Woodside (WPL) released their full-year 2022 results this morning. These financial results were outstanding and ahead of expectations, reflecting the recovery in the oil price, excellent operational performance,  new assets, and strong demand for LNG in North Asia.

Key Points:

  • Record Profits:  Net profit of US$5.3 billion, up +223%, reflecting a recovery in the oil price and the sale of spot LNG cargos into North Asia in 2022 at substantial premiums to contracted prices and very strong operational performance for WDS’ assets (see table below).  Investors often forget that it is not enough for a mining or hydrocarbon company to enjoy high prices. They also have to actually deliver production to market. In February, we saw a few companies in the gold and gas space perform poorly due to operational issues, which was not an issue for WDS today.
  • Premium located product: WDS’ average realised price of US$98.4 per barrel reflects both the recovery in the oil price and the premium pricing for LNG. Typically, LNG trades at a discount to oil, though this has changed with disruptions to Russian gas and has seen North Asian utilities pay a premium for WDS’ “safe” LNG. Production costs, including royalties and taxes, increased to US$8.1 per barrel due to the impact of the higher cost of new BHP assets and a planned shutdown at Wheatstone, though WDS’ profit margin is a very healthy 82%.
  • Record Dividend: The full-year dividend of US$2.53 was another record and up +87% on a strong 2021. For Australian shareholders, the dividend of A$3.75 (fully franked) is a bit sweeter and up +100% in 2021 due to a weaker AUD.  . This was very pleasing as WDS increased their share count to take on the BHP petroleum, which incurred $475 million of demerger costs, but only received eight months of BHP petroleum profits. Dividend = 10.6% fully franked yield.
  • Balance Sheet: WPL maintains a strong balance sheet with gearing at 1.6% below their target range of 10-20% gearing.  The low level of gearing at the end of 2022 reflects both the high free cash flow and WDS positioning itself for higher capex spend in 2023 to fund Sagomar (first oil late 2023) & Scarborough LNG (first LNG 2026)
  • Guidance: For 2023, WPL expects to produce 180-190 million barrels of oil, a 6% lift on the 2022 record production. This was ahead of expectations and included planned shutdowns at Pluto. WPL is currently incentivised to maximise output at current prices.

Woodside is held in several of the HNW portfolios and is our preferred energy exposure and is the most conservative and well-managed Australian oil company. WDS has the lowest production cost and gearing, an essential position for an energy company as conditions are not always as sunny as they currently are. Atlas prefers WDS over Origin and Santos, as WDS has minimal exposure to the East Coast gas market, where politicians are floating legislation requiring these LNG producers to break long-term 20-year export contracts with Asian utilities to reserve gas for the domestic market, which faces supply constraints due to moratoriums on new gas projects in NSW and Victoria. Using US$75/bl (Spot US$84/bl and WDS have been getting a premium for their LNG), WDS trades on a very undemanding PE of 10x with a 7.5% fully franked yield.

WPL gained +1.5% to finish at $35.13a good outcome on a day when the ASX was off-1.2%