Stock of the Day – Woodside Petroleum (WPL)
 
Note - Covered on 28/05/2014 under the Kalkine Daily Section available in special reports.

Woodside reported marginally higher first quarter 2014 revenue of USD 1.7 billion up 1.5% sequentially an upside surprise. The rise came courtesy of strong LNG prices despite steady sales volume of 23 million barrels of oil equivalent and a slightly weaker crude price of USD 107.87 per barrel. LNG price achievement for NWS/JV was marginally better than anticipated USD 13 per million British thermal units (/mmBtu), steady on the December quarter.


Areas of activity in Australia (Source - Company Reports)

But the Pluto LNG price of USD 10.65/mmBtu was once again well ahead of expectations, reflective of 28% of sales at a new higher price following a review. Pluto customers had been given a sweetened start up price that is unwinding faster than anticipated. Woodside’s 90% equity Pluto LNG start up volumes are 50% greater than its 16.7% equity NWS/JV volumes.


North West Shelf (Source - Company Reports)

Woodside is a high quality Australian oil and gas name with a leading growth profile. Appeal remains low cost production, tenement prospectivity and first mover advantage in LNG infrastructure which can drive superior production and earnings growth and excess returns on invested capital. Returns on invested capital should exceed mid double digits by decade’s end as full leverage on existing infrastructure is realized by capital efficient expansions. 


WPL's 10 year performance against ASX All Ordinaries (Source - Company Reports)

To us the decision to walk from leviathan is a demonstration of Woodside’s commitment to value creation, its clear the value Woodside initially ascribed to Leviathan has been eroded via the higher entry cost, tax changes and a preference for regional gas markets versus LNG exports. Looking forward Woodside says it will target new investments in the $1-5bn range and has preference for early stage investments. We gave a buy on the stock on 04/02/2014 at 37.55. We are putting a hold recommendation on the stock at the current price.