MARKETS SPECTATOR: Woodside gas trap

Analysts are putting the acid on Woodside because while it's generating solid returns and may soon be debt free, its growth prospects are limited.

Whither Woodside? The oil and gas producer’s 63 US cents per share special dividend to shareholders is a total payout of $500 million. Some analysts were expecting more, as much as $1 billion. The dividend may not be able to gloss over questions about the company’s production and exploration success in Australia and its foreign initiatives. Double-digit declines quarter on quarter in production, sales and revenue have analysts questioning Woodside’s operational efficiency compared with peers. Analysts are also beginning to mutter darkly about Woodside’s exploration unit, particularly in Western Australia’s northwest shelf. Woodside’s rivals Chevron and Hess have been more successful in the discovery of new gas fields, some quite significant.  

Outside Australia the company’s initiatives, through no fault of their own, have stalled, are under review, or are long shots. The Sunrise LNG project, where up to 90 per cent of it is in Australian waters, has been stalled for years because of the Timor Leste’s government insistence that an onshore gas plant be built in its territory. Australia, Timor Leste and Woodside are no closer to agreement on exploiting the field, the company says. Woodside’s share in Sunrise is 30 per cent. The risk for the company, if gas prices slide, is that the resource remains under the seabed.

Woodside is doing preliminary exploration work in Myanmar’s waters. Analysts attach no value to the field. Woodside’s 30 per cent stake in the Leviathan gas field off the coast of Israel is subject to government approval. The market is putting a discount on the Leviathan field because it is undeveloped and situated in a war torn region.

Woodside says there “are no active discussions” to expand its Pluto gas field off the coast in Western Australia. Any exploitation of the Browse field offshore may be years in the making as the company and its partners negotiate with government, aboriginal and environmental groups as well as, more importantly, find a cost effective way of developing Browse.

Still, prices in the Australian gas market are rising, one of the few markets to record such a phenomena, amid global pressures on gas prices because of the exploitation of shale gas reserves in the US. Woodside’s cash flow remains healthy and the company could become debt free in two to three years. But Woodside is not an exciting growth story and investors may have to be satisfied with further dividend payouts. That has proved popular with investors who have invested in bank shares largely on that basis. 

At 11:02 AEST, Woodside shares had gained $2.30, or 6.7 per cent, to $36.90.