Woodside share price hits post-pandemic highs on bumper earnings

Woodside Energy earnings beat expectations

Woodside Energy said revenue more than doubled in the first half of 2022 to $5.8 billion compared to just $2.5 billion the year before.

That was thanks to a 19% rise in production and an 11% increase in sales after the company completed its merger with BHP’s petroleum business, which allowed the company to fully capitalise on higher oil and gas prices. On average, the price paid for oil and gas was more than double what we saw last year to around $96.4 per barrel.

That resulted in net profit after tax jumping more than five-fold to $1.64 billion from just $317.0 million the year before. This came in ahead of the $1.49 billion forecast by analysts.

Woodside reaps rewards from BHP’s energy assets

The biggest event of the first half for Woodside Energy was the completion of its merger with BHP’s petroleum business. The merger propelled Woodside into the top 10 independent energy companies in the world and it is now the largest listed in Australia. Upon completion, Woodside Energy shareholders owned around 52% of the business and the other 48% was held by BHP investors that received shares in the enlarged business through the all-stock deal, which also resulted in Woodside Energy listing in London.

CEO Meg O’Neill described the merger as ‘one of the most significant events in Woodside’s 67-year history and marked the start of a new chapter for the company.’

Investors cheer Woodside dividend hike

Woodside Energy revealed it is paying a dividend of $1.09 for the first half, having hiked the payment from just $0.30 the year before. That payout represents 80% of underlying net profit after tax, which will have impressed shareholders considering this is at the top-end of Woodside’s goal to payout 50% to 80% of profit following the merger.

Shareholders could be set for even bigger rewards considering Woodside has already said special payouts and share buybacks could also be used to supplement returns going forward.

Woodside: Will the second half been even better?

The merger was only completed at the start of June, meaning BHP’s assets only contributed a months’ worth of production in the first half and should provide an even bigger boost in the second half of 2022, assuming prices remain favourable. BHP’s petroleum assets produce more than those that Woodside owned before the deal was completed, but the completion date meant the BHP assets contributed just 9.7 million barrels of oil equivalent in the first half out of the total output of 54.9 million barrels.

With that in mind, Woodside is aiming to produce 145 million to 153 million barrels of oil equivalent in 2022, which will be some 59% to 67% above the 91.1 million barrels produced in 2021.

That means Woodside is in prime position to capitalise from higher prices this year. Bloomberg Intelligence flagged this morning that LNG prices in Asia between July 1 and August 29 were up almost 60% compared to the average seen in the first half, suggesting they will remain buoyant for the rest of the year as countries around the world continue to grapple with soaring energy costs. It is worth noting that over 70% of Woodside’s production is gas, most of which is in the form of LNG.

The jump in production and elevated price environment has led analysts to believe Woodside’s net profit after tax soar to over $4.7 billion in 2022 from $1.98 billion in 2021, which should feed through to shareholder returns.

Woodside has a number of growth projects that are already under construction, including the likes of Mad Dog 2 and Shenzi North in the Gulf of Mexico and the Scarborough gas project in Western Australia. Woodside is now in the process of evaluating its enlarged portfolio to discover where its next growth catalyst will come from, and investors should expect more dealmaking as it looks to find partners and sell down its stake in some key projects. It sold down a 49% stake in the Pluto Train 2 during the first half and is still looking for a partner for its major Scarborough project.

O’Neill said today that Woodside will be focusing on projects that can get up and running quickly, stating ‘it wouldn’t be a good economic decision to spend money on an exploration well today if we don’t have a quick pathway to commercialisation’.

Plus, Woodside has already delivered $100 million worth of annual synergies since the merger was completed, putting it on course to achieve its $400 million target by early 2024.

Where next for the Woodside share price?

Woodside Energy’s shares in Australia hit fresh post-pandemic highs after the earnings were released before giving back some of those gains to last close at AUD35.87.

The RSI tested overbought territory upon hitting AUD35.95 and the slip back below here suggests this is the initial ceiling that needs to be captured. Notably, the 15 brokers that cover Woodside Energy have an average target price of AUD34.49, demonstrating they see limited upside from current levels.

Any renewed pressure could see the stock slip back toward the 50-day and 100-day moving averages, which are converging around the AUD32 mark, but AUD30 should be treated as a firmer floor considering this has emerged as a level of support on several occasions over the past four months.

Turning to the weekly chart, Woodside shares have recently broken above the downward resistance from the all-time high of AUD43.74 hit back in 2014. If it can remain above here for a sustained period of time, then we could see the stock target the AUD39.38 high seen in October 2018 before the all-time high comes back into play.

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