Woodside Petroleum (WPL: ASX) is an Australian petrol and exploration company, being the largest Australian company in oil and gas, and sitting inside the ASX20.
Source: NS Energy
The onset of the pandemic hit Woodside Petroleum shares particularly hard, wiping 52% off the Woodside Petroleum share price in the month from February to March. Although like most of the ASX it has recovered since then, it is still 32% below pre-pandemic levels. This is in comparison to the ASX 200 index, which fell 33% in that period and has since recovered to be almost par with pre-pandemic levels. This is because oil supply remained the same while demand drastically slumped as borders were shut and trade was tightened. Since then, whilst domestic economies may have improved, borders remain still somewhat tight in many nations around the world. Trade is not as free flowing as it was pre-pandemic and many economies have not returned to full operating capacity to return demand for oil and gas back to pre-pandemic levels.
For the potential Woodside Petroleum share price however, this may be seen as an opportunity to view oil and gas shares such as WPL stocks as at a favourable valuation if a long term view is taken. With a belief that as the worldwide vaccine rollout ramps up, there will be a full return to capacity and thus strong results for Woodside Petroleum shares to come.
Woodside Petroleum shares were impacted when the company recently delivered its first quarter 2021 update, with a 4% year on year increase in revenue to $1.121 billion. This was an increase of 22% from the first quarter of 2020. However, this was largely driven by an uptick in the price of oil which has been pushed higher as economies are recovering from Covid-19 and increasing their demand. In fact, Woodside Petroleum shares reflected as the company took advantage of the record spot LNG prices with record price premiums for an oil cargo.
The rebound in markets across the world, and particularly Asia (who make up half the world’s gas consumption), gives reason to be positive for the sustainability of prices for LNG in the medium term. Natural gas enjoys policy support from the largest consumers being India and China, being needed for the rapidly expanding industrial sector. However, it is important to consider how long the current Covid-19 wave in India will last, with the situation looking very dire, as national lockdowns haven’t been instituted to curb the spread and vaccine roll out and supply not being adequate.
Despite this, quarter on quarter oil production fell 2%, producing just 23.7 million barrels, which was a particularly stinging result given that its smaller competitor Santos (ASX: STO) increased its quarter-on-quarter production by 39% with production of 24.9 million barrels which actually surpassed Woodside Petroleum’s production. This was mainly blamed on heavy weather including a cyclone. However, Woodside Petroleum shares reflect that the company remains on track with 2021’s production guidance of 90-95 million barrels, which is down from last year’s record of 100.3 million barrels.
However, Woodside Petroleum share price and income can’t just rely high oil prices to drive their revenues, particularly in light of more recent downward pressure on oil prices due to concerns about the pandemic raging in India and the resumption of the US gasoline pipeline.
The Woodside Petroleum share price has some hope as they have reported being active in developing their projects. This includes ramping up Scarborough contractor activity with engineering and procurement, with finalisations of design concepts, project execution costs and passing archaeological assessments all recently happening or expected to complete in the near future. The $14 billion Scarborough offshore gas field is a world class gas resource where the final investment decision (FID) is expected to be made in the second half of 2021. It is helped by a recent sale purchase agreement in February with RWE for the supply of 0.8 Mtpa (million tonnes per annum) of LNG, which demonstrates customer appetite for LNG supply in the medium term.
Woodside Petroleum have also finalised the design concept for its Pluto Train 1 modifications which allows for the processing of 3 Mtpa, which when combined with Pluto Train 2 would enable the full use of 8 Mtpa offshore capacity of Scarborough gas. Thus, with the importance of the Scarborough project, the FID on it later this year will be a key catalyst.
In the longer term, investors keeping an eye on Woodside Petroleum shares will have to look out for the company’s ability to address its “company defining challenges” as pointed out by recent former CEO Peter Coleman, about their ability to replace ageing assets and managing the transition to clean energy.
Goldman Sachs gives a Woodside Petroleum share price forecast of $33.85, a significant premium to current stock price levels. For those who desire dividend returns, WPL stocks are set to return a solid dividend for 2021 to make up for its reduced levels of just US$0.38 per share in 2020, with Goldman Sachs predicting a total year dividend of US$1.40 for 2021 and US$1.63 for 2022.
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).
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