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

Woodside Petroleum Limited (ASX: WPL), an oil and gas company of Australia is known for managing, exploring, developing, producing, marketing, and selling hydrocarbons; and has a key focus on liquefied natural gas (LNG), pipeline natural gas (PNG), condensate, liquefied petroleum gas (LPG), and crude oil. The company holds interests in the North West Shelf project while exploration portfolio touches upon the frontier provinces in Australia and Asia-Pacific region, Atlantic margins, and Sub-Saharan Africa. The group is expected to witness growth at the back of its final investment decision (FID) for Senegal, output from Scarborough from 2020 onwards, and Browse for first gas expected around 2026. Incremental gains from improved oil prices, key agreements on development projects, and progress on concept for Pluto will support performance in next 12-24 months. With single digit production CAGR from 2018 to 2021 and a high and sustainable dividend yield, we believe that WPL has a significant long-term potential.


Growth Pathway (Source: Company Reports)

Undertaking FEED for Pluto Train 2 Project: In view of latest developments, WPL has given a contract to Bechtel (Western Australia) Pty Ltd (Bechtel) for undertaking front-end engineering design (FEED) for the 100% owned Pluto Train 2 Project. The FEED activities entail finalization of the costs and technical definition for the proposed second LNG train project at the Pluto LNG facility; while the contract also includes an option for WPL to progress to a lumpsum engineering, procurement and construction contract for phase activities. However, the latter option is a conditional one and is based on a positive final investment decision (FID). The group believes that the decision to enter FEED is a significant one for the Pluto Train 2 Project and demonstrates good progress for the Burrup Hub, which is a regional LNG production centre in northern Western Australia. Further, the move also sets a cost-competitive directive with regards to the development on Western Australian gas resources. WPL will also find support from the Pluto Train 2 Project with respect to the concept for the development of the 7.3 Tcf (2C, 100%) Scarborough gas resource (Woodside’s interest of 75%). The project will comprise of a second LNG train at the Pluto site with a targeted capacity of 5 Mtpa and installation of domestic gas infrastructure; and the group has slated to have FID for the Pluto Train 2 Project in 2020 with start-up being targeted for 2024. However, these schedules are subject to appropriate joint venture approvals and regulatory approvals along with finalization of commercial arrangements as required. As estimated, Pluto Train 2 has been indicated to have a target LNG capacity of about 5 million tonnes per year, which is significant to the group.

FFED Activities start for the SNE Field Development-Phase 1 offshore Senegal: After WPL awarded the subsea FEED contract to Subsea Integration Alliance for the SNE Field Development-Phase 1 offshore Senegal (Senegal’s first oil project), the Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore (RSSD) joint venture have commenced front-end engineering design (FEED) activities. Subsea Integration Alliance, a non-incorporated partnership of OneSubsea, Schlumberger and Subsea 7, has been developed to design, develop, and deliver integrated subsea development solutions; and works on the premise of subsurface expertise, subsea production systems, subsea processing systems, subsea umbilicals, risers and flowlines systems, and life of field services. Given this, the company aims to award further FEED contracts to award in early 2019, which is subject to securing all necessary joint venture and regulatory approvals. The FEED work is undertaken for the finalization of all the costs and technical definition for the planned development to enable a final investment decision (FID), which is projected to undertake in mid-2019. The decision to start with the FEED activities is a significant and important step for the development of Senegal’s first oil project. The SNE development is being progressed for the commercialisation of discovered resources in a stipulated manner but final investment decision cannot start until FEED activities are completed. For the FEED activities, working with the Government of Senegal, local communities and the contractors becomes important in terms of identifying potential opportunities; and herein, WPL was at an edge with seeking the appropriate approval by the Senegalese Minister of Petroleum and Energies with the RSSD joint venture’s submission of the SNE Field Development and Exploitation Plan to the Government of Senegal. The SNE development is based on floating production storage and offloading vessel (FPSO) facility with subsea infrastructure; and planned to be designed for subsequent SNE development phases. These include options for export of gas and subsea tiebacks from other fields and reservoirs. It is being estimated that 230 MMbbl of oil resources will be delivered from Phase 1 of the development and that too from the lower, less complex reservoirs. The first production is slated for 2022 and FPSO is anticipated to have a capacity of around 100,000 bbl/day.


