Amidst the distraction of the merger with BHP Petroleum, the fast approaching decision on Scarborough, and the rising price of LNG, it was disappointing to discover that Woodside Petroleum had downgraded its reserves at Wheatstone again.
The latest reserve downgrade at Wheatstone is the third since WPL acquired the 13% stake from Apache Energy back in 2014 in a US$3.75 billion deal that included two other assets also since written down. By 2016, WPL had written down Wheatstone by about 22% and a further 32% in 2020.
Prior to this latest downgrade, Wheatstone would have been approximately 23% of WPL's reserves, so a 22% downgrade is a material announcement that received light-handed treatment from the company in its quarterly production release.
The total 2P reserves at Wheatstone were reduced from 231.1Mmboe to 168.4Mmboe.
WPL's 3Q21 production of 22.2mmboe was softened due to maintenance at the North West Shelf and at Pluto. Average realised prices for commodities rose sturdily with LNG reaching
US$9.80/MMbtu, up 38% from 2Q21. Sales revenue of US$1,531 million for the quarter was up 19% from 2Q21. Full year production guidance of 90-93 Mmboe Is unchanged.
The chart shows how dominant LNG is to group revenue but WPL no longer provides revenue by project. It is therefore meaningless to try and interpret a sensible revenue on production when about 25% of sold LNG volume (total 26Mmboe in 3Q21) was purchased at unknown prices. A smidgeon of good news is that more than 15% of LNG production this year will be sold at spot prices.
Investment view
The almost dismissive treatment of the Wheatstone downgrade was very disappointing, in our view. The announcement was buried deep within the presentation and not highlighted to shareholders at all.
There are multiple risk factors surrounding WPL at present, including the detail of the BHP Petroleum merger. We retain our Hold recommendation.
