Woodside Petroleum (ASX: WPL) has announced a profit hit of US$4.37 billion, largely due to impairments.
What is Woodside Petroleum?
Woodside Petroleum Limited is Australia’s largest independent oil and gas company with a global portfolio. It is an explorer, developer, producer and supplier of energy. Woodside has been operating for over 60 years and is now Australia’s leading LNG producer. Some of its current development projects are in Senegal (SNE), Myanmar, Canada (Kitimat) and Timor-Leste / Australia (Sunrise).
Woodside’s big writeoff
Woodside said that its financial statements for the half year to 30 June 2020 are expected to recognise after-tax impairment losses of US$3.92 billion after reviewing its carrying value of its assets.
It’s expecting to recognise $2.76 billion for oil and gas properties and $1.16 billion for exploration and evaluation assets. Additionally, it’s expected to include an after-tax onerous contract provision for the Corpus Christi LNG sale and purchase agreement of US$447 million.
Woodside explained that approximately 80% of the oil and gas properties impairment losses are due to the significant and immediate reduction in oil and natural gas prices assumed up to 2025, impacting Woodside’s products in the prevailing economic climate. Additional contributors are increased longer term demand uncertainty impacted by the COVID-19 pandemic and macroeconomic dynamics and the increased risk of higher carbon pricing.
Woodside CEO Peter Coleman said: “We have low gearing and high liquidity, and announced significant expenditure education activities in March. Woodside’s balance sheet provides a resilient, long term basis for creating shareholder value.”
Summary
It’s not surprising to see that Woodside has written down the value of its assets during this period. There has been a lot of disruption to the oil and gas industry, and management may have felt it was appropriate to write down the value of these assets during this year. I’m not a fan of investing in resource shares, so I’m leaving Woodside on the sidelines for my own portfolio.
[ls_content_block id=”14947″ para=”paragraphs”]
