WPL

UBS has released some of their analysts' thoughts on the Australian energy sector, especially in the area of Oil Prices. In light of the recent strength in the oil price, the analysts have reviewed two oil pricing scenarios - Futures Curve and WTI spot to determine their impact on forecast EPS, valuations and our share price targets for our Australian E&P company coverage. Scenario 1: WTI Futures curve: average WTI oil price US$75/bbl: Applying the futures curve increases 2008 EPS forecast most for Tap (+84%), Santos (+47%) and Woodside (+41%).

Woodside Petroleum Limited (WPL) has a maintained Buy 1 broker call and a $45.64 share price target from sharemarket analyst UBS. The company is having their AGM in Perth on 19th April 2007. There is a focus on LNG. With potential portfolio rationalisation: WPL is placing greater emphasis on LNG and its core asset base. Risky places are getting riskier and WPL has forwarned that it will make appropriate changes to its asset portfolio, e.g. Mauritania assets are "under review". Exploration activities will be highgraded. The company has a bullish LNG outlook: LNG demand is set to outstrip supply in the Asia Pacific region to 2015. This provides a significant opportunity for new LNG supply sources, particularly Australian LNG - favoured for portfolio diversity and supply security factors. The LNG pricing outlook is also good, with a trend towards straight line indexation to oil. They believe WPL represents one of Australia's best long term resource sector investments, largely due to its high quality asset base which has potential to support an exceptional production growth profile from a diversified portfolio of mainly WPL operated oil, gas and LNG project developments. Their NAV estimate is based on a DCF (10% nominal discount rate) of WPL forecastcash flow over the 2P reserve life of producing assets and all committed and highly probable projects. The analyst's 12-month share price target for Woodside Petroleum Limited is A$45.64 and is based on our NAV, significant contingent resources and exploration upside.

Woodside Petroleum Limited (WPL) has a maintained Buy 1 broker call and a price target of $45.64 from sharemarket analyst UBS. Mar 2007 Quarter update: Offshore Libya drilling begins with WPL sales revenue broadly in line with the analyst's forecast. Sales revenue of A$899.3m over the Mar ’07 qtr was 18% below the Dec ’06 qtr, but also broadly in line with their forecast for 16% decline. This result was adversely affected by tropical cyclone activity and asset sales (Legendre). Overall, this production report had no negative surprises. Most importantly, all new growth projects that underpin our strong Woodside 2008 production growth outlook remain on schedule. After updating their Woodside forecasts with the March ’07 qtr production data, our Woodside Petroleum EPS forecasts have increased by less than 1% per annum (2007E-2009E). The analyst believes Woodside represents one of Australia's best long term resource sector investments, largely due to its high quality asset base which has potential to support an exceptional production growth profile from a diversified portfolio of mainly Woodside operated oil, gas and LNG project developments. Their NAV estimate is based on a DCF (10% nominal discount rate) of WPL forecast cash flow over the 2P reserve life of producing assets and all committed and highly probable projects. Their 12-month share price target is A$45.64 (prior A$45.03) and is based on their NAV, significant contingent resources and potential exploration upside.

Woodside Petroleum (WPL) have a Buy 1 share trading recommendation and a price target of $43.82 per share from stock analyst UBS. UBS released some observations post 2006 results released by the energy company. The North West Shelf Project is world class with the new big bore Perseus (North Rankin flank) wells are producing up to around 350 mmcfd each. These are the most productive gas wells we have ever seen, and certainly stand out on a global basis. After completion of LNG train 5 by 4Q08 (or earlier), NWS LNG production capacity will be around 16.3 mmtpa. The Enfield drilling and work over program begins in April 2007. From 4 to 7 wells are expected to be drilled into the Enfield reservoir and we think this work will deliver a production boost, and possibly even a future reserves upgrade, particularly after the major 42% reserves downgrade taken by WPL at the 2P level. The analyst forecasts that Woodside Petroleum oil production could grow by 24% in 2007 and 62% in 2008. They also expect LNG production to grow by 25% by 2009 (pre Pluto). WPL's total production has potential to reach more than 100 mmboe by 2009 (2006 WPL production 67.9 mmboe). The analyst's NAV is based on a DCF (10% nominal discount rate) of WPL forecast cash flow over the 2P reserve life of producing assets and all committed and highly probable projects. Their share price target is A$43.82 and is based on our NAV, significant contingent resources and potential exploration upside.

