Woodside Petroleum: Mixed start to the year
About the author:
- Author name:
- By Adrian Prendergast
- Job title:
- Senior Analyst
- Date posted:
- 27 April 2022, 9:15 AM
- Sectors Covered:
- Mining, Energy
- A weaker 1Q22 than expected, with steady equity LNG production vs lower liquids and trading volumes.
- Including traded volumes, 1Q22 LNG sales of 22.0mmboe were -15% qoq.
- Group production in 1Q22 of 22.3mmboe -1% qoq came in slightly below expectations due to lower condensate and oil production.
- 1Q22 sales revenue of US$2,395m, vs consensus US$2,867m vs MorgE US$2,529m.
- We maintain an Add rating with a new target price (clients login to view).
Mixed 1Q22 result
- Group LNG sales volumes were heavily impacted by lower third-party LNG trading volumes. Third-party LNG sales halved qoq to 3.7mmboe, more than offsetting the gains of WPL's equity LNG sales which increased to 18.3mmboe (from 18.0mmboe). While 4Q22 also featured elevated volatility that led to record LNG volumes traded, choppy 1Q22 LNG markets hampered WPL's ability to find deals.
- Group production of 22.3mmboe (-1% qoq) was slightly lower than consensus at 22.9mmboe. Condensate production of 1.97mmbbl (-6% qoq) and oil production of 1.82mmbbl (-23% qoq) drove the lower production.
- Liquid volumes at Ngujima-Yin declined 36% qoq due to planned maintenance and Tropical Cyclone Charlotte halting production at the FPSO. Meanwhile Pluto production was marginally lower, with condensate and LNG output impacted by ambient temperatures in 1Q22.
- 1Q22 sales revenue of US$2,395m was -17% qoq and came in below consensus at US$2,867m and MorgE at US$2,529m. This again was mostly driven by the lower LNG sales with LNG sales revenue of US$2,043m (-13% qoq).
- Average realised price of US$93/boe +3% qoq, vs consensus of US$107/boe.
- Despite third-party LNG sales halving qoq in 1Q22, the previous quarter was an outlier driven by surging prices. We expect LNG trading volumes to remain hampered by ongoing volatility in the short-term, although with limited earnings implications given the small trading margins.
- All eyes remain on the merger with BHP Petroleum, which is scheduled to complete on 1 June post a WPL shareholder vote in May.
Forecast and valuation update
- We have updated our forecasts for the 1Q22 result and rolled our model forward. Post these changes we have increased our valuation (clients login to view).
- Volatility aside, WPL is well-positioned to benefit from the continuing oil and gas upcycle while continuing its efforts to decarbonise.
- Post merger, WPL will be able to tap high-value oil growth in the Gulf of Mexico as well as have access to expanded LNG supply out of WA. In addition, if the LNG upcycle is sustained (which we expect) then it increases potential for Calypso and even Browse and Sunrise.
- We maintain our Add recommendation on WPL with an upgraded price target.
- Completion of BHP Petroleum merger in 2Q22 (1 June)
- Trion FID
- Progress of Scarborough construction
- Risks around merger completion, WPL shareholder vote.
- WA COVID related risks to operations.
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