WDS -4.39%: Was sold down today following their quarterly update and weakness in energy prices overnight – with the blame for the drop split about 50/50. 2Q22 production was fine and they provided guidance for the combined entity for the first time (BHP-P and WPL). This is where some confusion seems to have set in. Anecdotally, it seemed that the market was interpreting the update as a production downgrade, however, our energy guru Michael Clark was more of the opinion that it was not a downgrade – it was simply a change in use of conversion factors. In fact, it could be argued it’s actually an upgrade! In Petroleum Engineering there is not one set of conversion factors that is considered ‘best practice’. Standardising between different fluid types depends on whether you convert units of energy or units of mass or units of volume. Choose your poison wisely!
In this quarterly, Woodside has effectively switched product conversion methodology from energy to volumetric. This has implications for the barrels of oil equivalent (boe) per tonne of LNG (less boe) and LPG (more boe). Despite the change, exactly the same amount of LNG / LPG product tonnes are being sold this year (i.e. no change to Revenue = Price x Volume). The only difference is ‘academically’ there are less boe of LNG and more boe of LPG reported.
While the other players in the space were down today, Santos (STO) -1.89% and Beach (BPT) -1.64%, Woodsides (WDS) -4.39% is out of kilter with what it should have done.
MM remains bullish WDS
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