Financial Performance (Source: Company Reports)

Long-term gas sale and purchase agreement signed with Perdaman Chemicals and Fertilisers Pty Ltd: Long-term gas sale and purchase agreement (GSPA) has been signed by Woodside Energy Ltd of WPL with Perdaman Chemicals and Fertilisers Pty Ltd (Perdaman). This agreement is formed for the supply of pipeline gas for a duration of 20 years of term and for a quantity of approximately 125 TJ of gas per day to be used in Perdaman’s proposed urea plant. The gas to be supplied from WPL’s portfolio, will be primarily sourced from WPL’s proposed Scarborough development but there are multiple conditions that set the context of the agreement. The supply is scheduled to commence between 2023 and 2025 and the finalization of the GSPA reflects the company’s commitment to deliver domestic gas and to continue to support investment in the Pilbara region and create local jobs. Moreover, GSPA reflects a significant domestic gas sale and is another step for the delivery of the planned Burrup Hub. Accordingly, WPL is confident that the assets - North West Shelf and Pluto facilities on the Burrup Peninsula will help the group cater to domestic and global gas and LNG demand in the long run.

Signed agreement with RWE for mid-term LNG supply: WPL’s trading arm, Woodside Energy Trading Singapore Pte Ltd., has signed a fully termed and binding sales agreement with RWE Supply & Trading GmbH of Germany for the mid-term supply of LNG. The LNG supply is expected to begin during fourth quarter of 2020 and run until December 2022 and is planned to be supplied on a free-on-board basis. WPL will source the LNG mainly from volumes it has contracted from the Corpus Christi LNG project in Texas. The RWE deal is formed on an existing mid-term sale arrangements that began in 2017.

Strong Third Quarter 2018 Performance: During the third quarter of 2018, the Production at Wheatstone LNG rose by 13.8% compared with the corresponding quarter in 2017 and has continued to be ahead of plan. The sales revenue was up over 25% compared to the corresponding period to $1,157 million driven by higher prices. However, sales volumes got slightly affected due to the timing of Woodside equity sales. During the third quarter, WPL has signed three binding domestic gas sales and purchase agreements for 80 petajoules over ten years; and has delivered the 5,000th North West Shelf Project LNG cargo along with 99% reliability at Nganhurra FPSO (Enfield oil).

Near term Growth Projects of WPL are on schedule: At the end of the third quarter 2018, the construction of the domestic gas plant at Wheatstone LNG was 98% complete and the commercial production is expected to start in the first quarter of 2019. Great Western Flank Phase 2 project is preparing to commission in the fourth quarter of 2018. Greater Enfield project was complete 72% at the end of the third quarter 2018, and is running as per the budget.


Third Quarter 2018 Production Performance (Source: Company Reports)

Stock Recommendation: WPL stock has fallen 15.18% in three months as on January 08, 2019 as the oil prices fell below $50 a barrel in November. However, the prices are expected to remain higher in 2019 on an average. There was a rise in price of the crude post the OPEC’s decision on taking 800,000 barrels per day (bpd) off the market from 2019. In fact, 10 other non-OPEC producers have indicated for support and total output cut was then signaled to be around 1.2 million bpd. The changed scenario helped the stock recover about 6.33% in last five days with some traction seen in the past one month. Meanwhile, the company's stock is trading at a price of $33.15, and has support at $29.70 and resistance at $39.00. WPL’s near term growth projects are on schedule and the company has delivered strong performance in the third quarter 2018. Therefore, we give a “Buy” recommendation on the stock at the current price of $ 33.15.
 

WPL Daily Chart (Source: Thomson Reuters)

 
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