Woodside Petroleum (WPL) had a lot of confident, upbeat commentary about its development prospects over the next year to 18 months in its 2015 investor day release yesterday, but the most important statements were buried in the briefing from the company’s chief financial officer Lawrie Tremaine.
He made it clear in the briefing that Woodside was continuing to reshape its business to take account of the lowered price of oil, with more cost and job cuts planned.
The Woodside document contained a target price for Brent crude, the global benchmark, of $US65 a barrel, which is roughly where the futures price is at the moment.
"Operating cash flow expected to average approximately $2.7 billion per annum for the next four years..[the company has] adequate cash flow to fund expected dividend and investment expenditure,” Mr Tremaine told the briefing.
“The company has committed expenditure less than $500 million per annum, $2.75 billion raised from bond and bank markets in 2015 to date,”Mr Tremaine said. Woodside is “on target to achieve $800 million in benefits by end 2016, $560 million benefits realised in 2014.. 2015 redundancies -organisational savings now at ~20%.”
Mr Tremaine said Woodside had boosted bank and market borrowings this year to $US3.5 billion, while the cost of debt pre-tax had fallen to 2.4% from $3.4% in 2014.
And importantly he said there was no change to capital management approach which would be driven by:
- Continuing to generate significant operating cash in a low oil price environment;
- Maintaining dividend payout ratio;
- Accelerating cost reduction and reliability improvements;
- Flexibility in balance sheet to invest in growth.
In the current uncertainty about prices and demand that sort of message was more reassuring for investors than much of the talk about development projects.
A major area of interest was Woodside’s continuing enthusiasm for the huge Browse Basin floating LNG joint venture off the northwest WA coast.
Management indicated the company is increasingly confident that early engineering and design work will start on the project in coming months.
Browse is by Woodside and includes Shell and BP. Its future has been questioned by the slump in oil demand and the big takeover of BG Group by Shell.
Woodside CEO Peter Coleman told briefing in Melbourne that the company still sees Browse moving into front-end engineering and design or FEED work in the middle of 2015.
He added that Woodside is now so confident of moving ahead it could now say it was “expecting” a mid-year start to FEED work rather than “targeting” it.
A final investment decision on the massive project is expected in the second half of next year, but it is also possible the project could still be delayed following completion of the FEED work.
But Mr Coleman’s part of the briefing finished with a strong financial message to investors.
He said Woodside’s credit ratings had been reaffirmed, with a stable outlook. The company’s “target dividend pay out ratio (was) unchanged”, the company had “refinanced (its) balance sheet at improved terms in low oil price environment” and it had a “continued focus on growth, and maintaining returns”.
Woodside shares rose 1.6% to $34.86, helped by a slightly stronger oil price and the upbeat contents in the briefing on financial management.
WPL 1Y – Woodside speeds up cost cutting
