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.


WPL Details
 
First quarter results and impact from oil and gas prices pressure: Woodside Petroleum Limited (ASX: WPL) reported a decline in production volumes by 4.8% for the first quarter of 2016 to 23.7 mmboe as compared to the fourth quarter of 2015, on the back of decrease in oil volumes from the NWS oil asset due to the group’s planned maintenance. Moreover, fall in oil volumes at Vincent on the back of field decline coupled with stopped production at Balnaves on March 20, 2016 also led to the lower performance. On the other hand, enhanced pipeline gas volumes from Canada on the back of production commencement from the new wells supported the production volumes to a certain extent during the quarter. Sales volumes fell by 4% as compared to the prior quarter and consequently sales revenue declined by 11.1% impacted by the pressure in the global oil and gas prices. But the production volumes enhanced by 8.7% as compared to the same period of last year driven by better production at Pluto LNG despite decrease in oil volumes from the NWS oil asset due to planned maintenance. Accordingly, the sales volumes increased by 1.3% on a yoy basis indicating the LNG shipments timing. However, the sales revenue fell by 30.3% on the back of continuous global oil and gas prices pressure.
 

First quarter of 2016 performance (Source: Company Reports)
 
Solid exploration results from Myanmar: Woodside Petroleum witnessed two gas discoveries at the Rakhine Basin in Myanmar in a span of just six months. Consequently, the group now comprises an overall six blocks in Myanmar with 47,000 square kilometer acreage position and is nearing to finish greater than 30,000 square kilometers in 3D seismic surveys over the permits. Earlier, WPL made a Pyxis-1 gas discovery off the coast of Western Australia during 2015, which enhanced its net contingent resources by 68 million barrels of oil equivalent having a tieback potential to the current Pluto LNG infrastructure. For now, the group is also positive over its commercialization possibility in Myanmar given its solid partnerships and neighboring access to infrastructure.
 

Exploration or appraisal wells drilled during Q1 2016 (Source: Company Reports)
 
Acquiring oil and gas assets to leverage the subdued oil prices environment: WPL is continuously seeking to enhance its oil and gas assets in order to leverage the subdued oil and gas prices environment. Accordingly, WPL made an agreement with Impact Oil & Gas in February 2016 to acquire a 65% participating interest in a Production Sharing Contract as well as a related joint operating agreement in the AGC Profond block, which is present at the joint development area between Senegal and Guinea-Bissau. Management believes that this a potential area and would contribute to its acreage. WPL enhanced its acreage position earlier via acquisitions with Cameroon, Gabon and Morocco. The group even made an informal merger proposal to Oil Search Limited during 2015 but Oil Search management rejected the proposal.
 
Positioning Projects to leverage the LNG demand: WPL continues to be positive over the potential demand and estimates that after 2022, overall 200 million tonnes of LNG would need to come online to meet the expected 2030 demand. This is equal to a requirement of over 20 million tonnes per annum through project life extensions and new supply. Moreover management is also closely tracking the rapidly changing LNG market. Accordingly, the group’s Wheatstone Project is preparing to deliver its first LNG by mid-2017. For the first quarter of 2016, the Pluto LNG (100% project) achieved an annualized loaded LNG production rate equivalent of 4.8 mtpa exceeding the 4.3 mtpa average expected annual production capacity at the time of FID in 2007. As Kitimat LNG, the Appraisal work on the Liard basin was maintained during the first quarter to support the reservoir potential. The second development scale appraisal well (B-B03-K/94-O-12) was brought into production during the quarter and management reported that the initial results were above their expectations. The project is ongoing to progress through the concept select phase. As per the Julimar Project (Woodside-operated), the two subsea manifolds were installed while the Project is on track to schedule by the second half of 2016. For the Greater Enfield project, the final Field Development Plan for the development and production License Application for Laverda, were given to the National Offshore Petroleum Titles Administrator. With regards to the North West Shelf Persephone Project, the first phase of the drilling campaign was finished while the project progress towards platform modifications and fabrication of key subsea infrastructure are ongoing. This project is on track to achieve the expected start-up by early 2018. Meanwhile, the transition to the execute phase was finished at the Greater Western Flank Phase 2 Project which got the rest of the major contract packages as well as ongoing manufacture and fabrication of key project infrastructure. At Lambert Deep, FEED activities were finalized during the first quarter of 2016 to enable results from the Fortuna seismic survey to consider a final investment decision in the second half of 2016.
 


LNG production for first half of 2016 (Source: Company Reports)
 
Recently, Woodside Energy Trading Singapore Pte Ltd also signed a Heads of Agreement (HOA) with PT Pertamina (Persero) for the supply of 0.5 to 1.0 million tonnes of LNG per annum from Woodside’s LNG portfolio for a period of 15 to 20 years starting 2019.
 
Boosting capital position: WPL enhanced its operating cash flows to over USD 2.4 billion for the fiscal year of 2015 driven by its efforts to enhance operations and cost savings. The group’s productivity program generated greater than USD 700 million in 2015 leading to greater than USD 1.2 billion of total benefits from 2013. Moreover, the group was also cutting its break-even cash cost of sales which fell by a third from 2013 to over US$11 per barrel of oil equivalent in fiscal year of 2015. To withstand the challenging oil prices environment, WPL is also maintaining solid levels of liquidity with negligible debt maturities over the next two years and has a solid US$1.7 billion in cash and undrawn facilities as of December 31, 2015. WPL also raised over US$4.1 billion dollars from the bond and bank markets, resulting to a pre-tax portfolio cost of debt to a competitive 2.9% by fiscal year of 2015. Meanwhile, for the first quarter of 2016, WPL extended US$700 million of its present bilateral facilities for one more year. The group even enhanced the three year tranche of its existing syndicated loan facility by US$200 million at present pricing of USD LIBOR plus 0.9%. This leads the syndicated loan facility total to US$1.2 billion.
 

Discoveries at Myanmar (Source: Company Reports)
 
Stock Performance: The shares of WPL have fallen over 21.29% (as of April 26, 2016) in the last one year and declined over 4.5% during this year to date impacted by the oil prices pressure coupled with merger proposal rejection by Oil Search. On the other hand, WPL stock has recovered by over 8.7% in the last three months and 7.01% in the last five days alone driven by the group’s positive exploration results and LNG production start. Moreover, WPL stock surged over 8% in the last five days alone on the back of strong recovery in commodity prices driven by positive data from China and production cut by major oil producers to control falling oil prices. Both, Moody’s and Standard & Poor’s have reiterated the group’s current Baa1 and BBB+ credit ratings. Meanwhile, WPL is continuously making efforts to enhance its portfolio and even started charter of a 174,000 m³ LNG carrier, the fourth vessel in the fleet, for its trading activities and long-term supply from its global portfolio. The group also made a Project Development Agreement with Sempra LNG & Midstream to evaluate the possibility of a 10 mtpa natural gas liquefaction facility in Port Arthur, Texas. The group’s North West Shelf project members also entered FEED with the Equus project participants to process third party gas resources during the first quarter of 2016. Given such a strong pipeline and resource position, we believe that the WPL stock has the potential to generate returns in the coming months. Recovering oil prices and LNG production contribution might also add support to the stock in the coming months. Based on the foregoing, we maintain our “BUY” stance on WPL at the current price of $27.45
 
 
WPL Daily Chart (Source: Thomson Reuters)

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