Woodside is unique among Australian energy companies in that it has successfully managed the development of LNG projects for more than 25 years–unparalleled domestic experience at a complicated and expensive task. Adding to Woodside’s competitive advantages are the long-term 20-year off-take agreements with the who’s who of Asia’s blue chip energy utilities, such as Tokyo Electric, Kansai Electric, Chubu Electric, and Osaka Gas. These help ensure sufficient project financing during development and should bring stability to Woodside’s cash flows once projects are complete. Woodside also enjoys first-mover advantages. The NWS/JV has invested more than AUD 27 billion since the 1980s, building infrastructure at a fraction of the cost of today’s developments.
Woodside’s development pipeline is deep, enabling it to leverage the tried and trusted project-delivery platform as a template for other world-class gas accumulations off the north-west coast of Australia. Woodside is well suited to the development challenge. With extensive experience, it remains a stand-out energy investment at the right price. Gas is the fastest growing primary energy market behind coal, and the seaborne-traded LNG portion of that gas market grows faster still. China is building several import terminals, and so demand is likely to pick up, helping to move LNG pricing toward oil parity on an energy-equivalent basis.
Financial Strength
Balance sheet strength remains a key appeal of Woodside. The company’s net debt/EBITDA of just 0.9 affords it the luxury of seriously pursuing growth counter cyclically, where others necessarily focus on survival alone. Woodside’s net debt increased 60% to USD 2.6 billion at December 2020 versus one year prior, though for still modest 17% leverage (ND/ND+E). And despite expansionary capital expenditure programs, strong cash flows and a healthy balance sheet should regardless support ongoing dividend payments. We project peak net debt of around USD 9.7 billion in 2026, but net debt/EBITDA of just 1.8, and falling to sub-1.0 by 2030. This includes a sustained 80% payout ratio and a five-year average dividend of AUD 1.40 per share or 5.5% fully franked yield at the current share price. Expansionary expenditure on the Scarborough/Pluto T2 project, and potentially later on the Browse project, could see first expanded production in 2025. We model Woodside’s share of the combined capital cost at circa USD 14.0 billion, relatively the most capital-onerous of all four E&P companies, but driving a 25% increase in equity production to 125 mmboe, by 2026, and these are long-life additions.
Bull Says
- Woodside is a beneficiary of continued increase in demand for energy. Behind coal, gas has been the fastest-growing primary energy segment globally. Woodside is favorably located on Asia’s doorstep.
- Woodside’s cash flow base is comparatively diversified, with LNG making it less susceptible to the vagaries of pure oil producers. Gas is a primary component of Asian base-load power generation.
- Gas has around half the carbon intensity of coal and it stands to gain market share in the generation segment and elsewhere if carbon taxes are instituted, as some predict.
Company Profile
Incorporated in 1954 and named after the small Victorian town of Woodside, Woodside’s early exploration focus moved from Victoria’s Gippsland Basin to Western Australia’s Carnarvon Basin. First LNG production from the North West Shelf came in 1984. BHP Billiton and Shell each had 40% shareholdings before BHP sold out in 1994 and Shell sold down to 34%. In 2010, Shell further decreased its shareholding to 24%. Woodside has the potential to become the most LNG-leveraged company globally.
(Source: Factset)
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