Strict Discipline

The message from Woodside Petroleum’s 2017 investor day was more optimistic than last year, with management this year focusing predominantly on the company’s growth options. The key point was financial discipline, with management indicating that all projects would be paid for internally while maintaining the dividend.

 

Management outlined a three-stage growth program highlighting that there was significant flexibility in their plans to pull back on capital expenditure should prices remain cyclically low for longer than expected. Woodside noted that the longer capital is exposed to markets, the more likely it will be at risk of a downturn and unable to achieve appropriate returns. Of near-term growth projects flagged, only Browse – a tie-back to North West Shelf –requires sizeable capital expenditure.

 

Compared to our analysis of the company’s growth options, positive outcomes came from Pluto expansion initiatives and Browse. Management highlighted three discrete options for expanding Pluto by as much as 3.2million tonnes per annum (Mtpa) at low capittal expenditure of around US$650 per tonne, with a concept due to be selected in the second half of the year. With Browse, the current plan is to tie back to North West Shelf as capacity becomes available in the mid 2020s. Management is currently in process of convincing its JV partners that this is the best option for the large undeveloped field ahead of final investment decision (FID) in 2020.

 

Slight negatives from the day were Scarborough, Myanmar and Kitimat. Kitimat is long-dated, but we had expected more prospectivity from the other two. However, these projects now look like they may take longer to develop than we had previously thought.

 

Overall, Ord Minnett believe the market continues to undervalue the growth options for Woodside, leading us to reiterate our Accumulate recommendation and our $36.00 price target.

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