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WPL

Woodside Petroleum - US$720 Million Impairment Affects Profits But Long-Term Projects On Track

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 specialises in the downstream petroleum sector. Woodside supplies oil and gas and is the largest natural gas producer in Australia. Woodside’s market capitalisation is A$31 billion.

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What are the key features of Woodside’s FY19 (calendar year 2019) results?

  • Revenue from ordinary activities for FY19 is US$4,873 million, down 7% from the corresponding period.
  • Full year net profit after tax (NPAT) for FY19 is US$343 million, down 74.9% compared with the corresponding period.
  • Total production for FY19 is 89.6 MMboe, in line with guidance but 2 per cent lower than the corresponding period.
  • Dividend per share for FY19 is US91 cents per share, down 36% compared with the corresponding period.
  • Earnings per share for FY19 is US37 cents, down 74% compared with the corresponding period.

 

What are the main drivers of this result?

On 11 February 2020, Woodside announced a non-cash impairment of US$720 million (after tax) in relation to the Kitimat assets in Western Canada. The impairment reflects increased uncertainty, particularly in the timing of the development of the upstream Liard resource, following sustained depressed gas market conditions in Western Canada. This is the main reason why Woodside’s FY19 NPAT is down 74.9%.

Woodside’s FY19 underlying NPAT is US$1,063, down 25% compared with the corresponding period. This drop is mainly attributed to lower prices received for Woodside’s products (down 7 per cent in volume weighted average terms) and slightly lower productions (down 2 per cent).

 

What is the outlook for Woodside?

Woodside’s management note production guidance for 2020 calendar year is as follows:

  • Total production guidance for 2020 is 97 – 103 MMboe, slightly up from 2019.

Woodside have three main projects of interest currently being developed. These projects could underpin future long-term growth. The projects are as follows:

  • Firstly, the developments of the SNE field located on the west coast of Senegal, Africa. This project is estimated to begin production in 2023, with 100,000 barrels per day production capacity. Development Phase 1 in Senegal has progressed into execution phase. Woodside has a 35 per cent interest, Cairn Energy Senegal has a 40 per cent interest, FAR has a 15 per cent interest and PETROSEN has a 10 per cent interest.
  • 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. The final investment decision should be made in 2020. Woodside has a 75 per cent interest in the project, while BHP has a 25 per cent interest.
  • Thirdly, 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. The final investment decision is expected to be made in 2021. Woodside has a 30.60 per cent interest, Shell Australia has 27.0 per cent interest, BP Developments Australia has 17.33 per cent interest, Japan Australia LNG has 14.40 per cent interest and PetroChina International Investment has 10.67 per cent interest.

 

What is the market reaction to Woodside FY19 results?

The initial market reaction to Woodside’s FY19 report is positive. Woodside is up 1% and is currently trading at A$34.28. Woodside has a forward P/E ratio in the low-twenties and an annual dividend yield of 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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