As a significant producer of oil, gas and LNG, you might think the vicious fall in oil prices would be terrible for Woodside Petroleum. The market has dragged the share price lower, albeit less than the likes of Santos and Oil Search, but it's quite possible that lower prices are a blessing for Australia's largest independent energy producer.
We've maintained a Sell on Woodside for a while, arguing the company had no opportunity to reinvest cash and would face either dwindling output or be forced to buy expensive projects from peers. The oil price collapse has changed its options.
As energy companies around the world seek to limit expenditure and conserve cash, more assets are now available more cheaply than at any other time since the GFC.
Woodside is now essentially debt free and still generating strong cash flows from LNG contracts and conventional oil projects. There is a wonderful opportunity for the company to divert cash currently being paid as dividends into acquisitions and finally grow production. The list of potential targets is growing by the week and valuations in the sector have fallen a long way.
Management are smart and no doubt looking at opportunities. Rumours persist Woodside will bid for Apache's stake in the Wheatstone LNG project, due for completion in 2016. A smart acquisition now could transform its production profile for years to come. Uniquely among producers, Woodside is well placed to benefit from the sectors woes.
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