After having flown under the radar in 2013, conditions in 2014 look set to favour a strong year for oil and gas producer Woodside Petroleum (ASX: WPL). Here are three reasons why:
A stronger U.S. dollar
As a long-term investor I am loath to invest in a company based solely on exchange rates which fluctuate frequently and can work both for and against a company. However the outlook for the year ahead for a potential strengthening of the U.S. dollar means Woodside as well as other listed energy producers stand to benefit over the short term.
Experts generally have a bullish outlook for the U.S. dollar in 2014, arguing that the strengthening U.S. economy and the tapering of bond buying will drive it higher. While any further decreases in Australian interest rates will make it less attractive for overseas investors keeping it down around US$0.90.
The Aussie dollar has dropped 14% against the U.S. dollar since April and for oil producers like Woodside, Santos (ASX: STO) and Oil Search (ASX: OSH) that means a big gain on each barrel of oil (or oil equivalent) sold in U.S. dollars, resulting in stronger sales revenues and cash flows. This will also help to cushion Woodside if the price of oil comes down in 2014, as some are forecasting it to do.
Progress on long-term growth options
Woodside's lengthy list of exploration programs is set to see further progression in 2014. Investors should receive updates on both the Browse Basin and Israel's Leviathan gas field projects which have faced roadblocks and uncertainty this year, but which present significant growth opportunities.
Meanwhile new exploration permits granted in conjunction with New Zealand Oil and Gas (ASX: NZO), will see Woodside exploring New Zealand's Taranaki Basin with results expected in late 2014, while progression with exploration in Ireland's Porcupine Basin will also be on the cards.
A solid dividend
Woodside announced a sharp increase to its interim dividend for the year, lifting it by 27.7% to US$83cps. The dividend comes fully franked and since it is set in US dollars, works out even better for Australian shareholders.
Foolish takeaway
The combined prospects of a stronger U.S. dollar, progress on the company's long-term growth options, plus an attractive dividend, make Woodside attractive as a core addition to your portfolio in 2014.
