Woodside's identity crisis

Woodside (WPL) may have one of the most desirable packages of oil and gas projects on earth.

What it is suffering from is an identity crisis. Is it a big resource growth stock? Or is it morphing itself into a cash generating utility?

Ever since it sent its massive Browse project back to the drawing boards earlier this year, and stunned the market by shelling out a tidy US63c a share special dividend, no-one has quite been able to figure out which direction it is heading (see Woodside's yield-growth challenge).

So even though it delivered a reasonable set of numbers this morning with much better than expected sales figures and net earnings of $873 million easily beating forecasts of $818 million, the uncertainty over its future has seen the stock dragged lower.

It wasn’t helped that underlying earnings were dragged lower by the Vincent project and that the net result was buoyed by lower than expected Petroleum Resources Rent Tax contributions.

With its Pluto project up and running, Woodside's future direction revolves around the outcome of two massive projects, Browse and Leviathan.

Browse has become the battleground in a fight between a state government wishing to maximise job creation and revenues and a company faced with a massive increase in global gas supplies that may impact long term prices. 

The prospect of weaker prices makes cost containment an imperative. And it now is clear that Woodside’s preferred production option – on a floating offshore platform – would be significantly cheaper than WA Premier Colin Barnett’s desire for a $45 billion facility at James Price Point.

Woodside’s major shareholder, Shell, is keen for Browse to proceed and is using similar floating technology in Korea, so there would be no prizes for guessing the kind of conversations taking place around the Woodside boardroom table.

The other major weight over Woodside’s share price relates to its Leviathan project in Israel. Woodside was brought in to the project and awarded a 30% stake because of its operational and export expertise, describing it as a once in a lifetime opportunity.

But a domestic Israeli debate around how much should be exported, now before the High Court, has delayed finalisation of Woodside’s involvement.

Without these projects, traditional resource investors are more likely to switch to the likes of Santos (STO), which has a number of large LNG projects yet to come on stream. Yield hunting investors, on the other hand, would need more certainty over dividends before buying into the idea of Woodside becoming a utility.