Company Overview

• Woodside Petroleum Ltd (Woodside) is an oil and gas company. The Company is engaged in exploration, development and production of hydrocarbons. The Company operates in five segments: North West Shelf Business Unit, Pluto Business Unit, Australia Oil Business Unit, Browse Business Unit and Others. North West Shelf Business Unit segment develops, produces and sales liquefied natural gas (LNG), pipeline natural gas, condensate, liquefied petroleum gas and crude oil. Pluto Business Unit segment develops, produces and sales liquefied natural gas and condensate in assigned permit areas. Australia Oil Business Unit segment evaluates, develops, produces and sales crude oil in assigned permit areas. Browse Business Unit segment evaluates and develops liquefied natural gas and condensate in assigned permit areas. Other segment consists of activities undertaken by the trading and shipping, United States, exploration, International and Sunrise Business Units.
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Oil Search rejected Woodside merger proposal

• Oil Search rejected Woodside merger proposal: Oil Search declined Woodside Petroleum Limited (ASX: WPL) September 2015 merger proposal which was offered by WPL on Sep 3, 2015. Woodside proposed that Oil Search shareholders would receive all scrip consideration of 0.25 Woodside shares for every Oil Search share and represent a 31.7% shareholding in the combined entity. WPL has been targeting Oil Search to build a world class portfolio at Papua New Guinea and Australia. On the other hand, WPL shares have been falling since their proposal on Sep 3, and reduced over 8.7% till date (as of Sep 14 close). 
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Built reserves capabilities through acquisitions

• Built reserves capabilities through acquisitions: Despite poor first half of 2015 performance, WPL has been building its reserves by purchasing interests in Wheatstone, Balnaves and Kitimat. As a result, Woodside improved its Proved (1P) Developed and Undeveloped reserves by 18.3% or by 191.8 MMboe, while the Proved plus Probable (2P) Developed and Undeveloped reserves increased by 260.9 MMboe or 19.5%. The Contingent resources (2C) posted a significant increase of 151% or by 2,632.0 MMboe. As per the Wheatstone LNG, the project is over 65% complete and the group targets first gas by 2016. LNG offtake is over 80% contracted and the platform is installed in the project. Civil works for Train 1 and common utilities are already finished. Gas turbine generators and compressors are installed while domestic gas pipeline installation is finished. Marine offloading facility is totally operational. With regards to the Julimar highlights, the project is 65% finished and the group forecasts to finish the project by the second half of 2016. Meanwhile, the group’s associate, Woodside Energy (USA) Inc. (WUSA) made a non-binding Memorandum of Understanding (MOU) with Sempra LNG, an affiliate of Sempra Energy. WUSA and Sempra LNG would start initial negotiations and valuations relating to the possible growth of a natural gas liquefaction facility at Port Arthur, Texas
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Browse FLNG Development

• Browse FLNG Development: The Browse Joint Venture members approved to enter the front-end engineering and design (FEED) phase for the proposed floating LNG development, which is a major parameter for making the final investment decision that is expected to be finished by second half of 2016. During 2015, WPL targets to submit preliminary Field Development Plan, renew retention leases and finish tender evaluation and assurance. The group also intends to get approval of EIS and Finalize execute phase contracts. Woodside intends to submit production and Infrastructure License applications and get approval of final Field Development Plan.
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Solid Exploration Activities

• Solid Exploration activities: Woodside finished the exploration drilling of three wells during the period, wherein the Pyxis-1 well in the Carnarvon basin led to a gas discovery of an extra 2C Contingent resource of 68 MMboe (net) for upcoming tie-back potential to the present Pluto LNG infrastructure. The Vincent phase IV in-fill drilling was finished during the period while the oil production started from June. As per the Xena Phase 1, installation was finished well ahead of the forecast and the production also started from June. The group won over 0.85 million tonnes of LNG per annum which is estimated to start from 2019, from the LNG sales and purchase agreement with Corpus Christi Liquefaction LLC, a subsidiary of Cheniere Energy Inc. Corpus Christi took the final investment decision on the construction of Trains 1 and 2 of the Corpus Christi Liquefaction Project during May. Meanwhile, two 3D marine seismic surveys in New Zealand, one 2D in Peru and one 2D in Tanzania were finished during the period. As a result, the company decided to exit the Lake Tanganyika South production sharing contract in Tanzania. 
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Falling oil prices resulted poor earnings performance

