Ord Minnett views Woodside Petroleum’s first-quarter CY17 production report as soft in operational terms, with adverse weather and the expiry of a domestic gas contract impacting production and sales.
Total production for the quarter was an annualised rate of 85.7 million barrels of oil equivalent (mmboe) versus full-year guidance of 84–90mmboe, which the company left unchanged (OMLe 87mmboe).
Furthermore, realised prices at Northwest Shelf were below estimates due to the revaluation of receivables because of falling spot prices. Quarterly revenue of US$895 million was 2% below our forecast. Pluto LNG realised prices were strong at US$8.72 per million British thermal units (mmBtu), but Northwest Shelf LNG prices declined 11% from the prior quarter to US$5.54 per mmBtu.
The key information in the report, however, was around the company’s development projects. Both Browse, likely to be tied-back to Northwest Shelf, and Scarborough, via floating LNG, appear to be progressing quicker than what we, or the market, had thought.
Browse concept selection is due by year-end, with Woodside preferring to utilise the Burrup Peninsula infrastructure, and an assessment of options for Scarborough will continue this year ahead of expected front-end engineering and design by the end of CY18. Pluto expansion studies have also started.
In our view, the market has assigned little value to these projects so the release of further information will likely result in an uplift to valuations. The key hurdle is probably convincing Woodside’s joint venture partners of the preferred development options and timing.