Woodside Petroleum Limited (ASX: WPL) has announced a huge full year result for 2014 with sales revenues rocketing 23% on 9% growth in production.
The result goes in the face of current falling oil prices, so how will the company hold up going forward? Is it time to buy? Here are six of the most important points every investors must know:
#1 Record revenue and earnings per share
Despite the current low oil prices, Woodside managed to increase the average realised price of its oil and LNG by 13%, while also growing total production and reducing production costs. The total result for shareholders was record sales revenue of over US$7 billion and record earnings per share of US293 cents per share (cps).
#2 Free cash flow gushes
Excitingly for shareholders, free cash flow grew by 84% for the year to US$4.168 billion. Free cash flow is so important because it can be used to pay-down debt, boost dividends or be reinvested in exploration or other long-term growth projects.
#3 A huge dividend cheque is coming!
Some of this free cash will be flowing straight back to investors. Woodside announced a huge 40% increase to the final dividend at US144 cents per share (cps). This will bring full-year dividends to US255 cps, which at the current exchange rate offers a yield of around 9.1%!
Before snapping up this huge dividend however, it's important to know if this is sustainable in the long run, given the current outlook in the energy industry is less positive.
#4 Guidance for 2015 is for lower production
Woodside's production target range for existing assets in 2015 is between 84 and 91 million barrels of oil equivalent (MMboe). This would be a reduction of between 11.7% and 4.3% on 2014's record production of 95.1 MMboe.
However this range may increase by 3-4 MMboe once Woodside completes the purchase of additional assets in March.
#5 …and pricing may come under pressure
It may not be surprising given the fall in oil prices, but Woodside expects LNG pricing could come under pressure going forward as oil-linked LNG pricing is negatively impacted. The company also has uncertainties over demand, if Japan re-starts some of its off-line nuclear power-plants. Further, there are also uncertainties over supply, with new LNG production capacity from projects like Santos Ltd's (ASX: STO) GLNG project and projects in the USA set to come online.
#6 So should you buy shares in Woodside today?
Shares in Woodside opened almost 3% higher on the positive result. The company is well positioned with cash and cost reductions to help it tackle the coming industry uncertainty.
The latest earnings per share converted to Aussie dollars puts Woodside on a price-to-earnings ratio of just over 10 which in my view is reasonable, but not cheap given the uncertain outlook for energy producers.
