Shareholders of the Perth-headquartered Woodside Petroleum Limited (ASX:WPL) saw a small-drop in their holdings after the oil and gas producer reported a decline in sales for the first quarter to $895 million from $1,009 million in the previous quarter, citing an adverse impact of extreme weather conditions on production at its Pluto LNG facility near Karatha, Western Australia and higher LNG inventory builds. WPL shares were also under pressure as crude retreated almost 4% on Wednesday after weekly inventory data showed a significant increase in US gasoline supplies.
“Pluto production was approximately 5% lower than expected; a positive outcome given the significant weather impacts experienced during the quarter”, said CEO Peter Coleman in a statement this Thursday. Higher LNG inventory was reported on the heels of the completion of a North West Shelf (NWS) gas supply contract in the previous quarter. With a rising contribution and planned expansion, Pluto accounts for nearly 55% of WPL sales currently, compared to 35% coming from NWS.
On a positive note, as expected, the average realised prices improved on a recovery in oil market after the commodity’s prices hit multi-year lows last year; however, this could hardly offset the impact of drop in production as reflected in a lower top-line. Improved prices inflated WPL’s top-line by $26 million compared to the previous quarter, while the company took a $140 million hit due to lower production volume.
Remains resilient with a committed management
Production outlook for the 2017 remains unchanged, said the company — the progress of major development projects was in-line with the goals set earlier. In addition, the company said progress on Wheatstone project remains on track to deliver first-LNG output by mid-2017 — WPL owns a 13 % stake in the project, which is targeting an initial capacity of 8.9 million metric tons with the global oil-major Chevron (owns 64%) leading the charge.
“Woodside also successfully executed midterm LNG sales and purchase agreements for up to 16 cargoes for delivery between 2017 and 2019”, added Mr Coleman, providing production and sales visibility as LNG production stood 0.8 million barrels of oil equivalents (mmboe) ahead of sales in the first quarter.
Well the management has put their money where their mouth is with company insiders consistently buying shares through open market transactions over the past year, despite a 24% rally in the share-prices on the back of a recovery in the oil markets.
Company shares currently appear undervalued based on expected growth, but stand very near the median analysts’ price target of $33.00 — WPL shares last changed hands at $32.32, indicating a little margin of safety for potential investors. With WPL’s margins highly sensitive to oil prices, a significant change there can dramatically affect the future trajectory of WPL shares.
Existing shareholders can take comfort in the fact that after a strong double-digit decline in production costs last year, WPL has indicated to deliver sustainable expansion and dividend-payments even if oil prices touch US$35/barrel-mark.
Although oil is currently trading near US$50/barrel-mark, the company’s iron-clad balance sheet provides enough firepower to sustain even an extreme drop, which seems unlikely in the wake of OPEC and Russia recently agreeing to significant production cuts.
Looking for another turnaround-play in the energy sector like WPL, explore the full-list: Australia Energy Play