It's time to go Overweight on resources companies such as Rio Tinto (RIO), Woodside Petroleum (WPL) and BHP Billiton (BHP) says analyst Macquarie Research Equities (MRE). The global economic outlook continues to improve with world growth likely to exceed 5 percent this year. A soft landing in the US and growth in excess of 9 percent in China are the major drivers. In response, commodity prices are starting to improve again with spot prices now, on average, in excess of the analyst's year-average forecasts for the first time since mid-2006. This means that earnings upgrades are once again possible over and above the recent FY08 gains on the back of capital management initiatives. In view of the now improving earnings outlook and the widening valuation gap, MRE believe it is time to restore the resource sector allocation to overweight. MRE moved to an underweight position early last September in anticipation of a significant period of underperformance from the sector. MRE believe this period of underperformance (of over 10%) is now coming to a close. The US economy appears to be having the softest of soft landings with damage limited to just the housing and immediately related sectors. The consumer has barely noticed the housing correction with jobs still plentiful and non-housing construction still buoyant. It seems that overall growth will bottom out at around 2% pa early this year with a reacceleration likely in the second half, towards trend at 3% pa. At the same time, China is accelerating off its already high base with consumption, construction and exports all contributing. Europe, and even Japan, also seems to have at least some momentum. In total, this positive picture should then progressively boost commodity prices over the balance of 2007 after the US housing inspired slowdown of the second half of 2006. In other words, MRE believe the recent catch-up in commodity supply compared to demand will prove to be temporary.
Demand growth remains strong while on the supply side, infrastructure constraints remain substantial and recently tapped sources of scrap material appear to be topping out. MRE view this as being similar to the resource bull market of the 1950s and 1960s when Japan was industrialising. The All Mining Index took a rest every three to four years (1957 and 1960/61) when supplies temporarily caught up to demand. Demand from Japan remained strong throughout the 15-year bull market. So after each wave of new supply came on stream it took only a few quarters for demand to pull ahead of supply once again. This pause and then reacceleration is beginning to be reflected in the bottom-up earning forecasts for resources. As shown in the graph below the EPS forecasts have been consolidating around just over 20% growth for FY07. Flattening year on year commodity prices and operating cost increases have lead to some downgrades over the past nine months. Moving to the FY08 numbers the forecast EPS has risen from just 7.1% at the beginning of January to 20.4% today, a period of just eight weeks.
Most importantly, the improved commodity prices of the last few weeks have left spot prices well above those assumed in the forecasts, with the exception of zinc. In particular, copper, the flag bearer for the base metal complex, is currently US284c per lb, now usefully above the assumed US260c per lb average for 2007.
Even larger premiums exist for aluminium and nickel. So using spot prices, base metal prices for BHP would now increase the net earnings by around $US1.8bn or an EPS increase of almost 10% on the existing numbers. This is the reverse of the position last August/September. With world growth accelerating it will take very little in the way of inventory drawdowns to further boost base metal prices substantially over the next six months. The prospects for a positive result out of the March 2008 iron ore price contract are rapidly improving as well.
In a nutshell, it would not surprise to see the EPS forecast for FY08 for resources move higher to near 30% growth over the next few quarters. Once again, this is the reverse of the picture during mid-2006. By definition, the PERs and cashflow multiples have also moved from a position of being potentially understated last year to being overstated today. That is, the already low PER of around 10.1x for the sector in FY08 could potentially be even lower towards 9x, and the cashflow multiple (which is currently around 7.6x) could drop to a record low below 7x.

Woodside Petroleum (WPL) have an upgraded Buy / Medium Risk (1M) share trading recommendation and a price target of $42.80 per share from analyst Citigroup Investment Research (CIR). This comes after minor earnings changes (-6% in ‘08) and an increase in the probability from 60% to 80% that the large Pluto LNG project will be developed. Proven reserves up 33%, to 1,193MMboe, and Proven and Probable reserves up 27%, to 1,580MMboe. Not a surprise, as CIR have flagged for months the potential for significant Pluto reserve migration. Finding costs have been slashed thanks to the apparent maturing of the Pluto LNG project, the 3-year finding cost dropped to US$2/boe and the 3-year 1P & 2P Reserve Replacement Ratio rose 218% and 253%, respectively. However, some operational issues remain, with all these gains were not without some pain, which was felt on the production front with problems at their two new flagship fields – Chinguetti and Enfield. Enfield remediation is set to commence in April. Production guidance lowered: 2007 guidance was reduced from the range 75 to 80MMboe to 72 to 78MMboe, largely due to the sale of the Legendre oil field and project delays at Thylacine (net 51%) and Neptune (net 20%).

