Despite recent shocks to the oil market (and thus to LNG markets, since the LNG price is linked to that of oil) caused by a self-interested OPEC, one major player recently invested over $3.3 billion Australian dollars in emerging LNG projects in Canada.
That player is Woodside Petroleum Limited (ASX: WPL) and today's ASX announcement informed the market that Woodside would pay Apache Corporation US$2.75 billion in return for:
- A 13% interest in the Wheatstone LNG Project and a 65% interest in the Julimar-Brunello upstream gas development, with a near-term production profile
- A 65% interest in the Balnaves oil project, with immediate production; and,
- A 50% interest in the Kitimat LNG Project, including approximately 320,000 acres in the Horn River and Liard Basins, adding a growth option in an emerging LNG province to Woodside's development portfolio
CEO Peter Coleman said that the purchase met Woodside's internal investment requirements, and that the company was using challenging market conditions to its advantage by acquiring 'very high-quality' assets.
Although still subject to regulatory approval, the acquisition is immediately accretive to Woodside's earnings, and management stated that its dividend payout ratio and targeted gearing levels would remain unchanged. Furthermore there is expected to be no change to Woodside's credit ratings.
There are several unknowns to the transaction, like the cost of production of the new assets, although Woodside has a track record of discerning purchases which I believe shareholders can rely on. The huge exploration potential to be acquired also should not be underrated.
In a separate announcement, Woodside also revealed that the front-end engineering and design (FEED) process for its Browse Basin FLNG project would be delayed until mid-2015, with a Final Investment Decision to be postponed until mid-2016.
This may incense investors who are frustrated with Woodside's long history of delayed projects like Pluto LNG. However these projects are inevitably worth the wait, and it's hard to argue with Woodside's reasons behind the Browse delay.
The company is now targeting 'significantly lower cost outcomes' for the Browse development, and management states that additional technical work will be conducted to optimise and de-risk the development, whilst maximising the long-term economic benefits.
In summary, investors can expect the new acquisition to contribute materially to earnings for FY15 – just remember that of course earnings will be lower thanks to a weaker oil price. Secondly, Woodside gains sizeable exploration tenements which should help earnings over the medium term and third, shareholders should see an improved Browse Basin project when it comes – even if it is delayed.
Woodside Petroleum continues to look like a great buy at today's prices.
