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WPL

Woodside Petroleum Ltd - COVID-19 Response

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Woodside Petroleum Ltd (ASX: WPL) is a global energy supplier that is specialised in the upstream petroleum sector. Woodside supplies oil and gas and is the largest natural gas producer in Australia. Woodside’s market capitalisation is A$17 billion.

 

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Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 462,684 and 20,834 deaths globally. As of today (26 March 2020), there have been over 2,985 confirmed cases and 8 have died of COVID-19 in Australia.


Why has the global oil price slumped?

The recent drop in oil prices is caused by supply and demand issues. On 5-6 March 2020, OPEC and non-OPEC oil producers met in Vienna to discuss oil production and prices in the wake of weakening global demand due to lower global economic activity in part due to the impact of the coronavirus (COVID-19). The meeting concluded with Saudi Arabia and Russia not agreeing to cut production to increase the price of oil. This has resulted in Saudi Arabia and Russia embarking on a production war to capture increased share of the global oil market regardless of the implications for the price of oil. This is the supply issue for the global oil market, with production significantly increasing while exceeding demand, global oil prices dropped significant to around US$25 per barrel from US$55 – US$60 per barrel. On the demand side, COVID-19 is causing a fall in global oil demand, putting further downward pressure on global oil prices.


What has happened to Woodside Petroleum share price?

Over the last month, Woodside Petroleum share price has fallen around 42% and is currently trading at A$18.00.


What has Woodside Petroleum announced today?

Woodside Petroleum announced today (27 March 2020) several measures to respond to the economic concerns surrounding COVID-19 and lower than average oil price. The key response measures are as follows, firstly, Woodside Petroleum will reduce approximately 50% of its 2020 total expenditure. Secondly, Woodside Petroleum will defer targeted final investment decision for Scarborough, Pluto Train 2 and Browse. Finally, a positive announcement is that guidance remains unchanged for FY20.


What is the outlook for Woodside Petroleum?

The short-term outlook for Woodside Petroleum is negative. This short-term outlook is based on the challenging operating environment Woodside Petroleum is facing due to COVID-19 and a weakening oil price.


However, the long-term outlook for Woodside Petroleum is positive. This outlook is based on several long-term projects that should underpin future growth of the company. Firstly, the developments of the SNE field located on the west coast of Senegal, Africa. This project is estimated to begin production in 2022, with 100,000 barrels per day production capacity. Secondly, development of the Scarborough gas field located offshore Western Australia. This project is estimated to begin upstream production in 2023 and provide an additional 4 – 5 million tons per annum (MTPA) gas delivered to Pluto LNG. Finally, the Browse Basin gas field located offshore Western Australia. This field is Australia’s largest untapped conventional gas resource. It is estimated that there is 13.9 trillion cubic feet (TCF) of dry gas located in this field. The project should deliver 10 million tons of gas to the existing North West Shelf infrastructure per year.


 

Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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