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

Output from Wheatstone pumped up LNG production in first quarter of the year: Woodside Petroleum Limited (ASX: WPL) has released an encouraging quarterly report, which highlighted that revenue has climbed up 18% quarter-on-quarter to $1,169 million while quarter-on-quarter production has been 22.2 MMboe. Steady production from Wheatstone Train 1, demonstrated production rates above nameplate capacity. The group is nearing completion of Wheatstone Train 2 with first LNG expected in Q2 2018. With this, Wheatstone will contribute more than 13 MMboe of annual production. Further, LNG sales and purchase agreements have been executed for up to 12 cargoes which will be delivered in the period 2020–2022. The group has also appointed Meg O’Neill who will succeed Mike Utsler as Chief Operations Officer in May 2018.
 

Production Trend (Source: Company Reports)
 
Acquired ExxonMobil’s interest in the Scarborough gas field: The group finished the acquisition of ExxonMobil’s interest in the Scarborough gas field. The effective date of the transaction was 1st January 2018. WPL has acquired an additional 50% interest in WA-1-R (which contains the majority of the Scarborough gas field), and now holds a 75% interest in WA-1-R and a 50% interest in WA-61-R, WA-62-R and WA-63-R. These retention leases cover the Scarborough, Thebe and Jupiter gas fields, which are estimated to contain gross (100%) contingent resources (2C) of 9.2 Tcf of dry gas. WPL will operate all of these retention leases. As a result, WPL’s Best Estimate Contingent Resources (2C) have increased by 640 MMboe to 5,652 MMboe. Additionally, after the completion of the acquisition of an additional 50% interest in WA-1-R, Woodside’s net share of contingent resources (2C) in Greater Scarborough (being the Scarborough, Thebe and Jupiter gas fields) has increased from 485 MMboe to 1,125 MMboe.

Boosting capital position: WPL has raised gross proceeds of over A$2.5 billion through the Entitlement Offer, which the company will use to progress the Scarborough, SNE-Phase 1 and Browse developments. As per 29^th March 2018, WPL had completed ExxonMobil’s interest in the Scarborough gas field. The group declared dividends rise of 18% yoy to $0.98 per share, as compared to the 2017 and maintained their dividend payout ratio at 80% of NPAT. Their gearing remains unchanged at 24% within their target range of 10% - 30% and their strong investment grade rating has been maintained through 2017.

Decent FY 17 Financial & Operational Performance: During fiscal year of 2017, the group has reported 18% growth in the net profit after tax to $1,024 million year-on-year, driven by higher prices for the products and sustained low production costs. In FY 17, the production was 84.4 MMboe and sales revenue was $3.62 billion. Further, in FY 17, WPL has maintained low unit production cost of $5.2/boe, had increased average realized price to $44/boe, delivered 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 is of 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), bringing the full-year dividend to US 98 cps.

Wheatstone LNG production, a major milestone: Additionally, in FY 17, WPL has commenced Wheatstone LNG production and delivered first LNG cargo. The company achieved concept select for SNE Development–Phase 1, offshore Senegal, increased the Pluto LNG plant capacity which resulted in 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. Further, in FY 17, WPL was able to maintain the outstanding safety performance and the company’s three FPSO facilities had achieved a record average reliability of 95%.

Cost control efforts: The group controlled their total production cost by a further 9% in 2017 and their unit production cost remained low. Excluding the impact of Wheatstone and reduced North West Shelf pipeline volumes, their overall unit production costs was flat with 2016 at $5.00 per boe. Gross margin surged 19% in 2017 to $23 per boe, and their cash break even cost of sales remains low at $10 per boe. The group’s high margin, low cost operations continue to drive their profit as well as strong cash flow.
 

Cost control efforts (Source: Company reports)
 
New Executive Incentive Framework: WPL finished a comprehensive review of their Executive Incentive Framework and would introduce a new executive incentive structure. As per the new structure, the executives would shift to the Executive Incentive Scheme (EIS) and the CEO would also move to contractual terms. Further as per the new structure, 12.5% of award will be paid in cash and 87.5% of award will be paid in the form of restricted shares and performance rights. The changes are applied to awards allocated in 2019 for the 2018 performance year.

2018 Production Guidance: For 2018, WPL expects a significant increase in annual LNG production with higher Wheatstone contribution in 2018 and projects the cash flow neutral at $35 a barrel. WPL’s production guidance for 2018 is 85 – 90 MMboe. For 2018, the investment expenditure is expected to be in the range of $1,550 million to $1,600 million. Wheatstone LNG spend has significantly reduced after the start-up of Train 1, however Greater Enfield spend increased as subsea installation and drilling activities commenced. Further, The Ngujima-Yin FPSO (Vincent oil) will leave station from May 2018 for modifications ahead of the projected Greater Enfield production from mid-2019.
 

2018 Production Guidance (Source: Company Reports)
 
Outlook: For 2018, the group intends to enhance their production driven by a higher contribution from Wheatstone. Low liquids production is largely due to the Ngujima-Yin FPSO being off station from May 2018 ahead of processing Greater Enfield production. 2018 would be the first full year of North West Shelf pipeline gas reverting to the 16.67% Woodside share. For the acquisition of ExxonMobil’s interest in the Scarborough gas field, the 2018 investment spend is forecasted to be over $2 billion. Their 2018 budget, excluding the acquisition expenditure, is cash flow neutral at Brent $35 per barrel.
 

Pipeline by asset (Source: Company reports)
 
Stock performance: The shares of WPL recovered over 4.8% in last one month after falling over 8.7% in the last three months as on April 17, 2018. With the latest update, the stock rose by 1.35% on April 18, 2018 and has a decent dividend yield. The group has been focusing on cost control and accordingly cutting unit production costs over the last four years, while increasing its sales volume to achieve record levels of production. The company is targeting approximately 100 MMboe annual production in 2020. On the other hand, the oil is expected to move higher given the geopolitical scenario and the latest battle related to Syria, Russia and Iran against the West. On the other side, including Wheatstone, the group is expecting production growth from their current projects. These overall drivers coupled with the firm’s efforts to cut costs would boost the stock in the coming months. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 30.72.
 

WPL Daily Chart (Source: Thomson Reuters)
 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.