Is Woodside Petroleum Limited at bargain prices?

The share price of Woodside Petroleum Limited (ASX: WPL) has dropped 3.8% today to $29.45 as investors jump ship ahead of an important meeting of the OPEC group of oil-producing allies in Vienna this Friday.

The meeting will be held against a backdrop of oil prices hitting lows not seen since the depths of the GFC in 2009, a time when credible commentators were suggesting the global financial system was on the brink of collapse.

This time the oil price rout is largely because members of the OPEC cartel will not voluntarily cut output in a deliberate bid to defend market share from higher cost producers particularly in North America.

This is bad news for shareholders in Woodside and its takeover target Oil Search Limited (ASX: OSH) as it seems that the oil price is set to remain lower for longer – perhaps into 2017 as supply continues to flood demand.

Woodside recently posted its Q3 report showing a 25.9% lift in production per barrel of oil equivalent over the prior quarter. The engine room of this production growth remains its flagship North West Shelf and Pluto LNG assets in WA.

The business did recently try to take advantage of falling valuations for energy producers with an opportunistic bid for PNG-based LNG producer Oil Search. However, politics again may prove a thorn in its side with the PNG government itself having a substantial ownership interest in Oil Search and presumably little interest in surrendering its control to Woodside.

Woodside or Oil Search probably remain the best options on the ASX for anyone who expects oil prices to move sustainably higher in 2016. However, the outlook for oil is bearish and this suggests Woodside investors would have to take a long-term view with little to suggest the oil glut will resolve itself until at least 2017.


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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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