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How does Woodside Petroleum Limited (ASX:WPL) plan to spend $10 billion?

Shares in big ASX listed energy producers have been on the rise in June. But before you jump in and start buying here are three things you must know today:

What is the future for oil and gas?

Good question!

Earlier this month BP released its annual energy report which plots energy trends as far out as 2040. The report is full of fascinating insights.

BP’s Group Chief Economist Spencer Dale notes that increasing prosperity will continue to drive demand for energy higher over the next 30 years, however the mix of energy sources will substantially change and BP expects the demand for oil to plateau in the next 20-30 years.

Importantly for Australia’s big gas producers like Oil Search Ltd (ASX: OSH) and Origin Energy Ltd (ASX:ORG) natural gas is expected to grow strongly as governments try to shift away from higher carbon emitting coal.

How does Woodside Petroleum plan to spend $10 billion?

Gas producer Woodside Petroleum Limited (ASX:WPL) is planning to enter a new phase of development between 2022 and 2026, increasing investment significantly to develop existing assets and meet projected LNG supply shortfalls.

The most prominent project will be developing the Scarborough gas field which Woodside owns 75% of 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.

Are Santos shares cheap?

In May the board of Santos Ltd (ASX: STO) rejected a proposed takeover from Harbour Energy Ltd of $6.86 per share noting that the offer undervalued the company, as well as being too complex and high risk.

So, at a current share price of $6.12 per share, are shares cheap today?

Santos reports that at the current oil price the company’s outlook for operating performance remains strong. This should see a positive improvement in the company’s net debt position as well as allow “restoration of fully-franked dividends in the near term”.

I think investors remain sceptical after the company’s recent history of disappointments. However if Santos can deliver a strong first-half financial performance and offer improved guidance for the full 2018 financial year there is a chance the company’s share price could jump higher.

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Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

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 Scott Phillips.

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