Woodside posts strong 2Q on back of higher energy prices

Woodside Energy (ASX: WDS) shares opened -1.92% lower this morning despite the newly merged entity with BHP Billiton’s (ASX: BHP) petroleum business announcing a strong second quarter update that saw production up 60% on the previous quarter to 33.8m barrels of oil equivalent (boe).

The company received an average sale price of US$95 per boe - more than doubled the US$46 boe a year earlier - on revenue up 44% to $3.4bn over the June quarter.

Highlights within the quarter included:

• Woodside's entre into a top 10 global independent energy producer by hydrocarbon production with assets spread through Australia, the Gulf of Mexico and Trinidad.

• A net cash payment from BHP Group of approximately $1.1bn.

• Significant progress was made on key projects.

• First steel for Scarborough’s floating production unit topsides was cut.

• Accelerated Pluto gas transported through the Pluto-Karratha Gas Plant Interconnector has resulted in additional LNG production and sales of uncontracted cargoes in a high-priced market.

Ongoing developments

Woodside expects to produce between 145m-153m boe for the 2022 financial year and spend between US$4.3bn to US$4.8bn with US$400m- US$500m on exploration.

In an attempt to sell down high equity levels in the development, Woodside advised investors it was ending a sales process for its Sangomar oil project in Senegal.

The company also noted an issue with its Mad Dog phase 2 project in the Gulf of Mexico and plans to update on any delay to the project starting-up in 2022 as more detail comes to hand.

Meantime, Woodside's first big decision as a unified entity will be whether to give the go-ahead on its Trion oil discovery in the Gulf of Mexico, with the company targeting a potential final investment decision in 2023.

What brokers think

Woodside’s share price is up 48.86% over one year.

Consensus on the stock is Moderate Buy.

Based on Morningstar’s fair value of $34.17 the stock appears to be undervalued.

Based on the seven brokers that cover Woodside (as reported on by FB Arena) the stock is currently trading with 7.5% upside to the target price of $35.04.

Intelligent Investor recommends buying Woodside under $28 and selling above $40.

Within a general sector update Ord Minnett has nominate Woodside as its most preferred energy exposure on the ASX, and rates the stock as Buy with an updated price target of $38.05, up from $37.

Early July UBS upgraded Woodside to Buy from Neutral, and with supply availability continuing to tighten the global oil market has lifted its Brent oil forecast to US$104 a barrel in FY22.

The broker has increased its price target to $34.25 from $32.00.

Woodside's share price over one year.