Contrarian Buy-recommended Woodside Petroleum Ltd (OTCPK:WOPEY) aims to start up its Pluto liquefied natural gas (LNG) Train 1 in the first quarter of 2011, which will double LNG production. Further expansion of Pluto along with new production at Browse and Sunrise may take LNG to about 19 million tonnes or 170 million barrels oil equivalent a year by 2020. To give some recognition to the strong growth potential we have included 24% in estimated Net Present Value (NPV) of $44 a share for projects not yet under construction and reserves not yet proven or probable.
Meanwhile, maintenance operations reduced LNG volume in the second quarter according to disclosures in advance of half-yearly results expected on August 18. The details behind our projections have been recast in U.S. dollars with the change in the company’s reporting practices beginning this year. Among the challenges, a labor dispute delayed Pluto from earlier expectations that startup would occur by year end 2010. Boom conditions in LNG construction in Australia and nearby may contribute further cost pressures. A tax threat raised by the Australian Prime Minister has been put to rest for now with Mr. Rudd’s resignation in favor of Ms. Gillard (see MR 6/29/10).
Oil and gas pricing trends also suggest patience as we see latest settlements of six-year futures at $85 a barrel and $5.71 a million btu tracking below the 40-week averages of $86 and $6.25. Finally, McDep Ratio at 0.89 supports the strategic appeal of the stock while cash flow multiple (EV/Ebitda) is high at 11.1 times.
Originally published on July 27, 2010.