Woodside returns to profit

Hendrik Bothma

Katana Asset Management

All but drowned out by the mammoth merger news with BHP, Woodside Energy (WPL) announced a solid return to profit for the 1H21.

Revenue was in-line with consensus at US$2.5bn and up 31% from 1H20. Growth was largely driven by a strong recovery in commodity prices which attributed US$387m NPAT growth over 1H20. The group realised an average Oil price of US$74/bbl - almost double the US$39/bbl realised last year. However there was less growth in the realised LNG price, up a mere 10% for the half at US$41/boe compared to US$37/boe in 1H20. 

To put this in perspective LNG revenue accounts for ~70% of WPL’s revenue while Oil and Condensate accounts for around a quarter.

Commodity Price Recovery

Source: WPL half-year 2021 report

Revenue was also driven higher from increased sales volume, this was despite lower production volume due to scheduled maintenance activities. Sales volume increased from higher LNG purchases from third parties which WPL sell at a margin. 1H21 sales volume was in-line with guidance at 53.9 mmboe and up 6% on 1H20.

EBITDA of US$1.49bn came in below expectations but still up a healthy 53% from 1H20. Higher trading costs impacted EBITDA and is a result of increased cargo purchases from third parties. Trading costs for the half totalled US$355m compared to US$66m 1H20, and full year guidance of US$1,100 to US$1,300bn.

Profit, dividends and guidance

Pleasingly WPL reported a return to profit with NPAT of US$317m compared to the impaired driven loss of US$4,067m last year. As a quick recap WPL pre-warned the market of a US$5.7bn impairment which was the principal driver of this loss. NPAT did however fall short of estimates driven by the increased trading costs above, and higher than expected tax expense. Tax for the half (income tax and PRRT) came to US$180m, which compares to a US$1.3bn tax benefit received last year, in other words a US$1.5bn swing.

A higher than expected interim dividend of 30c was declared reflecting a payout ratio of ~80%. Earlier expectations were for a more conservative dividend to maximise capital for growth projects. 

The higher than expected dividend showcases WPL’s liquidity and balance sheet strength. 

The group reported total liquidity at the end of the period of US$6bn and reduced gearing of 23%, well within their 15%-35% target. Pleasingly their credit rating was also reaffirmed during the period.

The previously announced guidance for FY21 was maintained with one exception being slightly downgraded production of 90-93MMBoe down from 90-95MMBoe.

New CEO in place

Meg O’Neill has officially taken the reigns as CEO, this is a good sign and one less distraction for management who have a huge list of deliverables expected by shareholders. Focus over the 2H include achieving continued cost efficiencies with a 30% cost reduction target for operating assets over 3 years, target FID on Scarborough, and delivery of Sangomar phase 1. And of course progress the merger with BHP.

WPL results were slightly mixed vs consensus, revenue growth offset by higher costs. A key takeaway is the strong recovery in commodity prices which returned the group back to profit. There’s plenty to digest given the recent merger announcement, and the other focus areas of the group should serve as timely catalysts over the second half.

Merger talks are the main game for Woodside

For more insight on the merger with BHP and considerations for WPL shareholders, Romano Sala Tenna – Portfolio Manager at Katana Asset Management recently wrote a Livewire piece “Woodside or Blindside: Is a potential merger good for shareholders”. 

Woodside or Blindside: Is a potential merger good for shareholders?
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Hendrik Bothma
Equity Analyst
Katana Asset Management

Hendrik is an Equities Analyst at Katana Asset Management, a specialist Australian Equities manager with over $90m FUM. He works alongside three Portfolio Managers conducting investment research and evaluation.  Hendrik has 8+ years Corporate...

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