Woodside Petroleum: Ready for a bumper 2022

About the author:

Adrian Prendergast
Author name:
By Adrian Prendergast
Job title:
Senior Analyst
Date posted:
21 January 2022, 11:30 AM
Sectors Covered:
Mining, Energy

  • A strong end to the year for Woodside Petroleum (ASX:WPL) with a good outlook for 2022.
  • 4Q21 sales and 2022 guidance both came in ahead of our expectations.
  • WPL also reversed an impairment on Pluto-Scarborough and NWS Gas for a one-off non-cash benefit to its P&L, but triggering significant deferred tax.
  • We expect minimal FCF generation in 2021 for WPL and a reduced dividend payout of 50% (vs recent average 80%).
  • We see a strong year ahead for WPL, with the 2Q22 merger with BHP Petroleum set to supercharge fundamentals. We maintain our Add rating.

4Q21 sales result ahead

Showing its leverage to the cycle, 4Q22 sales revenue of US$2,852m was +84%, qoq. The result impressed with a strong realised LNG price achieved of US$16/mmbtu (vs MorgE ~US$13/mmbtu) despite spot LNG volumes reduced to 17% of sales.

Another good performance from Pluto with 4Q21 LNG output of 1.1mt. NWS saw production rebound +6% on the previous quarter, while Wheatstone was steady. Group production was 22.6mmboe (vs MorgE 22.9mmboe).

Particularly impressive was 2022 guidance, with production expected in the range of 92-98mmboe (vs our previous estimate of 91mmboe) before including the merger with BHP Petroleum.

Along with the 4Q21 result WPL announced the reversal of impairments on Pluto- Scarborough and NWS Gas for a non-cash benefit of US$582m post-tax (or US$1,058m pre-tax), while also bringing with it sizable deferred income tax and PRRT of ~US$476m.


WPL is already in strong shape heading into 2022, while the combination with BHP Petroleum will materially boost the company’s fundamentals and in our view prove to be a pivotal year in the company’s history.

In addition to the value upside from the merger, the BHP assets coming without any debt in our view is equivalent to a ‘free equity raising’ for WPL (with larger earnings and much lower gearing post the deal).

The strong 4Q21 revenue performance has changed our view on WPL’s dividend payout ratio for the second half, where we now assume a 50% payout (was 80%) although on the increased earnings this equates to a similar sized final dividend of US$0.638ps.

Forecast and valuation update

We have upgraded our 2021 estimates for the strong 4Q21 result and 2022 guidance, lifting 2022 group production to 94.1mmboe (from 91.2mmboe) on increased LNG and domgas volumes. We have also applied upgraded oil price forecasts (summary further).

Net of these changes our valuation has increased to (login to view).

Investment view

WPL is ideally positioned to benefit from a continuing upcycle in oil & gas markets. Post merger (expected Q2), WPL will have a large earnings platform, more/better growth options, and a strong balance sheet.

We maintain our Add recommendation on WPL with an upgraded target price of (login to view).

Price catalyst

Completion of BHP Petroleum merger (2Q22).

Scarborough development progress (2022).


Risk around merger completion.

COVID related risks on WA’s planned re-opening.

Indirect COVID risks to energy resource demand drivers.

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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.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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