Woodside Petroleum: Steady 1Q15 result

About the author:

Author name:

By Adrian Prendergast

Job title:

Senior Analyst

Date posted:

16 April 2015, 11:12 AM

Sectors Covered:

Mining, Energy

Woodside Petroleum (WPL) posted a steady 1Q15 result that lacked any new major developments or surprises.

It was not a bad result given the uncertainty gripping the sector. We make no change to our Hold recommendation or view that WPL is close to fair value on present fundamentals.

The company remains tight-lipped on any potential interest in M&A, although we believe this may deliver a better result than the current focus on Browse and Kitimat.

Result largely in line

Sales volumes on track. 1Q15 sales volumes of 23.9 mmboe were broadly in line with our forecast of 23.2 mmboe. Production was down 6.8% on the previous quarter, with Pluto LNG output and WA oil operations marginally impacted by the cyclone season.

Sales revenue declined 15.9% on the pcp to US$1,408m, albeit holding up better than we expected with some profit from trading out of Singapore and the remaining LNG contracts still transitioning during the period to being on an oil-linked basis. 2Q15 should see another reduced contribution from Pluto with a planned maintenance shutdown.

Browse and Kitimat not the answer

Robust growth options needed. WPL reported it is progressing pre-FEED work at the Browse FLNG project and will launch a 7-well appraisal program at Kitimat in 2Q15 with partner Chevron.

We believe both projects would struggle to justify development in the current oil price environment and we would prefer WPL's strategic focus shifted to accommodate the new oil price reality. It remains our view that WPL is in a strong position to pursue growth from M&A, which could build out its medium-term growth profile at an opportune point in the cycle.

Model changes

Tweaking short-term output. We have updated our model for the revenue outperformance in 1Q15 and operational result. This has resulted in an increase in CY15 NPAT forecast to US$771m (from US$545m), a large impact given the pricing strength of the first quarter, although a negligible valuation change.

Maintain Hold recommendation

Morgans clients should login to view our revised price target. The key upside risk to our price target is the potential for WPL to sustain a higher dividend by lifting its payout ratio above 80%. The key downside risk is further oil price weakness.

More information

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