Woodside Petroleum Ltd

WPL Aims To Target ~100 Mmboe Annual Production In 2020: Woodside Petroleum Ltd (ASX: WPL) has an engagement in the hydrocarbon exploration, evaluation, development, production and marketing. The company recently announced a change in its director’s interest where Peter John COLEMAN disposed 30,000 shares on June 27, 2019, at the consideration of $37.09 per share via on-market trade, taking the final holding to 214,973 ordinary shares held by Pacific Custodians Pty Ltd as trustee under Mr Coleman’s executive employment agreement and 441,119 ordinary shares held by Pacific Custodians Pty Ltd as trustee under the managed shares facility. 

WPL also announced that it has successfully completed additional work at Pluto LNG and has restarted LNG production. In another update, WPL published investor site visit 2019 presentation where it highlighted about its upcoming milestones. It will be executing Scarborough gas tolling agreement along with the completion of Scarborough FEED (front-end engineering design) and Pluto LNG Train 2 FEED. In the NWS project (North West Shelf), it will execute the gas processing agreement and commence the front-end engineering design activity process. WPL will be targeting ~100 MMboe annual productions in 2020.

March’19 Quarter Performance Highlights: Sales revenue for the period was reported at $1,221 Mn, with the production of 21.7 MMboe. The company commenced domestic gas production from Wheatstone LNG. During the period, WPL also secured additional debt funding through the issue of a ten-year $1,500 Mn bond on the US Rule 144A/Regulation S market.


March ’19 Quarter Production Data (Source: Company Reports)

What to expect: The company was awarded Front End Engineering Design (FEED) contract for the SNE Field Development Phase 1 FPSO facility. It also signed a ‘heads of agreement’ with ENN Group for the sale of 1.0 Mtpa of LNG for a period of ten years, commencing in 2025. Its Greater Western Flank Phase 3 (GWF3) project entered the concept definition phase in January 2019. It is expected to target the recovery of 435 Bcf of gas via four subsea wells tied back to existing North West Shelf Project infrastructure, with ready for start-up (RFSU) targeted for 2022.

As per the Government report, Australia exported an estimated $50 billion of LNG in 2018–19. Export earnings are forecast to lift to $54 billion in 2019–20, driven by growing export volumes, before falling back to $50 billion, as prices ease. Moreover, Australia’s LNG export volumes are forecast to increase from an estimated 75 million tonnes in 2018–19 to 81 million tonnes in 2020–21, as the last two projects in Australia’s recent wave of LNG investment ramp up output. Australian LNG export prices are forecast to remain stable in 2019–20 and then decline in 2020–21, due to an appreciating exchange rate and easing LNG contract prices (at which most Australian LNG is sold). LNG spot prices are forecast to remain low, as additions to global capacity outstrip increases in world demand.

Stock Recommendation: WPL’s share generated positive YTD return of 17.51%. Its gross margin, EBITDA margin and net margin for FY18 stood at 50.3%, 71.0% and 28%, which are better than the industry median of 49.7%, 38.3% and 14.9%, respectively, implying decent fundamentals. Its current ratio for FY 2018 stood at 2.31x, which is better than the industry median of 1.28x, which implies the company is in a better position to address its short-term obligations. Currently, the stock is trading slightly towards the 52-week higher levels of $39.380 with a PE multiple of 17.08x. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $35.830 per share on July 15, 2019.

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