The Australian Financial Review has reported that Woodside Petroleum may be a step closer to acquiring a stake in the Wheatstone LNG project offshore from WA. The $32.6 billion energy producer is in need of projects that could start development in the short-term after turning down investing in the Leviathan project located in the Middle East.
Apache wanting to sell out
I wrote previously about Woodside possibly getting an opportunity to buy into the Wheatstone project if US-based Apache Corporation (NYSE: APA) sells its stake. Apache is being pressured by activist shareholders to return its focus to its US shale oil business and dispose of its interests in places like Australia and Canada.
Woodside needs active projects
The market was concerned that Woodside didn't have much in the pipeline for new growth. This sentiment held back its share price as well.
However, the energy giant can't stay idle for too long. It has bought into several exploration projects near Africa in recent months. The Wheatstone project, which also involves Chevron Corporation (NYSE: CVX), is under construction and would have a more immediate benefit.
Woodside not the only horse in the race
Still, Woodside is not the only interested party. Seven Group Holdings Ltd (ASX: SVW) and Fortescue Metals Group Limited (ASX: FMG) are now in separate consortiums that may bid for the stake. Both companies want to diversify into oil and gas to offset the mining industry weakness.
It's estimated Woodside may have around $4.5 billion in ready funds should Apache put its 13% stake on the market. Having deep pockets may win the bidding, but the company must also be mindful of the changing world oil market dynamics brought on by the US shale oil industry. Australia is an expensive place to develop projects in.
Its stock is attractively priced with a big yield
Woodside's stock has a price-earnings ratio of 12, which is very low compared to past average PEs. For dividends, you can't do much better among the big blue-chip stocks. It pays a whopping 5.9% yield fully franked.
It's not clear right now what Apache will exactly do, or which business group will eventually take the prize. Yet I think Woodside Petroleum is a stock to own now. Its large scale and great free cash flow from its two producing LNG projects are great advantages for long-term shareholders.
