Woodside’s full-year result lacked the excitement and the gains of the iron ore or metal miners, but this was one of the best results of the season and shows that the business is responding to its problems well.
|Year to Dec (US$m)||2016||2015|| /(–)
|EPS (US cents)||104||3.2||(310)|
|DPS (US cents)||83||83||nil|
Although revenue fell with oil prices, LNG pricing isn't as volatile as raw oil prices. Prices received did fall across all assets but not as badly as we had expected and cash flow remained strong while costs continue to fall. Production costs at legacy LNG fields are now less than US$6 a barrel.
This was all done with an asset base that most investors – ourselves included – have called, politely, mature.
By conservatively managing its balance sheet and carefully reinvesting cash flow, Woodside has arguably benefited from the downturn as it has been able to remedy its most serious problem; a lack of deveopment options to replace existing production.
During the year Woodside quietly tweaked its asset portfolio, highlighted by its venture into the SNE project offshore Senegal. Although it may sound scary, this is a potentially enormous oil field which Woodside accessed in the gloom for less than US$2 a barrel. It will cost more to develop but buying cheap is always a good start.
New acquisitions offshore WA and Myanmar are also being drilled while new production from the Wheatstone LNG project will add to output later this year and reach full capacity next year. Quietly and more quickly than expected, Woodside has gone from a declining asset base to being rich with development options and it has done so at cheap prices and with smart deals.
Those options for reserve growth, as well as successfully renegotiating prices at its core North West Shelf operation, reduce risk and introduce new sources of revenue which we had previously valued at zero.
Oil prices have little do with the improvement at Woodside and that is just the way we like it. We’re upgrading our buy price but Woodside remains a HOLD.