Meanwhile, Woodside Petroleum Limited (WPL) have a Buy 1 shares recommendation and a share price target of $43.82 from analyst UBS. The analyst have noted that: NPAT (before significant items) of A$1,395.9m (+37% yoy) was 5% above their forecast, and 3% above consensus. The reported NPAT of A$1427m included an A$31.1m (after tax) gain from the Kipper sale. The final dividend of A77 cps (fully franked) was also A6 cps above their forecast. Overall, this result was slightly better than their expectations. Our '06 EPS has increased 4.5%; '07E EPS has decreased by 1.2%, and '08E EPS has decreased by 16.7%. The change to their '08E EPS forecast is largely a result of updates provided by Woodside on project timing and initial production expectations. Production guidance for 2007 is now 72 – 78 mmboe (prior 75 – 80 mmboe). UBS have commented that proven (P1) reserves have increased by a very respectable 274 mmboe (+33%) to 1.19 bn boe. This has been driven by booking Pluto gas reserves (pre FID for the LNG project). Downgrades at other fields have been mainly oil (Enfield, etc). Their NAV is based on a DCF (10% nominal discount rate) of WPL fcst cash flow over the 2P reserve life of producing assets and all committed and highly probable projects. The analyst's share price target is A$43.82 (prior A$43.89) and is based on their NAV, significant contingent resources and potential exploration upside.

Woodside Petroleum (WPL) have a Long Term Buy 1 share trading recommendation and a price target of $43.89 from analyst UBS. The BHP Billiton 31 Dec 2006 Interim Result of 7 Feb has highlighted that North West Shelf Project area (NWS) operating costs have risen by a significant 27% in US$ and 25% in A$ over the Dec '06 half year period (yoy). Although a portion of this increase can be related to one off costs, they have cautiously revised up our Woodside (WPL) NWS operating cost assumptions. The impact on our WPL EPS forecasts is as follows: 2006E EPS -1.3%, 2007E EPS -3.3% and 2008E EPS -2.1%. The increase in their forecast NWS costs has also reduced our WPL valuation and share price target by 79 cps each. The shares analyst continue to rate WPL as one of Australia's best long term resource sector investments, largely due to its quality asset base which has potential to support an exceptional production growth profile from a diversified portfolio of mainly WPL operated oil, gas and LNG project developments. Their NAV is based on a DCF (10% nominal discount rate) of WPL fcst cash flow over the 2P reserve life of producing assets and all known committed and highly probable projects. Our share price target is A$43.89 (prior A$44.68) and is based on our NAV, significant contingent resources and potential exploration upside.

Woodside Petroleum (WPL) has been lowered share trading recommendation of Hold (2M) (from Buy 1M) with a decreased share price target of $41.80 (from $42.70) from Citigroup Investment Research (CIR). With Woodside already clearing the Pluto site, the project risks should be falling not rising. The start-up of a GTL plant by Chevron / Sasol could tie up some 3rd party gas options, thus increasing the pressure on exploration to find the "missing" gas volumes. Gas reserves delineated to date appear sufficient to support a 6Mt/yr LNG project for 15 years but not a 20-year operation. To achieve standalone status further exploration success or the tolling of 3rd party gas would be required. There is some exploration potential within the Pluto block. There is more likelihood in adjacent blocks; however equity in those gas molecules if delineated would be diluted from 100% at Pluto to 50%. Two wells are planned in Block WA-370-P in 2007. This rise in project risk, unless ameliorated, could increase funding costs and squeeze project returns. CIR have reduced the probability that the project will proceed from 75% to 60% and in so doing have lowered their target price from $42.70 to $41.80 per share.

Woodside Petroleum (WPL) has a Buy 1 Share Recommendation and a share price target of $44.43 from UBS' share update. The company has released their December quarter sales revenue figures of A$1097.8m - of which UBS found that it was 4% below the Sep '06 quarter, but 9% above our forecast. UBS consider this a solid result in light of the 16% drop in WPL's realised oil price to A$74.77/bbl over the qtr. Sales volume of 19.98 mmboe was 1.28 mmboe above their forecast. Production volume of 18.97 mmboe was in line. UBS has reduced their EPS forecasts: '06 1.0%, '07E 6.9% and '08E 2.0%. Key reasons they have brought our forecasts back: Exploration exp ('06) increased, Cossack-Pioneer prod reduced over 1Q07, Otway Gas delayed by two months, Neptune start now early 1Q08 (prior 4Q07). As a result, our WPL EPS forecasts have reduced by '06 1.0%, '07E 6.9% and '08E 2.0%. However, the analyst still finds Woodside as one of Australia's best long term resource sector investments, largely due to its high quality asset base which has potential to support an exceptional production growth profile from a diversified portfolio of mainly Woodside operated oil, gas and LNG project developments. Their NAV is based on a DCF (10% nominal discount rate) of WPL forecast cash flow over the 2P reserve life of producing assets and all known committed and highly probable projects. Their share price target is A$44.43 (prior A$44.64) and is based on our NAV, significant contingent resources and potential exploration upside.

Woodside Petroleum (WPL) have a rating of Buy 1, a share price target of $44.64 and a NAV of $30.67 based on a DCF at 10 percent from stock analyst UBS. They "rate Woodside Buy 1 and believe it represents one of Australia's best long term resource sector investments, largely due to its high quality asset base which we believe has potential to support an exceptional production growth profile from a diversified portfolio of mainly Woodside operated oil, gas and LNG project developments."