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Woodside Petroleum – Wheatstone now, Browse later

The plunge in global oil prices and an opportunistic purchase has changed the outlook for Woodside Petroleum. We think it’s worth buying WPL shares as a contrarian way of buying a quality oil and gas company while the sector is unpopular.

This week, WPL announced it had paid US$2.75 billion for Apache Corporation’s stakes in two LNG projects plus the associated upstream oil and gas assets.

WPL will pick up a 13% stake in the Wheatstone LNG project in Western Australia together with a 65% interest in the Julimar/Brunello offshore gas fields and the Balnaves oil development which are both in the WA-49-L block.

WPL will also get a 50% interest in the Kitimat LNG project in Canada plus some associated upstream oil and gas assets.

WPL will pay an additional $1 billion to Apache to reimburse it for the net expenditure incurred between now and settlement date on 30 June 2015.

The Wheatstone project is a biggy at US$29 billion with two LNG trains under construction in the Pilbara region in Western Australia. The trains will produce 8.9 million tonnes of LNG per year when it fires up to full tilt sometime in 2016. Wheatstone’s biggest partner is US energy giant Chevron (64.14%) with some familiar names among the other partners: Kuwait Foreign Petroleum Exploration Company (13.4%), Kyushu Electric Power Company (1.46%) and even the Tokyo Electric Power Company which indirectly has a stake.

The decision to buy into these two projects provides some resolution and much-needed direction for WPL after bumbling its way through some messy efforts recently. The Leviathan LNG project in Israel didn’t work out and the proposed structure of Shell’s exit from WPL’s register wasn’t to everyone’s liking and was disrupted.

The search for sufficient gas to justify additional LNG trains at Pluto has proved futile and the likelihood of the Sunrise LNG project ever seeing daylight seems nigh-on impossible given the political barriers.

That had left the Browse FLNG decision as the most likely and realistic option on the horizon but the final investment decision on this has now been pushed out with the Wheatstone project a more appealing option.

CEO Peter Coleman has tried hard to find the right path for the company to follow since the completion of Pluto but things haven’t quite played out how he wanted.

This acquisition now looks to have settled the agenda for the medium term and bought the company additional time to consider decisions like Browse with less urgency.

With oil prices at 5-year lows, now is a good time to be buying good oil and gas businesses that can take advantage of the situation. WPL appears to have done just that so we are saying this is the chance to piggy-back WPL’s decision.

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