decline, improving WPL’s free cash flow generation. CAPEX in the quarter totalled US$201Million.
 
There are plenty of challenges to the legality of the Israeli government’s natural gas exports. Woodside say a decision with respect to its Leviathan farm in offer is delayed to first half of 2014. We think Woodside is best suited to get value from its western Australian backyard and in particular Pluto where leverage afforded by existing infrastructure footprint should be exploited at a far greater urgency. BHP and RIO have demonstrated the advantage of focusing on tried and trusted Pilbara Iron Ore, impressively reducing expansion capital intensity. We see a strong analogy at Pluto and Carnarvon Basin if exploration is given a chance. We think FLNG offers the best flexibility and value at this point in the CAPEX cost cycle. Front End Engineering and Design from (FEED) Mid 2014 and Final Investment Decision (FID) mid 2015. After the Israeli Supreme Court decision on 20 October, the Leviathan Joint Venture needs to reach a consensus over a development concept. This and the fiscal regime will affect the economics, and whether WPL becomes involved.


Source – Thomson Reuters

Price		Price % Change
Close:	37.38 (30-Jan-2014)	3M:	(3.71%)
52 Wk. High:	39.53 (07-Nov-2013)	6M:	(0.56%)
52 Wk. Low:	33.29 (18-Apr-2013)	1Y:	7.09%

Dividend
Yield	3.751643	FY
	3.068828	5yr Av
Payout Ratio	35.93698	FY
	46.51172	5yr Av

Woodside Petroleum is in a consolidation phase following heavy expenditure in the lead up to Pluto LNG’s commissioning in 2012. However there is nothing like dividends to focus the attention on genuine underlying cash generation ability. Woodside is committed to paying out 80% of underlying earnings while cash flow is not requires for expansionary capital expenditure. We believe that woodside offers liquidity, leverage and strong cash flows with little CAPEX risk, supported by yield. Operationally Woodside has turned the corner with the world class Pluto utilisation outcomes. The 4Q2013 data indicationg production above the nameplate capacity. We believe in the absence of CAPEX commitments the strong payout target of 80% could be maintained for a number of years. However commitment decision for both Browse and Leviathan could see the dividend opportunity evaporate for 2015.
 
Exploration and Appraisal Activities (New Zealand & Ireland):-
 
During the quarter Woodside was awarded permit  55793 in the Tarnaki Basin and permit 55794 in the great south basin. These permits come into effect on 1^st April 2014. Woodside hs 70% equity and is operator while NZ Oil and Gas holds the remaining 30 % Equity.


Source – Company Reports

Ireland
During the quarter Woodside increased its interest in the Porcupine basin in Ireland by acquiring a 60% interest and operatorship in licensing option 11/10 from Two seas Oil & Gas Ltd. This acquisition complements Woodside’s existing interests in Licensing options 11/4 and 11/6 and Frontier Exploration License 5/13. Woodside is currently in the process of finalising more licenses in respect of the remaining licenses with Ireland’s Petroleum Affairs Division.



Source – Company Reports

	Industry Median	2012	2011	2010	2009	2008
Profitability
Gross Margin	43.3%	58.8%	65.5%	60.2%	57.5%	67.1%
EBITDA Margin	35.5%	70.8%	64.4%	69.6%	72.2%	75.5%
Operating Margin	26.4%	57.6%	45.5%	54.2%	65.7%	54.7%
DuPont/Earning Power
Pre-tax ROA	5                   5.8%	15.2%	10.1%	12.0%	15.9%	28.7%
Pre-tax ROE	14.1%	26.3%	18.4%	22.8%	33.2%	59.4%
Liquidity
Quick Ratio	1.25	1.29	0.34	0.79	1.46	0.31
Current Ratio	1.47	1.39	0.42	0.86	1.53	0.36
Leverage
Assets/Equity	2.18	1.64	1.84	1.82	2.01	2.23
Debt/Equity	0.36	0.29	0.40	0.44	0.56	0.44

With the return of Vincent and the Pluto repricing, we see WPL offering volume growth and earnings growth into 2014. Combined the improving financial metrics support a fully franked dividend yield both of which are well suited to the current market mood. We will be putting a BUY on WPL at the current price $37.55.
 

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