Is it time to buy Woodside?

Woodside Petroleum (ASX: WPL) shares were up 1.5% during the day on Tuesday after the company announced a reduction in 2014 capital expenditure and narrowed the expected production range.

The giant oil and gas producer now estimates that 2014 production will be between 86 million and 93 million barrels, narrowed down from between 85 and 94 million. This is below the median estimate of 93.3 from five analysts surveyed by Bloomberg earlier this month. 2013 production is estimated to be between 86 million and 88 million barrels. Regardless, the share price rose as the company announced a reduction in 2014 capital expenditure (CAPEX) from $2.3 billion to $1.1 billion.

The reduction in CAPEX is due to a delay in the formal agreement to progress the Leviathan project in Israel. Woodside and its joint venture partners have an in-principal agreement for Woodside to take a 30% stake in the project but are yet to complete the deal. The 19 trillion cubic feet of gas contained in the resource is key to the company’s growth plans. Woodside now expects the agreement to be formalised in the first half of 2014 and 2015 CAPEX expenditure would likely be between $2 billion and $2.4 billion.

Woodside’s remaining 2014 CAPEX budget will be spent on design work for the Browse LNG project off Western Australia’s northwestern coast and exploration. The company plans to spend around $500 million exploration, including $250 million on seven new wells off the WA coast and the Exmouth basin. It will also start work drilling in a controversial project off the Canary Islands and initiate seismic work off the coasts of Burma, South Korea, New Zealand and Peru.

So is Woodside a buy?

Leviathan is looking more and more like it will happen. The press release was positive about progress in discussions and the Israeli Supreme Court recently dismissed a challenge to the legality of the Israeli government’s natural gas export policy. This should allow the company to export gas from the Leviathan project and realise greater profits. The reduction in CAPEX could also result in greater dividend payouts, supporting the share price in the medium term.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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