This Energy Player Is Not Short Of Delivering On Value and Growth - Woodside Petroleum

  • Oct 25, 2019 AEDT
  • Team Kalkine
This Energy Player Is Not Short Of Delivering On Value and Growth - Woodside Petroleum
Oil and Gas Sector – An Overview
The energy sector is one of the largest sectors in the world. The oil and gas sector employs thousands of workers worldwide and produces billions of dollars. The industry has an immense impact on all aspects of daily life. Home Appliances like cooking gas, transportation mode like cars, electronic equipment such as electric bulbs used at houses and offices are basic needs of everyone’s life and they rely on energy sector. The government of the nations, worldwide, create various policies and make decisions based on the availability of these resources. Crude oil and gas are the natural substances that are found in the earth’s crust. These unprocessed raw materials are created by the compression of rocks such as limestone, sandstone and shale. The drilling companies contract their services to Energy and Power companies to extract oil and gas. The production of oil is measured in barrels. The barrel is abbreviated as BBL and 1 barrel is equivalent to 42 U.S. gallons.
  • Upstream

Upstream refers to anything related to production and exploration of resources such as oil and natural gas. The term upstream also includes the steps to determine the location from where these resources could be traced.

  • Midstream

Midstream segment of the industry refers to anything, which needs to be transported and stored prior to them being refined and processed into fuels. This includes the pipelines, the equipment and machinery needed to move the resources from one place to another. The pumping stations, tank trucks, rail tank cars are included in the segment as well.

  • Downstream

The downstream segment is the final sector of oil and natural gas industry. It comprises of everything involved in converting crude oil and other resources into finished products. Jet fuels, gasoline, petrol, diesel and heating oils are some of the examples that fall under this category.

Benefits and Risks Involved in Oil and Gas Sector
  • Solid Return on Investment

Even with low oil pricing presently, the oil and gas sector can be a great way to earn an attractive return on investment. An investment made in the energy sector can give years of passive income and solid return on investment potential. The return on investment depends upon the performance and stability of any entity. Accordingly, the performance of the company also largely depends on its management.

  • Investors Gain Attractive Tax Incentives

Investors are always looking for a better return on investment. Investors of oil and gas sector reap many tax advantages, especially if the investment is made in limited partnership and approximately 15 per cent of their shares become tax-sheltered income. Investors are also capable of benefiting from intangible drilling costs, where the percentage of their income in the initial year is written off to cover during incidental expenses.

  • Volatility and Complexity

On the risks front, the prices of oil and gas can be extremely fluctuating sometimes. The fluctuation in prices often lead towards an immense loss to the investors. Investment in the oil and gas industry is a complicated process. There are specific tax rules regarding oil, gas and mineral investment, and one must be fully aware of them.

  • Commission

When one invests in a limited partnership or closely held corporation, one would have to pay a large amount of money or commission to a broker or intermediary. Sometimes, these commissions are very high than the standard fees charged by the stockbroker.

Let’s now have a look at an Energy sector player:

Woodside Petroleum Limited (ASX: WPL)

Perth based Woodside Petroleum Limited (ASX: WPL) is the biggest natural gas producer in the Australian region. It has an international portfolio and is known for its world-class expertise as an incorporated upstream energy supplier.

Sales Revenue increased by 58 per cent in Third Quarter results

On 17 October 2019, WPL announced the results for the third quarter 2019 closed 30 September this year, below are a few highlights of the same;

  • During the quarter, WPL delivered production of 24.9 MMboe, which rose by 44 per cent compared to the previous quarter.
  • Sales revenue of WPL increased by 58 per cent to $1,164 million.
  • Woodside executed the major integrated turnarounds at the North West Shelf Project and produced first oil from the Greater Enfield Project.
  • It also signed mid-term agreements for the supply of ~3.5 million tonnes of LNG during 2020-2026.
Delivered a Clean proposal for three horizons
  • WPL has achieved final investment decision for Pyxis Hub Project and signed heads of agreement with Uniper Global Commodities SE for the sale of LNG for the period of 13 years, starting from 2021.
  • Inked a non-binding deal with Korea Gas to ascertain the feasibility of green hydrogen project.
  • The company also started big-scale projects related to local tree planting.
Guidance for FY 2019

The company has provided the guidance report for the full financial year 2019, below are a few pointers from the report;

The total depreciation and amortisation of the company to be in the range of $1,650-$1,800 million.

  • The depreciation and amortisation consist of oil and gas properties to be in the range of $1,550 to $1,650 million.
  • Lease assets to be in the range of $70-$100 million due to adoption of AASB 16 Leases.
  • Other property and equipment, and exploration and evaluation amortisation to be in the range of $30-$50 million.

Stock Performance

The stock of WPL last traded at $32.560, edging up by 0.185 percent compared to its prior closing price, as on 25 October 2019. The company has a market cap of $30.62 billion and approx. 942.29 million outstanding shares. The 52-week high and low of the stock was noted at $37.700 and $29.330, respectively. The stock has generated a negative return of 11.56 per cent in the last six months, and a positive return of 6.59 per cent on year-to-date basis.


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