• Falling oil prices resulted poor earnings performance: Woodside first half of 2015 was also impacted by the oil price crash, with its net profit after tax falling by 39% yoy to US$679 million, as the operating revenues plunged 28% yoy to US$2.556 billion against pcp. The group’s production reached 42.0 MMboe during the period, which is down by 9.7% as compared to 46.5 MMboe in 1H 2014. The planned turnaround work at Pluto and lower sales volumes also contributed to the decline. Accordingly, the Production fell by 9.7% during the period to 42.0 MMboe, as compared to 46.5 MMboe in the corresponding period of last year. WPL’s Earnings per share reduced 39% yoy to 83 cents per share in 1H15. Consequently, the group reduced its fully-franked interim dividend by 40.5% yoy to US 66 cents per share as compared to US 111 cents per share the first half of 2014
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• Balance Sheet Highlights: Woodside gearing level increased to 19.9% in the first half of 2015, as compared to 3.9% in the first half of 2014, on the back of asset acquisitions and lesser operating cash flows. Meanwhile, the group estimates a target of 25% gearing ratio in the total year of 2015 with 10% to 30% through the investment cycle. Woodside has a total debt of $4.0 billion with a net debt of $3.8 billion during the first half of 2015. The pre-tax portfolio cost of debt decreased to 2.6%, against 3.4% in pcp. The group has enough funds for its activities with $0.2 billion in cash and $3.0 billion in undrawn facilities as of first half of 2015. Woodside raised over $3,750 million in debt by issuing $1,000 million of ten year bonds at a coupon rate of 3.65% and through execution of $1,750 million in refinanced and new bilateral facility agreements. WPL’s refinancing of its Asian syndicated facility contributed $1,000 million, The group had a net cash from operating activities of $1,083 million, but free cash flow was negative $3,224 million, due to Wheatstone, Balnaves and Kitimat acquisition as well as falling revenues during the period. Woodside has  BBB+ (stable) and Baa1 (stable) credit ratings from Standard & Poor’s and Moody’s Investor Services.

Positive Outlook

• Positive Outlook: Woodside is rapidly improving its reserves and production capacity to leverage the potential growth opportunities in the long term. Moreover, WPL is also working to reduce its costs to offset the pressure coming from the lower oil prices. Woodside projects like Greater Enfield even leveraged the lower costs coming from the low oil price situation. Meanwhile, WPL has always been focusing on enhancing its processes, with recent Pluto turnaround serving the example which was completed ten days ahead of the original schedule. As a part of the Productivity program efforts, Woodside is targeting over $800 million of enduring benefits by the end of 2016. Safety performance and operational excellence remain priorities for 2015 and 2016. The group maintained its production target in the range of 86 to 94 MMboe, which even comprises Balnaves oil and Canadian pipeline natural gas production.

Stock Performance

• Stock Performance: The shares of Woodside Petroleum have been under pressure, falling over 23% in the last three months on the back of oil prices pressure. In fact the stock plunged over 13.5% in just last four weeks (as of Sep 4). However, this correction placed the stock in an attractive valuation levels, with WPL P/E at 8.3x, which is very cheap as compared to its peers like BHP Billiton Limited (BHP) having a P/E of 26.2x and Oil Search Limited (OSH) with P/E of 18.9x. Investors should also note that Woodside Petroleum has a strong dividend yield of 9.7%. Based on the foregoing, we give a “BUY” recommendation to Woodside Petroleum at the current price of $29.10

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