At first glance, Woodside Petroleum Limited's (ASX: WPL) 4th Quarter 2014 report looks impressive:
- Record production, up 9.3% to 95.1 million barrels of oil equivalent (Mmboe)
- Record sales revenue, up 22.5% on 2013, and 11% on the previous record to $7,076 million
- Completed basis of design for the massive Browse Floating LNG (FLNG) project
- New additional exploration blocks offshore from Cameroon, and Nova Scotia
- Binding transaction to acquire Apache's LNG projects in the US, for US$2.75 billion
But there is of course a hidden dark side – these results were all generated with the higher oil prices that prevailed last year.
With the price of crude oil now trading down around US$48 a barrel, Woodside investors could be in for a nasty shock when they see first quarter earnings in 2015 come in.
Accordingly the company has announced that they are reviewing plans for capital expenditure, and a 2015 Investment Expenditure outlook will be provided to the market alongside the 2014 annual report which will be released in February.
Woodside is targeting between 84-91Mmboe for 2015, with the lower output due to a number of factors including planned maintenance, lower demand, and field decline. This does not include production from fields acquired as part of the Apache transaction, and production forecast will be updated when the purchase completes.
While I believe Woodside shares will see significant hits to earnings and share value in 2015 as low oil prices persist for the year, overall the company has a strong production profile, plenty of exploration acreage and a number of medium term projects that provide a lot of growth potential.
The Persephone project is worth roughly $1.2 billion dollars, and will produce an estimated 140Mmboe per year, of which Woodside's share is roughly 22Mmboe (16%). This is a substantial addition to Woodside's 2015 production target, and the Browse FLNG project could add significantly to this if the project is given the go-ahead in 2016.
So when your Woodside shares start to look a little sad this year, remember that there are a number of compelling reasons to own the company for the medium-long term, and buy more when they're cheap.
