Financial statement analysis

Case Study:Woodside petroleum

Ellie Wilbraham An Qian Chen Johnny Chiu

Agenda
Introduction Economic & Industry Analyse Competitive strategy Growth and profitability
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Introduction

Introduction

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion

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Introduction

Company background
Exploration company for natural resources, Oil and Gas Based in Western Australia Founded in 1970 s Focus on LNG- liquefied natural gas Expansion and growth actions Pluto

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 4/25

Introduction

Economic analysis
Newspaper Articles Australian financial review Internet sites- RBA, ASX
Current situationEnvironmental factors Government policies (carbon Tax) Foreign exchange rate (USD/AUD) Energy sector GDP

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability

Company s place in industry

Company financial reports Analyst website reports current news

Industry growth Company growth Future profitability Conclusion 5/25

Introduction

Industry analysis - Porters five forces

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion

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Introduction

Industry analysis
Porter s 5 forces Rivalry among Existing Firms (high)
o o o High fixed costs High exit barriers Low levels of product differentiation

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 7/25 7/25

Threat of New Entrants (low)

o o o o Economies of scale Capital requirements Government policy/approval for exploration and extraction significant regulatory environment within the oil and gas industry, which is restrictive to the entry into the industry High exit costs First mover advantage

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Industry analysis (cont)

Threat of Substitute Products/Services(low)
o limited substitute products available in the market Shifting to renewable energy sources is costly and will take time, which is in short supply There are several substitutes for coal and consumable fuels within the power generation market -nuclear fuels, alternative energy sources etc. However, while power companies can alter their primary energy mix to a small extent without incurring many costs, a thoroughgoing transition to these substitutes would require investment in different generation facilities, which constitutes a very high switching cost. Overall, the threat of substitutes within the global oil, gas and consumable fuels industry is weak but still growing with technological advances.

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion

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Introduction

Industry analysis (cont)

Bargaining Power of Consumers (moderate)
o o o Buyers are concentrated - there are a few buyers with significant market share Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized However, the fact that oil, gas and coal are strategically important to its users tends to weaken buyers strength.

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 9/25

Bargaining Power of Suppliers (high)

o Major suppliers are gas and oil equipment and services providers, meaning limited number of suppliers and their importance to the industry increases supplier power.

Introduction

SWOT analysis
Strenghts
Retaining highly skilled and motivated workforce, as evident by record number of new employees in 2010 and a low attrition rate

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy

Weaknesses
Cost of sales, royalty and excise costs increased. Production costs were unfavourably impacted by higher AUD:USD. Exploration and evaluation expenses were higher coupled with increased general and administrative costs.

Opportunities More investments in Asia as Asian economies have recovered well from the global downturn and have generally returned to high levels of economic growth.

Threats
Sustainability

The financial crisis Environmental factors Exchange rate influence Increased competition for labour Fragile industrial relations environment.

Industry growth Company growth Future profitability Conclusion 10/25

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Competitive Strategy
Cost leadership
o o o o o Low production cost and thin margins Profits coming from a high volume Large scale of production Undifferentiated product price of which is set according to supply and demand

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 11/25

Core competency
o Highly skilled employee s  Efficient operation of plant and equipment- improving production reliability and capacity utilisation  Employee dedication- Healthy, safety and security policies

Introduction

Corporate strategy
Corporate scope
To create and deliver outstanding, sustained growth in shareholder wealth by providing energy for the future. Woodside continues to focus on improving its foundation business and delivering long-term growth in shareholder value through commercialising its Australian LNG portfolio.

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 12/25

Synergy
o

Management- Woodside s highly skilled employees combine knowledge and expertise to maximise efficiency under all business units Leverage-Vertically and horizontally operations highly integrated from exploration, mining, extraction, refinement, shipping and production of natural energy. Resulting in maximised efficiency and integrated systems throughout whole corporate umbrella Cost-Oil refinery and natural gas plants use similar equipment. Eliminating redundant assets and ability to merge duplicate processes into one.

Introduction

Sustainability
Maximised synergy Pricebased strategy
Sustainable competitive advantage

Company Background  Economic analysis  Porter s 5 forces  Industry analysis

Concise corporate scope

 SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 13/25 13/25

Introduction

Industry growth potential

Developed countries will tend to opt for LNG as a transitional energy source as oppose from coal/oil since LNG has more emission advantages and its efficiency to transport over long distances. increased at a rate of 7.4 percent per year over the decade from 1995 to 2005 Driven by Asia s ever increasing demand of LNG Recent activity in Japan s nuclear dilemma prompted Japan to look at LNG for sustainable energy

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis

Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 14/25

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Company growth potential

Horizontal expansion
o o Project Pluto- Delivery of the foundation Pluto LNG Project will support future LNG growth opportunities Development stages of project Browse and Sunrise . Fueling future LNG growth

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 15/25

Existing market share

o Eight operating assets in North West shelf of Australia, Three of which are LNG plants- Woodside aims to maximise the returns from these assets Woodside will meet its financial obligations and contribute funds to support the company s growth ambitions

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Future profitability
Total energy consumption would only ever increase Woodside would significantly benefit from the widespread use of LNG globally as it is one of Australia s LNG suppliers. With current total of 3 operating LNG plants and continuous expansion, Woodside has the capability to meet demand. As Asia led the way in world economic recovery, Woodside advanced plans for Pluto expansion, Browse and Sunrise to take advantage of growing energy demand from the region. Operating cash flow increased by 41.9% from the previous year (2009) to $2.10 billion, putting Woodside in a strong position to invest in LNG growth strategy.

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 16/25 16/25

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Conclusion
Ever increasing costs in Energy sector Multiple external factors influence energy prices Corporate and Business strategy vital for company survival High growth rate for rising LNG energy Expected profits for Woodside in near future

Company Background  Economic analysis  Porter s 5 forces  Industry analysis  SWOT analysis Competitive strategy Corporate strategy Sustainability Industry growth Company growth Future profitability Conclusion 17 17/25

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