Should you buy Woodside or Santos Limited?

Both oil and gas heavyweights have growth in the pipeline, but who will deliver first?

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With limited supply yet increasing usage of both oil and gas, investors should be positioning their portfolios to benefit. Although oil and gas stocks can be difficult to understand, risk-averse investors could consider adding either Woodside Petroleum Limited (ASX: WPL) or Santos Limited (ASX: STO) for safer exposure.

They are two ways to play the rising demand for both natural gas and oil because they’ve been in existence for many years, have very experienced managers, huge proven reserves and operate a majority of their projects in, or around, Australia. Here’s a quick snapshot of each company.

Name Woodside Petroleum Limited Santos Limited
Stock ticker ASX:WPL ASX:STO
Recent share price $41.72 $14.32
Market Cap $34.6 billion $13.9 billion
Trailing Dividend Yield 5.6% 2.2%
Price to Book ratio 2.04 1.36
2P Reserves (Mmboe1) 1,437 1,368
FY13 production (Mmboe) 87 51
Estimated FY14 production (Mmboe) 86 – 93 52 – 57

Data sourced from Morningstar. 1) Mmboe = million barrels of oil equivalent


In years gone by, Woodside’s success can be attributed to its willingness to take on huge projects and operate them for a long time. The group’s flagship North West Shelf project is an example of this. In FY13, with lower capex spend, Woodside was able to pay out a hefty dividend, however it’s unlikely it’ll be maintained in 2014.

Woodside has a number of upcoming projects which will require capex to return to normal levels. This could offset revenue growth in FY14 and will hinder the possibility of special dividend payments. Last year its earnings came under pressure following a higher proportion of gas in production, shareholders will be hoping this doesn’t happen in the second half of FY14.

Longer term both the Browse FLNG and Leviathan projects represent significant growth opportunities, although the latter appears to be proceeding slowly.


Unlike its larger counterpart, Santos has been proceeding with its growth projects very well, announcing its huge PNG LNG project completed its first production last month (ahead of schedule) and it expects GLNG to start production next year. These will be significant drivers of revenues in the coming decade.

As the two major projects come online over the next few years, Santos has a goal of producing 80Mmboe to 90Mmboe per year from its operations. This has the potential to double its current earnings per share.

First in, best dressed

If Woodside can strike a deal with its partners (including the Israeli government) sooner rather than later, there will be a flock of investors wanting to buy its stock. However with Browse FLNG continuing to progress slowly I’d rather go with the more assured increasing production profile of Santos.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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