Should long-term investors own shares in gas producer Woodside Petroleum Limited (ASX: WPL)?
A long investing horizon is one of the biggest advantages we have as individual investors and because Woodside invests in huge, long-term projects which have expected production lives of decades the company naturally fits with long-term thinking.
I think natural gas will remain a crucial energy source over the next decade as the world's energy needs keep rising. So what will Woodside look like in, say, five years time, in 2023?
Woodside 2023
Woodside today produces strong cashflows and pays a regular dividend, but we can't expect that to continue forever. By the nature of energy production strong cash flows today inevitably require significant investment in new projects ahead.
he gas eventually runs out and producers like Woodside, Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) need to invest back into new exploration and production ventures.
With no major projects in the short term, Woodside's current phase of strong cashflows is expected to continue through to around 2021 according to the company.
Since Woodside typically leverages more stable contracted pricing with customers, barring the unforeseen, this period should prove to be a period of stable earnings and dividends as production slowly increases.
Between 2022 and 2026 Woodside will move into a new phase of development.
The plan is to increase spending on new projects to develop the company's existing assets and time it to meet projected LNG supply shortfalls. The most prominent project will be developing the Scarborough gas field of which Woodside owns 75% after acquiring an additional 50% stake from ExxonMobil in February this year.
The project will potentially involve building a 400km pipeline to leverage Woodside's existing Pluto LNG facility. Although this should reduce costs, the project is still estimated to cost up to $10 billion, including $500 million of work prior to the final investment decision.
Is Woodside a long-term winner?
Woodside is certainly well aligned to the long-term investing criteria and has a strong vision for where it will be in five years' time so I'll be adding it to my watch list in case the share price presents an attractive opportunity.
