Why the Woodside Petroleum Limited share price is soaring today

Credit: Pieter van Marion

Shares in Aussie energy giant Woodside Petroleum Limited (ASX: WPL) are on the move.

The oil and gas explorer and producer’s value rose by more than 5% in Wednesday’s early trade on the ASX, continuing Tuesday’s 1.8% gain.

This follows a savage two-week selloff for Woodside shares, a period which saw the market erase all of the company’s year-to-date gains. Taking a longer view, Woodside shares are bouncing around an 11-year low.

Why did this happen to Woodside Petroleum shares?

The biggest driver of Woodside shares right now is the oil price. Investor sentiment toward the commodity has shifted in the last few weeks.

The last few months have seen investors gloomy about the glut of oil set to hit a chronically oversupplied market. But this week, traders are focusing on the posibility of an output agreement among big producers.

Freezing oil production would likely shore up low oil prices and help energy producers like Woodside, Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) to boost profitability.

Woodside investors are sensing a willingness for management to act in shareholders’ best interests amid the pressures of a low oil price environment.

Managing director Peter Coleman has hinted at delaying the multi-billion dollar investment decision on its offshore Western Australia Browse project until oil prices recover.

Yesterday, Woodside released a presentation which summarised the full-year result the group had announced two weeks previously. It reiterated Woodside’s commitment to maintaining a strong balance sheet and low cost of operations to drive superior shareholder returns.

What’s next for Woodside Petroleum Limited?

It’s all well and good for Woodside to talk down its costs and commitments around capital expenditure, but to impress shareholders, it has to deliver on hard targets.

To that end, investors will closely watch next week’s analyst day at Chevron. Woodside is delivering a large LNG joint venture project with Chevron. A capex increase for that project could stop Woodside’s share price rally in its tracks.

In a much broader sense, the direction of the oil price and the Aussie dollar will determine Woodside’s fortunes.

Foolish takeaway

Life isn’t easy for big energy producers right now, but it’s distinctly possible that the winds of economic change could start to blow in their favour. Until that happens, Woodside still has more levers internally that it can pull to enhance shareholder value.

If you believe oil can’t stay cheap forever, you should look closely at this $22 billion Aussie giant.

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Motley Fool contributor Tim Dohrmann has no position in any stocks mentioned. 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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