Woodside Petroleum: Mixed start to the year

About the author:

Adrian Prendergast
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.

Analysis

  • 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). 

Investment 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.

Price catalysts

  • Completion of BHP Petroleum merger in 2Q22 (1 June)
  • Trion FID
  • Progress of Scarborough construction

Risks

  • Risks around merger completion, WPL shareholder vote.
  • WA COVID related risks to operations.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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