Facing off in the oil and gas pool, the iconic Australian oil and gas producer, Woodside Petroleum Limited (ASX: WPL) goes head to head with Origin Energy Limited (ASX: ORG) in a highly anticipated pool stage round of the ASX world cup.
Pre-match commentary and stats
Woodside has raised a few eyebrows with its recent withdrawal from the Leviathan field raising questions around where its near term growth will come from. Matching up against the Australian goliath is Origin Energy, making ripples of its own with its recent entry into the Western Australian Browse Basin, acquired for the princely sum of US$800 million from Karoon Gas Australia Limited (ASX: KAR).
| Evaluation Metrics |
WPL |
ORG |
| Share Price (AUD$) |
$42.79 |
$14.32 |
| Market Capitalisation (AUD$m) |
$35,255 |
$15,804 |
| EV/2P |
25.74 |
22.40 |
| Debt to Capitalisation Ratio |
10.7% |
35.7% |
| Trailing Price to Earnings |
18.04 |
83.62 |
| Reserves Life (based on TTM) |
16.3 years |
65.3 years |
GAME ON
At the outset, it looks like a strong play from Origin with its Enterprise Value to Proven and Probable Reserves (EV/2P) ratio showing slightly better value for money. Origin moves quickly to strike at the goal posts with an almighty push but at the last minute its shot is deflected much to the dismay of its vocal fans.
It seems that Origin's rising debt levels have inhibited its ability to put one past its rival. Woodside seems to be quite comfortably placed with its debt to capitalisation ratio at just over 10% – quite a strong statement being made here by the Woodside team that it will not be goaded into making investment decisions that fall outside its capital management criteria. In this regard, Origin has been unable to penetrate the strong defensive line put up by Woodside and is forced to beat a hasty retreat.
It's full steam ahead with Woodside now leading the charge through conventional means, and it has put up a strong case with a trailing P/E Ratio of 18x. Origin doesn't stand a chance with its weak earnings leading to a poor defence of the P/E ratio.
An unfortunate combination of high gearing and poor earnings have allowed Woodside to steal a goal from its rivals, causing its supporters to chant its motto: capital management and making disciplined investment decisions.
Woodside: 1
Origin: 0
Origin is finding itself reeling after the exhausting battle, but seems to draw strength from the very earth it stands on, as it quickly capitalises on Woodside's low reserves life, which also seems to be related to the initial problem of a lack of growth opportunities for the oil and gas darling. Origin on the other hand, does not seem to have a shortage of prospects and is looking to play the long game. Origin puts through the equaliser with ease, and the crowd goes wild: the long game, they cry!
Woodside: 1
Origin: 1
It seems that the final minutes are dragging on with both teams ferociously competing, shoulder to shoulder and neither getting the advantage. But slowly it is becoming apparent that Woodside's heavy focus on capital management is paying off, quite literally, with an abundance of cash allowing its dividend yield of 5.5% to outpace, outstrip, and outplay the slightly less attractive 3.5% put up by Origin.
Woodside: 2
Origin: 1
At the close, it has been a well fought match, with Woodside's superior capital management and strong balance sheet focus winning the day. However, Origin's long-term strategy may just be kicking off, so this is definitely a team to watch. Time will tell.
