Woodside Energy: Share price starts to stretch valuation

About the author:

Author name:

By Adrian Prendergast

Job title:

Senior Analyst

Date posted:

27 January 2023, 9:00 AM

Sectors Covered:

Mining, Energy

• FY22 group production of 157.7 mmboe beat WDS guidance of 153-157 mmboe.
• Woodside Energy (ASX:WDS) group revenue for the year was close to consensus despite the bigger production beat, attributed to lower sales volumes and realised prices.
• Another solid and consistent performance from Pluto and NWS.
• We maintain our HOLD rating, with the view that the stock looks fair value at our current target price of (login to view).

Strong 4Q22 result

WDS had a solid end to the year with 4Q22 group production of 51.6mmboe (vs consensus 48.8mmboe), allowing WDS a slight beat on 2022 production guidance with total FY22 group production of 157.7mmboe (vs guidance 153-157mmboe).

4Q22 group sales volumes of 52.2 mmboe (-4% vs consensus) came in just below expectations, however FY22 group sales volumes were solid at 168.9mmboe.

4Q22 group revenue of US$5,160m (-12% qoq) was in line with market expectations, resulting in FY22 revenue of US$16,851m (vs consensus US$16,805m). WDS attributed the lower qoq revenue to declining average realised prices and reduced trading.

LNG production from Pluto and NWS were the big drivers of the group production beat, with Pluto LNG output of 12.9mmboe comfortably beating consensus estimates (+18% vs consensus) and NWS LNG production of 9.6mmboe (+10% vs consensus). Both operations again posted solid uptimes >98%.

Oil and condensate production across all assets beat market expectations for FY22 (actual 38.7 mmboe vs consensus 34.7 mmboe), while sales volumes also came in ahead of estimates.

4Q22 capital expenditure of US$1,350m was in line, with FY22 total capital expenditure of US$4,022m (vs consensus US$4,106m).

Scarborough is now 25% complete and on target for first LNG in 2026. Sangomar is also progressing on schedule, while WDS also made significant progress on Trion during the quarter.

Analysis

A solid end to an eventful year for WDS following the completion of the BHP Petroleum merger. A production guidance beat is encouraging, although it is unfortunate revenue could not follow suit.

Now post peak seasonal LNG demand we are on the lookout for how WDS’ price realisations perform early in 2023.

Forecast and valuation update

We have rolled forward our model and adjusted our estimates for the 4Q22 result.

Our 12-month target price has decreased marginally to (login to view).

Investment view

WDS has performed well over the last month over a firming macro-outlook.

We think the FY22 result will deliver more positives and provide a strong outlook for FY23 but we believe this is already priced into the share price and WDS looks fair value.

We maintain a HOLD rating with limited upside to our valuation at current prices.

Price catalysts

• FY22 result on 22 February.
• Progress on Scarborough/Pluto T2.

Risks

• Oil & gas market risks/global energy demand. 
• Execution risk on growth projects.

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