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Woodside delivers US$868m full-year profit

Anthony Fensom  |  23 Feb 2017Text size  Decrease  Increase  |  

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Strong production and lower costs have helped Woodside Petroleum (ASX:WPL) deliver a profit surge in 2016, despite lower prices.

The oil and gas producer posted a net profit of US$868 million (A$1.13 billion) for the full year, compared to its US$26 million profit recorded for 2015.

Operating revenue dropped to US$4 billion from US$5 billion the previous year, primarily due to lower prices, with the benchmark liquefied natural gas (LNG) price indicator down 36 per cent.

However, Woodside slashed unit production costs by 28 per cent to US$5 per barrel of oil equivalent (boe), while increasing portfolio gross margins to 45 per cent, 16 per cent higher than the previous year.

The Perth-based company posted its second-highest annual production of 94.9 million barrels of oil equivalent (mmboe), with record annual LNG production of 63.7 mmboe.

Operating cash flow increased slightly to US$2.59 billion, with free cash flow of US$114 million and free cash flow breakeven at US$43 per barrel.

For shareholders, the company declared a final dividend of 49 US cents per share, bringing the full-year dividend to 83 US cents, down from the previous fiscal year's US$1.09.

Morningstar senior equities analyst Mark Taylor said Woodside's profitability in 2016 exceeded his projections, with the earnings margin of 80 per cent bettering his 78 per cent assumption and 2015's 73 per cent.

"We upgrade our long-run margin assumption from 75 per cent to 78 per cent, with earnings growth to match revenue gains for the next several years," he said.

"By 2021, we forecast Woodside's earnings to nearly double to approximately $2.60 per share, and dividends to $1.60 per share, even assuming a payout reduced to 60 per cent from the current 80 per cent."

Woodside chief executive Peter Coleman said the company performed "exceptionally well" in the past year by exceeding its production targets, cutting operating costs, and pushing ahead with growth projects such as Greater Enfield and acquisitions in Senegal and Western Australia.

"We look forward to the first LNG cargo from Wheatstone in mid-2017, followed by the start-up of train two, six to eight months later. Wheatstone LNG is expected to provide more than 13 mmboe (Woodside share) of annual production once fully operational," he said.

Coleman pointed to further "significant drilling" planned in Myanmar, as well as plans to boost capacity at its Pluto LNG project, while also supplying gas from Pluto to the local mining and marine sectors.

Woodside forecast production would increase by around 15 per cent from 2017 to 2020, through existing operations and approved projects, helped by the first gas production from Wheatstone and first oil production from its Greater Enfield project by mid-2019.

For 2017, the company expects to produce between 84 to 90 mmboe, while it forecasts free cash flow breakeven at US$35 per barrel.

The company said the oil market was returning to balance, helped by the recent OPEC agreement and with strong annual demand growth of more than 1 million barrels of oil per day.

Concerning LNG, Woodside said an additional 16 million tonnes per annum (Mtpa) of capacity was required annually to meet demand growth, with only 6 Mtpa of new capacity approved last year and the same expected in 2017.

It said China's latest five-year plan called for increased gas imports, while other emerging buyers were fuelling demand growth along with stricter emissions standards.

Woodside also announced that its chairman Michael Chaney would step down after next year's annual general meeting in April 2018, to be replaced by Richard Goyder, former managing director of Wesfarmers.

Woodside shares closed on Wednesday 3 cents higher at $31.41.

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Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does not have an interest in the securities disclosed in this report.

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