Woodside investor update

Fiscal year 2013 production output has narrowed to 86-88 million barrels of oil equivalent (mmboe) from the company-prescribed 86-93 mmboe.

That compares to a median forecast of 87.4 mmboe; so on current forecast WPL show be bang in line.

WPL has also cut FY13 capex forecast to US$1.1 billion versus its original expectation of US$2.3 billion as it defers payments for the Leviathan project.

FY14 is looking a little lighter, with the production range moved to 86-93 mmboe – the medium estimate was for 93.3 mmboe. The reduction is due to WPL’s decision to spin off its Gulf of Mexico assets where it has a 17.5% in the operations, which have now past their full capacity stage to concentrate on Leviathan and Browse.

The company will make investment decisions on both in the coming 18 months, with Leviathan in the first half of next year and Browse in the second half of 2015. It explains why capex will jump to US$2.04-US$2.4 in 2014 as the feasibility studies and licence renewals come into effect.

The trade

I have been, and continue to be, a big believer in the gas story, and Australia is very well placed to take maximum advantage of this.

WPL is the safest option of the four gas production giants in WPL, STO, ORG and OSH. However the one I have been the longest on is STO, which is up 32% year-to-date and has more upside once its PNG LNG project comes online in early 2014, followed by its Gladstone LNG project in 2015.

I reiterate that WPL has a very strong resistance level at $39.50; it has tested this level over six times in 2013 and that level looks solid. However on current trends, the fact that the Americas are currently experiencing a sharp cold snap that has forced the natural gas price to yearly highs, and the low cost environment WPL is currently operating in, buying at current levels is optimal with a stop loss at $37.50.

If WPL does challenge the $39.50 mark and breaks down I would exit the trade, however if it finally breaks out of this resistance level, 2014 could be a very advantageous year for the stock.

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