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

Boosting capital position via funds raising: Woodside Petroleum Limited (ASX: WPL) is raising over A$2.5 billion through an Entitlement Offer to fund their acquisition of up to an additional 50% interest in the Scarborough gas field and for general corporate purposes. This includes the funding support for the Scarborough and SNE-Phase 1 developments and to progress development of Browse to targeted FID. However, the Scarborough acquisition is subject to pre-emption and other customary approvals. Moreover, these projects are a continuation of the company’s previously announced strategy of unlocking the Burrup Hub and developing oil in West Africa. The acquisition of the additional interest in Scarborough would offer a greater alignment, control and certainty over a low-cost, high value opportunity ahead of a global LNG supply gap. Additionally, as per the Entitlement Offer, the shareholders would be entitled to acquire one new WPL share (New Share) for every 9 shares held on the Record Date, at a price of A$27.00 per New Share (Offer Price). The Offer Price was a 10.3% discount to the dividend adjusted theoretical ex-entitlement price of A$30.11 based on the closing price of Woodside shares on the ASX on 13^th February 2018. WPL has raised gross proceeds of over A$1.57 billion at A$27.00 per new share and got a positive support from the current institutional shareholders, with over 90% of eligible institutional shareholders being elected to take up their entitlements. Further, under the Retail Entitlement Offer, the eligible retail shareholders would be able to subscribe for 1 new share for every 9 WPL shares, at the same price as the Institutional Entitlement Offer (A$27.00) to raise over A$0.96 billion.

Fourth Quarter of 2017 Performance: WPL in the fourth quarter of 2017, has posted higher quarter-on-quarter sales revenue of $939 million on the back of stronger realized prices and production of 21.9 MMboe. The company has delivered a record fourth-quarter Pluto LNG production, started Wheatstone LNG production and has achieved 100% reliability at Pluto LNG and Okha FPSO. Moreover, WPL believed the stronger oil prices to flow through to higher realized LNG prices in the first quarter of 2018.

Solid bottom line performance: WPL has reported an 18% growth in the net profit after tax to $1,024 million year-on-year in FY 17, driven by higher prices for the products and sustained low production costs. At the same time, WPL was also maintaining the outstanding safety performance wherein the company’s three FPSO facilities had achieved a record average reliability of 95%. In FY 17, the production was 84.4 MMboe and sales revenue was $3.62 billion. Further, in FY 17, WPL maintained low unit production cost of $5.2/boe, which had increased average realized price to $44/boe, delivering a net cash from operating activities of $2,400 million and generated free cash flow of $832 million while investing in growth. The competitive cost of debt has been 3.7% in FY 17. In FY 17, there was lower depreciation due to positive reserves movements and lower production and higher tax expense due to higher taxable income, one-off prior period adjustments and FX movements. Meanwhile, WPL has declared a final dividend of US 49 cents per share (cps), leading the full-year dividend to US 98 cps. Additionally, in FY 17, WPL has started Wheatstone LNG production and delivered first LNG cargo. The company has achieved a concept select for SNE Development–Phase 1, offshore Senegal, increasing the Pluto LNG plant capacity which led to a record daily, weekly and monthly production rates and delivered the $1 billion Persephone project 30% under budget and six months ahead of schedule. Further, WPL has executed a long-term LNG supply agreement with Pertamina and executed portfolio LNG sales for up to 2 mt (equivalent to 28 cargoes) over the period 2017 to 2020. The company has concluded feasibility studies on Pluto LNG expansion, which has broadened the options for capacity enhancement and approved the development of an LNG truck-loading facility at Pluto LNG. Moreover, WPL in FY 17 has issued an $800 million, 10.5-year bond with a coupon of 3.7% p.a. The company has progressed commercial discussions and joint technical feasibility studies for processing Browse resources through NWS infrastructure. In addition, subsequent to the FY 17, the company has announced the agreement to acquire ExxonMobil’s interest in WA-1-R containing the Scarborough gas field. Upon completion of the transaction, WPL would have a 75% interest in WA-1-R and a 50% interest in WA-61-R, WA-62-R and WA-63-R. The completion of the acquisition is targeted to complete by end Q1 2018.
 

FY17 performance (Source: Company reports)
 
Improving market drivers: The Oil prices have stabilized from the second half of 2017, while there have been signs that a global LNG supply gap is looming in the early 2020s amid robust demand from Asian markets. The group sees that rising global demand for LNG would need more investment in new supply and have spent the last three years rebuilding and diversifying their portfolio. They have been taking steps to improve their interest in the world-class Scarborough resource to offer a greater certainty, alignment and control, and preparing their finances to support the next stage of growth. The group forecasts a major potential in 2018 and sees commissioning of Wheatstone to be a key development. The Browse and NWS Joint Ventures have also made good headway in discussions on the tariff structure for bringing Browse gas through the Karratha Gas Plant. WPL forecasts these negotiations in 2018 to Browse being final investment decision-ready in 2021.
 

Development Plan Capacity (Source: Company Reports)
 
2018 Production Guidance: For 2018, WPL expects a major rise in annual LNG production with a higher Wheatstone contribution in 2018 and projects the cash flow neutral at $35 a barrel. WPL’s production guidance for 2018 is in the range of 85 – 90 MMboe. Wheatstone LNG spend has significantly reduced after the start-up of Train 1, however Greater Enfield spend rose as subsea installation and drilling activities started. Further, The Ngujima-Yin FPSO (Vincent oil) would leave station from May 2018 for modifications ahead of the projected Greater Enfield production from mid-2019. Meanwhile, the overall 2018 investment expenditure, including the acquisition of ExxonMobil’s interest in the Scarborough gas field, is forecasted to be in the range of $2,000 million to $2,050 million. Greater Enfield investment will increase as subsea installation and drilling activities commence. The group forecasts the impact on NPAT of a $1 movement in the Brent oil price is $26 million while the forecasted impact of a $0.01 movement in the AUD/USD exchange rate on NPAT is $5 million. The company is targeting approximately 100 MMboe annual production in 2020.
 

2018 Production Guidance (Source: Company Reports)
 
Stock performance: For 2018, the group is drilling the Ferrand exploration well in Australia to target key prospects, close to the current Woodside discoveries. They would be drilling three exploration wells in Myanmar to inform development planning and two exploration wells in Gabon (Ivela-1 and Boudji-1) plus wells in Morocco (Rabat Deep) and Peru (Boca Satipo East). Meanwhile, the shares of WPL have fallen over 11.1% in the last four weeks as on February 20, 2018 partly impacted by commodity prices and volatile equity market. But this correction has placed the stock at a better position in terms of investment opportunity. Moreover, despite the short-term challenges, WPL pipeline seems toe resilient amidst the commodity fluctuations. We give a “Buy” recommendation on the stock at the current price $29.42
 

WPL Daily Chart (Source: Thomson Reuters)

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