Woodside Petroleum Ltd (WPL)

HOLD

Good quarter, long game questionable

4Q21 production

27 Jan 2022

Sector: Energy

Need to know:

FY21 production 91.1mmboe, FY22 guidance 92-98mmboe
US$582m writeback of Pluto/Scarborough and NWS assets
High realised LNG price distorted by trading volumes

Oil-linked commodity prices are surging and Woodside Petroleum is benefitting, but all the focus is on the corporate activity surrounding the company. The merger with BHP’s oil and gas assets is coinciding with the recent big investment decisions taken on Scarborough and Pluto Train 2 and a not-so-small investment announced in ’new energy products’.

WPL’s 4Q21 production was unsurprisingly strong given the big jump in LNG and oil prices during the period. WPL’s average realised LNG price was US$16/mmBtu but the company’s lack of disclosure on LNG trading makes it difficult to analyse the outcome.

Woodside Petroleum - Quarterly Production

The company announced a US$582 million post-tax impairment writeback at Pluto/Scarborough and NWS and a US$92 million writeback of the Corpus Christie provision.

FY21 revenue of US$6,789 million was heavily skewed by the trading volumes but highlighted the very strong macro environment in spot LNG in particular.

Investment view

This was a strong quarterly production outcome for WPL but the bigger picture warrants close attention. Details of the approaching merger with BHP’s oil and gas assets (completion due in 2Q22) are lacking at this point although we remain cautiously positive on the merger. If that issue isn’t enough to give pause for thought, then the huge amount of capex about to be thrown at the low quality Scarborough development should make investors pay attention. History shows us just how much the wrong capital deployment strategy can detract from a strong macro setting. Across 2009-2103, the oil price rose from around US$45/bbl to over US$100/bbl but WPL underperformed due to a disturbingly similar strategy at Pluto to the one being pursued with Scarborough today. Not to be left out of the latest trend, WPL will also throw up to US$5 billion at ‘new energy products’ by 2030 including hydrogen and ammonia projects.

There is a lot going on at WPL this year that troubles us due to the lack of detail available (for now) and the flawed strategy with Scarborough. We prefer STO for exposure to the Australian oil and gas market.

Key Properties

Forecasts

Share Price

Company Description

Woodside Petroleum will become Australia’s largest oil and gas producer upon completion of its proposed merger with BHP Petroleum next year. WPL produces mostly LNG from the North West Shelf and other projects which is sold globally.

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