It’s no wonder Woodside wants to raise $2.5 billion to spend billions on expanding its gas interests on the North West Shelf, it is swimming in hundreds of millions of dollars of cash, with more to come and that needs a profitable home.
While Woodside said yesterday profit jumped sharply in the year to December 31 as oil prices rose above its new break even point of $US35 a barrel, the news of the $2.5 billion, one for nine raising for control of a major NW Shelf gas field and LNG expansion elsewhere in the world, took investors by surprise.
It comes two years after the company took write downs of more than $US1.2 billion as revenue and earnings crashed in 2015 in the great oil slide from mid 2014. The company said yesterday underlying net profit of $US1.024 billion ($A1.3 billion) was up 18% from the US$868 million in 2016.
That’s less than underlying earnings of $US1.126 billion in the troubled 2015 year.
That was on a 4.1% fall in revenue to $3.908 billion (thanks to an 11% fall in output in 2016 when 94.9 million barrels or oil equivalent was produced)
As a result free cash flow soared 629% year on year to US$832 million by the end of 2017.
The company had $US318 million of cash at balance date, up from $US285 million at the end of 2016 and prospects of another big rise this year all things being equal.
Woodside said it starts making profits from its production when the oil price is above $US35 a barrel, and has forecast its revenue will grow rapidly if the prices keeps rising. Brent crude currently costs US$62 a barrel.
“For 2018, the expected impact on [net profit] of a US$1 movement in the Brent oil price is US$26 million, and the expected impact of a 1 cent movement in the AUD/USD exchange rate on [net profit] is US$5 million,” the company said in its financial results release to the ASX.
And shareholders got their share – Woodside announced a fully franked full-year dividend of 98 US cents a share (up from 84 cents in 2016) with an unchanged final of 49 US cents a share.
And with the rise in cash flow and the prospect for more, Woodside has decided to put it to use by buying ExxonMobil out of the huge undeveloped Scarborough gas field on the NW Shelf.
Woodside will raise $2.5 billion to help fund the Scarborough purchase and provide funding for LNG expansion in Western Australia and an oil project in Senegal. the Scarborough deal will cost around $US744 million, so there’s plenty left over from the $US2 billion raising.
The Scarborough deal involves a $US444 million initial payment, then a further payment of $US300 million once a final investment decision on a development project is made.
That will also support Woodside’s plan to progress its ambitious Browse LNG project to a final investment decision, according to chief executive Peter Coleman yesterday an the advancement of other LNG prospects, most notably in Senegal in West Africa..
The purchase of Exxon’s 50% stake in Scarborough will take Woodside’s interest in the remote field to 75%, with BHP Billiton holding the rest.
The new shares will be issued at a price of $A27.00 per New Share. Woodside said this price is a “ 0.3% discount to the dividend adjusted theoretical ex-entitlement price of $A30.11 based on the closing price of Woodside shares on the ASX on 13 February 2018."
Woodside shares were halted yesterday until next Monday to allow the institutional part of the issue to be done. A retail offer to shareholders (https://www.woodsideoffer.com/offer/announcements/).
Woodside said the new shares issued under the Entitlement Offer will rank equally with existing shares however the new shares will not be entitled to the 2017 final dividend which was announced by Woodside separately yesterday of 49 US cents a share.
Retail shareholders will be offered shares on a pro rata basis and those wishing to can sell their entitlements on the ASX (the offer is therefore renounceable).
Trading of those entitlements starts on Monday, February 19 on a deferred basis. Retail shareholders have until March 7 to apply for their entitlements.