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Woodside - Result 2018 - Intelligent Investor
Woodside - Result 2018 - Intelligent Investor
Woodside - Result 2018 - Intelligent Investor
HOLD
Recommendation Guide
BUY HOLD SELL
below 34.00 up to 45.00 above 45.00
HOLD at $37.23
Franking 100%
Industry Energy
Per Share
Show Summary
Year to Jun Sales Cashflow Earnings Dividends Franking Book Value Av
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02/03/2019 Woodside: Result 2018 - Intelligent Investor
Capital Structure
Total Debt Interest Long Term Debt Percent Debt Preferred Stock Share E
Key Ratios
Year Operating Margin (%) Income Tax Rate (%) Employees ($T) Return on
Amortisation ($M) 0 0 0
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02/03/2019 Woodside: Result 2018 - Intelligent Investor
Cashflow
2018 2017 2016
Balance Sheet
Show Summary
2018 2017 2016
Prepayments ($M) 0 0 0
Goodwill ($M) 0 0 0
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02/03/2019 Woodside: Result 2018 - Intelligent Investor
Creditors ($M) 0 0 0
It’s hard to imagine that this was a forlorn stock just over a year ago when we
first upgraded (https://www.intelligentinvestor.com.au/appreciating-woodsides-
assets-1879746) it, with investors fretting over stagnant production and declining
reserves.
So what’s changed?
Key Points
Strong result
The oil price rise has undoubtedly helped. Oil prices averaged over US$70 a
barrel, compared to US$56 last year, and delivered a bonanza; almost US$900m in
revenue was added by higher oil prices alone.
For the first time in years, Woodside is heaving with growth opportunities that
should see production reach 100mmboe by 2020 and we think there is ample
scope to exceed that in future years.
Opportunity
Wheatstone, bought below replacement cost at the markets nadir, is performing
above expectations and has proved an astute acquisition.
Gas from the Scarborough field will be processed through new and existing
facilities at Pluto; Browse could finally be commercialised through North West
Shelf infrastructure; and an interconnector between Pluto and the North West
Shelf will provide opportunities to run these facilities more efficiently.
Woodside still has to navigate tricky negotiations between various asset owners,
but its strategy is beginning to take shape and the market is starting to price in
some success.
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02/03/2019 Woodside: Result 2018 - Intelligent Investor
Yet there is even more optionality inside Woodside’s portfolio. A final investment
decision will be made this year on a large, proven oil field offshore Senegal and it
should highlight strong economics. This production, alongside a few other growth
options, still don’t appear to be priced by the market.
Strong base
Pluto and North West Shelf still account for about 85% of production and the bulk
of today’s value. These assets again showed staggering profitability with an
average cash cost of under US$4 per barrel of oil equivalent (boe).
Depreciation and amortisation account for about US$16 boe of costs but suck in
far less cash than this suggests. The depreciation and amortisation charge reflects
high start-up costs being capitalised, so this is important in counting return on
capital, but it means profits tend to understate cash flow.
That was again true this year, with Woodside generating US$1.3bn in accounting
profit but US$1.5bn in free cash flow. With the balance sheet already in pristine
shape, Woodside paid out handsome dividends of US$1.44 per share.
That Woodside has paid heavy capital expenditure and higher dividends without
damaging the balance sheet is impressive. It neatly demonstrates that, when oil
prices exceed expectations, Woodside is more than an energy producer: it is a
gold mine.
This was an outstanding result from a business that, after a long slumber, is
starting to reach its potential. With growth options proceeding nicely and base
production operating beautifully, we’re raising our Buy price from $31 to $34. For
now, HOLD.
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