Some of the world's best investors have made their names chasing bargains and following a value investing philosophy.
So after the heavy falls faced by oil and gas producers in the last year, how does Woodside Petroleum Limited (ASX: WPL) stack up for bargain hunters?
Where Woodside excels
Woodside is Australia's largest listed energy producer and is focused almost entirely on natural gas and LNG. Its large scale projects Northwest Shelf and Pluto LNG offer exceptional economies of scale, which is a valuable competitive advantage for investors.
Woodside also stands out for its limited exposure to falling spot oil prices. More than 95% of Woodside's 2016 expected production is covered by mid-long-term contracts and for 2017 the company is targeting exposure of less than 10% of total production.
Is it cheap?
High margins, high production and low debt positioned Woodside strongly as oil prices slumped and the company's share price has reflected this over the last 12 months, down 26% compared to a 45% fall for Santos Ltd (ASX: STO).
The smaller fall is also impressive considering full year 2015 sales revenue was down 36%, and after adding in US$1.1 billion in impairments reported Net Profit After Tax (NPAT) was just US$26 million, a margin of 0.6%.
Is there value?
A low share price is one thing, but value is quite another. On an asset basis Woodside's price-to-book ratio currently sits at 1, which means the company sells for almost the exact value of its net assets.
This looks more expensive than Santos which sells below its book value on 0.69, but it could be because investors have greater faith in the quality or reported value of Woodside's huge asset base.
Woodside also looks more expensive than many smaller ASX-listed energy producers on a comparative basis when looking at the price of its 2P energy reserves compared to Enterprise value (EV).
As I noted here, Woodside's reserves are more expensive than the likes of Senex Energy Ltd (ASX: SXY) and Beach Energy Ltd (ASX: BPT), when comparing EV/2P ratio. This is likely because Woodside already has significant infrastructure in place to extract the reserves, pushing up its enterprise value, while some smaller companies still require significant investment to get reserves out of the ground.
Should you buy?
With a strong balance sheet and contracted pricing, Woodside is better positioned than many energy producers, but it is thus more expensive. I view Woodside as selling for around its fair value, and won't be adding it to my portfolio at its current price.
