Is it possible that the Woodside Petroleum Limited (ASX: WPL) share price could rise to $27.50 before the end of 2021?
Woodside shares have already been performing for shareholders in recent times.
Over the last month, the Woodside share price has gone up 28%. In the past year it has risen 36%.
Why is the Woodside share price rising?
You'd need to ask all the different buyers and sellers exactly why they decided to transact at the prices they did.
However, investors often like to look at commodity prices to decide what an appropriate price for a resource business is.
According to Oilprice.com, the WTI crude oil price has approximately doubled over the last year. That doesn't necessarily mean that the Woodside is going to generate twice as much profit as a year ago, but it certainly helps.
But there have been two other market announcements that may also have helped investors' thoughts about Woodside.
Reported profit growth
Woodside released its FY21 half-year result a couple of months ago.
It said that underlying net profit after tax (NPAT) rose 17% to US$354 million. Free cashflow went up 18% to US$311 million. Operating cashflow rose 19% to US$1.32 billion. Reported net profit after tax soared 108% to US$317 million.
The underlying profit growth and free cashflow increase allowed the board to increase the interim dividend by 15% to US$0.30.
Woodside said in its result that it's targeting a 30% reduction for operated assets over three years.
The oil business also said that the Sangomar project was on schedule for first oil in 2023.
Woodside has also outlined its energy transition. It's looking to reduce its emissions by 30% by 2030 and by net zero by 2050. It's building a diverse portfolio of offsets. New energies will play their part in Woodside's greener future, with hydrogen and ammonia.
Merger
The biggest impact on the Woodside share price may be its planned merger with the oil and gas business of BHP Group Ltd (ASX: BHP).
New Woodside shares are going to be distributed to BHP shareholders. Woodside shareholders will own 52% of the enlarged business.
Woodside and BHP said that the combined business is expected to deliver substantial value creation for both sets of shareholders from across a range of areas. Here are a number of them:
- Greater scale and diversity of geographies, products and end markets through an attractive and long-life conventional portfolio.
- Resilient high margin operating cash flows to fund shareholder returns and business evolution to support the energy transition.
- A strong growth profile with a plan to achieve a targeted Scarborough final investment decision (FID) in the 2021 calendar year and capacity to phase the most competitive, high-return options within the portfolio.
- Proven management and technical capability from both companies.
- Shared values and focus on sustainable operations, carbon management and ESG leadership.
- Estimated synergies of more than US$400 million (pre-tax) per annum from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.
- Greater financial resilience, relative to being standalone businesses.
Can the Woodside share price reach $27.50?
The brokers at Macquarie Group Ltd (ASX: MQG) have a price target of $27.25, so it's nearly $27.50. However, that target is for 12 months into the future, not just the end of 2021.
For FY21, Macquarie thinks Woodside shares are valued at 12x FY21's estimated earnings with a projected grossed-up dividend yield of 13%.
