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 the activities undertaken by trading and shipping, the United States, Exploration, International, Canada and Sunrise Business Units. 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
Strong operational excellence in 2016: Woodside Petroleum Limited (ASX: WPL) has reported an annual production of 94.9 million barrels of oil equivalent (MMboe), which is 3% higher than 2015 and the second highest ever. The company has delivered record annual LNG production of 63.7 MMboe, due to the world-class LNG reliability of 98.7%. Moreover, WPL has executed major North West Shelf (NWS) Project planned onshore and offshore turnaround ahead of schedule and on budget. The turnaround has increased plant capacity to 16.9 Mtpa, which follows the increase from 16.3 Mtpa to 16.7 Mtpa made during 2015. The company has a continued focus on health, safety and environment performance, with ongoing improvement in total recordable injury rate and a 33% reduction in flaring intensity.
 
Focus on production costs in 2016 boosted cash flow: WPL has increased the full-year reported NPAT to $868 million and has reduced unit production costs to $5.0/boe, 28% lower than 2015. This decline was mainly on the back of 40% decline in Pluto unit production costs driven by better volumes and the 2015 turnaround. But, the group’s oil unit production costs enhanced by 8%, on the back of NWS oil facility turnaround. Despite this, WPL’s portfolio gross margins increased to 45%, which is 16% higher than 2015. Moreover, WPL has delivered strong cash flow from operations of $2,587 million and has generated positive free cash flow of $114 million, whilst completing two significant acquisitions. WPL has increased both operating cash flow and free cash flow (after deducting investment expenditure) even though the realized prices were down almost 20 percent on the previous year. The company has declared a final dividend of US 49 cps, bringing the full-year dividend to US 83 cps. 

Cash Flow (Source: Company Reports)
 
Decrease in breakeven cash cost: The group maintained their cash margins at over 80% even though the oil prices were volatile. In fact, WPL was able to achieve a break-even cash cost of sales decrease of 23% during the year 2016 given their focus on the production costs. The group also guided that for this year, a $1 movement in the Brent oil price would hurt NPAT by $27 million, while a US$0.01 decrease in the AUD/USD exchange rate would drive the NPAT by $5 million. Additionally, WPL has maintained the gearing within the target range at 24 percent. Meanwhile, the group’s 2016 capital expenditure was US$1.4 billion, which is more than US$250 million lower than previous guidance.
 
Managing risk and volatility: Woodside Petroleum is expecting 88% of the 2017 LNG production to be sold under mid-term or long-term oil-linked contracts. The company has finished the majority of NWS price reviews and has achieved pricing at traditional levels. WPL has signed a heads of agreement for the long-term supply of LNG to Pertamina and has executed arrangements allowing WPL to equity lift its share of uncommitted NWS and Pluto LNG and domestic gas volumes. Moreover, WPL has expanded the LNG shipping fleet with two additional vessels to offer additional capacity and flexibility to manage a diversifying and growing customer base. The company has maintained gearing well within the target range of 10% to 30%, whilst completing two significant acquisitions. Additionally, WPL has got over $1.4 billion of debt funding from diversified sources including the US 144A market, the Medium Term Notes program and a syndicated bank facility, by increasing the liquidity to $2.7 billion. The company has maintained a competitive portfolio cost of debt of around 3.2% with an average term to maturity of approximately 4.6 years, with negligible debt facilities maturing before 2018. In addition, WPL has maintained the investment grade credit ratings of Baa1 and BBB+, which were reaffirmed by Moody’s and Standard & Poor’s, respectively, in H1 2016.
 
Strong LNG production in the fourth quarter 2016: Woodside Petroleum has reported a record LNG production in the fourth quarter 2016, which grew 3% as compared to Q4 2015. The production in Q4 is lower than Q3 2016 due to the higher ambient temperatures impacting LNG capacity and execution of the planned turnaround at Vincent (oil). WPL has record annual LNG production of 63.7 MMboe, which is more than 9% higher than the previous record set in 2014. The reliability has exceeded 99% for the second consecutive quarter at Karratha Gas Plant, Pluto LNG and offshore gas facilities. The sales revenue grew on previous quarter due to the strengthening of oil price.
 
Enhanced resource position: In2016, WPL enhanced their Proved plus Probable (2P) Developed reserves by 38.5 MMboe. This increase was mainly contributed from the volume growth of the start-up of the Pluto PLA05 sidetrack well and the completion of the Tidepole development campaign. Moreover, final investment decision on the Greater Enfield Project matured 41.1 MMboe of Best Estimate (2C) contingent resources into Proved plus Probable (2P) Developed and Undeveloped reserves. The group discovered 82 MMboe of Best Estimate (2C) contingent resources in Myanmar via the Shwe Yee Htun and Thalin exploration wells. Woodside’s acquisition contributed 612 MMboe of Best Estimate (2C) contingent resources in Senegal and the Scarborough area.
 
Management changes: WPL has an ongoing program of succession planning and renewal, and a number of changes have taken place over the last one year. Three new directors joined the board of the company with Ann Pickard joining the Board in February 2016, Ian Macfarlane joining the company in November 2016 and Larry Archibald joining the company in February 2017. Moreover, Richard Goyder, AO would join WPL as an independent, non-executive director and Chairman-elect in August 2017. Michael Chaney, AO will step down as the Chairman at the close of next year’s Annual General Meeting in April 2018 and will be replaced by Richard. 

Production Growth (Source: Company Reports)
 
Outlook for 2017: Woodside Petroleum is predicting the production from 2017 to 2020 to grow by about 15% via current operations and sanctioned projects. The first LNG from Wheatstone Train 1 is expected to start in mid-2017, with Train 2 first LNG expected to start six to eight months later. Wheatstone LNG is expected to offer more than 13 MMboe of annual production once it becomes fully operational. Moreover, WPL has approved the Greater Enfield Project’s development of oil reserves (2P) of 41 MMbbl Woodside share (69 MMbbl, 100%) as a tie-back to the Ngujima-Yin FPSO and is targeting the first oil in mid-2019. The group has also finished low cost acquisitions in Senegal and of Scarborough area assets. The company has announced for two discoveries offshore Myanmar containing 2.4 Tcf of recoverable gas (2C, 100%). The drilling of two appraisal wells in Senegal in 2017 would offer a greater understanding of reservoir connectivity and of the likely development concept. Woodside Petroleum will be drilling at least two appraisal and two exploration wells in Myanmar in 2017, which has a potential for up to three additional exploration wells. This drilling program would assist in further defining the appropriate avenues for commercialization. Additionally, WPL is evaluating a further capacity enhancement and mid-scale or large-scale expansion of Pluto LNG, as well as preparing to facilitate use of LNG as a transport fuel.
 

Drilling Activities (Source: Company Reports)
 
Stock Performance: Woodside Petroleum stock rose over 9.2% in the last six months (as of March 07, 2017) and the group offers a decent dividend yield. Going forward, Woodside will focus on approvals for the drilling of high-impact wells in 2017 and 2018. With drivers including potential Pluto expansion, progress at Wheatsone and Greater Enfield, progress at Senegal and Myanmar, and a positive outlook, the group seems to be well-placed to add value in the long-term. We give a “Buy” recommendation on the stock at the current price of – $ 31.23  
 
 
WPL Daily Chart (Source: Thomson Reuters)

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