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Woodside Petroleum Ltd: HY20 result in line with expectations

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge 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 LNG producer in Australia. Woodside’s market capitalisation is A$19.6 billion.

 

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What are the key points of Woodside Petroleum’s report?

Woodside Petroleum has recorded a half-year reported net loss after tax of US$4,067 million, principally due to the impairment losses and onerous contract provisions announced on 14 July 2020. Underlying net profit after tax was US$303 million. Production in the HY20 was 50.1 MMboe compared with 39.0 MMboe in HY19. Production in HY20 represents a half year production record and was boosted mainly due to the commencement of the Wheatstone LNG project. Operating revenue was US$1,907 million, down 15.6% on HY19. The drop in revenue was due to falling oil prices, with average realised price on Woodside Petroleum’s product mix down 29% in HY20 compared with HY19. This fall in price was partially offset by rising production.

Woodside Petroleum’s HY20 profit results included a non-cash and post-tax impairment loss of US$3.9 billion. This is comprised of US$2.8 billion for oil and gas properties (including deferred PRRT and income tax assets/liabilities), and US$1.2 billion for exploration and evaluation assets (including deferred PRRT and income tax assets/liabilities). It is also expected to include a non-cash, post-tax onerous contract provision for the Corpus Christi LNG sale and purchase agreement of US$447 million. This brings the total post-tax losses of US$4.4 billion.

Woodside Petroleum declared an interim dividend of US$0.26 per share. This compares with US$0.39 for the HY19 and represents an 80% payout ratio of underlying net profit after tax.

What is the outlook for Woodside Petroleum?

Woodside Petroleum has maintained production guidance for FY20 at 97-103 MMboe. Over the remainder of FY20, Woodside Petroleum is facing a challenging operating environment due to the sharp downturn in global economic activity due to COVID-19 and a weakening oil price. As a result, Woodside Petroleum is reducing costs and has deferred capital expenditure. On the positive side current, Woodside Petroleum has a strong liquidity position (around US$7.5 billion) and its businesses are cash flow positive.

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. Woodside announced in January 2020 it is proceeding with the Sangomar Field Development Phase 1 (located on the west coast of Senegal, Africa) with first oil production expected in 2023. Secondly, development of the Scarborough gas field located offshore Western Australia and Pluto LNG Train 2, with a final investment decision targeted for the second half of 2021. Finally, the Browse Basin gas field located offshore Western Australia, with a final investment decision targeted for 2023. In addition to these long-term projects, the oil price should strengthen from the cyclical low point at the present time particularly if global economic growth returns in 2021 and beyond.

What is the market reaction?

The market’s reaction to Woodside Petroleum is neutral. Woodside Petroleum is trading at around A$20.60 (13 August 2020). Woodside Petroleum trades at a forward P/E ratio in the low-thirties and has an annual dividend yield of 3.5%.


 

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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