Woodside Petroleum profit halves, but upbeat on oil prices

Woodside Petroleum has signalled its growing confidence in the outlook for the oil prices.

Woodside Petroleum chief executive Peter Coleman.

Woodside Petroleum has signalled its growing confidence in the outlook for the oil price and its Wheatstone liquefied natural gas venture, opting to suspend its dividend reinvestment plan despite suffering a steep drop in profit.

Woodside, Australia’s largest independent oil and gas producer, yesterday revealed a halving in its first-half net profit to $US340 million ($445m) as weaker energy prices took their toll.

The earnings fall would have been worse were it not for deep cost-cutting during the half, with production costs falling 38 per cent year on year.

Despite the drop in earnings Woodside opted to suspend its dividend reinvestment plan (DRP), closing the door for shareholders who wish to return the US34c interim dividend for new shares in Woodside.

Speaking to The Weekend Australian, chief executive Peter Coleman said the improvement in oil prices, coupled with increased comfort about the direction of the $US29 billion Wheatstone project in Western Australia, was behind the decision to suspend the DRP.

In contrast, he said, in February the oil price was around $US29 a barrel and Wheatsone still had a lot of “uncertainty”. The crude oil price is now closer to $US50 a barrel.

“We had agreed productivity targets with the operator (at Wheatstone) but they had not been achieved,” Mr Coleman said.

“Activating the DRP in February was ... Woodside forming a view that we wanted to be in front of our funding requirements and we wanted to make sure we maintained capacity to pursue the things we wanted to.”

The company has since inked $US340m deal to buy a stake in an oil discovery off Senegal in West Africa, and Mr Coleman said Woodside would keep an eye out for suitable opportunistic asset acquisitions.

Woodside’s underlying earnings of $US340m were the lowest recorded by the company in more than a decade, but still ahead of analyst estimates.

The company’s better than­ expected earnings were largely the result of its successful cost-cutting efforts.

“It’s been driven by a fundamental change in internal culture within Woodside and a willingness on behalf of our contractors and suppliers to work with us in a collaborative way as we work through this,” Mr Coleman said.

Suhas Nayak, an energy analyst with fund manager and Woodside shareholder Allan Gray, said the cost-cutting and DRP suspension stood out.

“The company’s done a very good job getting costs down from previous years into this year, production was strong as well,” he said.

“The suspension of the DRP seems to be a sign of management’s confidence in the future of the company.”

Mr Coleman said he expected to see less turbulence in oil prices after a chaotic two years in energy markets.

“I think we will still see some volatility but the degree of the volatility will get smaller and smaller,” he said.

“We’re now starting to see some of that physical rebalancing (in crude oil markets) so some of those uncertainties that were driving those wild swings in price are now being dealt with in the market.”

Woodside’s production volume lifted 9 per cent over the half to 45.9 million barrels of oil equivalent, taking sales to $US1.8bn — a 22 per cent reduction year-on-year.

The group raised its 2016 output guidance to 90-95mmboe, an increase on its 86-93mmboe target outlined in February, although the increase had been widely anticipated by analysts after Woodside’s recent quarterly production reports showed strong output from its Pluto LNG plant.

Shares in the company were up as much as 3.7 per cent during the day before closing 27c higher at $28.82, making it the only large Australian oil and gas company to finish in the black yesterday.