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Woodside hikes dividend ahead of federal election

Glenn Freeman  |  15 Feb 2019Text size  Decrease  Increase  |  
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Woodside's (ASX: WPL) 32 per cent profit lift for fiscal 2018 included a surprise dividend hike, ahead of potential franking changes after the looming federal election.

The country's top oil and gas producer posted a net profit of $1.36 billion for the year, up from $1.07 billion in 2017.

The result was lower than the market expected, and missed Morningstar's forecast of US1.42 billion by 6 per cent.

This was due to slightly higher than expected operating costs, around 50c higher on a per barrel of oil equivalent basis, but is not viewed as material to longer-term performance, says Morningstar senior equity analyst Mark Taylor.

His projection for 40 per cent-plus production growth, to 130 million barrels of oil equivalent by 2024, remains intact – largely on the capacity expansion of Its Pluto and Scarborough LNG operations.

"We see no material consequence going forward, and our longer-term assumptions stand," says Taylor, who left his fair value estimate of $46.50 unchanged on the back of the result.

The market responded enthusiastically to the result, Woodside's share price jumping 2 per cent yesterday and opening at $35.50 today.

Taylor applauded the "outsized" US 91 cent dividend, noting the 100 per cent payout ratio is well ahead of management's policy of paying out 80 per cent of earnings.

"Woodside justified the higher payout on stronger than originally budgeted production and oil prices in 2018, but also because its large franking balance is at risk from potential regulatory changes with the federal election looming," he says.

However, Taylor doesn't expect such an impressive dividend any time soon: "[not] until 2023, given likely return to 80 per cent payout and softer oil prices."

With an eye on growth, Woodside in January pledged between $1.6 billion and $1.7 billion towards projects this year, much higher than analysts' expectations.

LNG

Woodside's LNG production growth plans align well with expected Asian demand

Well-placed on clean air policies

Taylor views Woodside’s growth strategy as increasingly well aligned with market conditions.

"It points to growing demand for long-term gas contracts, including a 40 per cent increase in Chinese LNG demand.

"Asian growth is being driven by clean air policies and urbanisation, while European growth is driven by rising carbon prices and declining domestic supply," he says.

Growing confidence in Woodside's Scarborough and Browse projects has allowed the Perth-based company to nearly halve its planned exploration spending in 2019.

"Our growth plans will more than double Woodside's equity LNG production by 2027," said chief executive officer Peter Coleman.

However, Woodside faces headwinds from volatile oil prices, which could crimp its financial outlook. 

Last month, the company said it expects to churn out between 88 million barrels of oil equivalent and 94 mmboe in 2019.

 

is senior editor for Morningstar Australia

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