Market Cap: $30.3 billion
Trailing dividend yield: 8.9%
2P Energy Reserves: 1,599.4 mmboe (million barrels of oil equivalent) (at 31 December 2014)
Production life: 16.8 years (based on 2014 full year production)
Fun fact: The name of Woodside's Xena gas field discovery was adopted from a distant icy rock which orbits Pluto.
Current position
Woodside Petroleum Limited (ASX: WPL) was one of the most successful of all ASX listed oil and gas companies to navigate 2014's plunging oil price. Where others buckled, Woodside held strong, limiting exposure by opting for contracted pricing for the output of its flagship Pluto LNG project.
This helped Woodside to achieve record operating cash flows in 2014. The implications of this were huge for investors, giving Woodside the power to clear its balance sheet of debt and rewarding investors with a huge dividend.
With no significant near-term capital projects, and no risky debt, Woodside is now a cash generating machine. After a record year in 2014, operating cash flows are expected to decline going forward on the back of lower oil prices. At a Brent oil price of US$65 per barrel Woodside forecasts operating cash flows to average around US$2.7 billion between 2015 and 2018.
Long term outlook
Longer term Woodside's focus is squarely on the Browse Floating LNG project. The project involves three permits located off Western Australia which are estimated to hold trillions of cubic feet of gas.
Front end engineering and design (FEED) is currently under way and a Final Investment Decision (FID) on the project is expected to be reached in 2016.
The prospective timing of the project is ideal for investors. The project would likely take around five years to complete, with production set to come online at the right time to meet rising global demand for LNG. Unlike oil, demand for LNG is forecast to exceed production from 2022 which would naturally push LNG prices up.
Dividends
Woodside's low debt position, high quality assets and ample free-cash flows recently made me award the company a solid 'B' on its 'dividend report card'.
Investors should be mindful that lower operating revenue going forward could bring the current dividend yield down and if the Browse LNG project gets the green light Woodside's capital expenditure will rise going forward.
Summary
Prudent capital management, rising long-term demand for LNG and a fair dividend (set in U.S. dollars) combine to make Woodside Petroleum one of the best placed LNG producers around.
However before buying, be aware that the impact of low oil prices will start to bite into operating cash flows moving forward and as capital expenditure starts to rise again free cash flows (dividends) may become more volatile.
