Morningstar | Woodside Extends Pluto Maintenance but to Limited Consequence. No Change to our AUD 46.50 FVE.
Following planned maintenance, Woodside has found it necessary to extend the targeted restart for its Pluto LNG plant to the end of June due to issues with a compressor. Group 2019 production is now expected to be at the lower end of the 88 to 94 million barrels of oil equivalent, or mmboe, guidance range. We lower our 2019 production target to 89mmboe from 92mmboe, and reduce our 2019 EPS forecast to AUD 2.51 from AUD 2.59. We see the impact as limited in nature only, and our AUD 46.50 fair value estimate is unchanged. The market seems to agree, with the shares up 1.5% on the day of the announcement. At AUD 35.15, Woodside shares remain materially undervalued, the market more than discounting Woodside’s expansion potential, in our opinion.Our fair value equates to an unchanged 2028 EV/EBITDA of 8.0, excluding the USD 6.1 billion lump sum we credit for contingent resources in Kitimat Canada, Senegal and elsewhere. We credit 10-year EBITDA CAGR of 4.8% to USD 6.1 billion. This presumes a 44% increase in group production to 130 mmboe by 2025, at a midcycle Brent crude price of USD 60 per barrel in 2021 dollars. The chief underpinner of the production growth remains construction of a second Pluto LNG train, added to by this year’s restart of Enfield oil production.
We credit commissioning of the second Pluto LNG train from 2024 adding over 38mmboe in annual production, a 42% increment on current 90mmboe group output. Despite the associated capital expenditure program due to the accompanying Scarborough field development and second LNG train, strong cash flows and a healthy balance sheet should support ongoing dividend payments. We project peak net debt of almost USD 7.0 billion in 2024, but net debt/EBITDA of just 1.5, and falling to sub-1.0 by 2026. This includes a sustained 80% payout ratio and a five-year average dividend of over AUD 1.80 per share or plus 5% fully franked yield at the current share price.
Woodside Petroleum is engaged in hydrocarbon exploration, evaluation, development, production and marketing. Co.'s operating segments include: North West Shelf Project, which is engaged in the exploration, evaluation, development, production and sale of liquefied natural gas, pipeline natural gas, condensate, liquefied petroleum gas and crude oil from the North West Shelf ventures; Pluto LNG, which is engaged in the exploration, evaluation, development, production and sale of liquefied natural gas and condensate in assigned permit areas; Australia Oil; Browse FLNG; and Wheatstone LNG. As of Dec 31 2015, Co. had proved reserves of 1.15 billion barrels of oil equivalent.
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