Capital Structure Analysis for Woodside Petroleum Ltd

CAPITAL STRUCTURE ANALYSIS
Case Study Analysis
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Table of Contents
CAPITAL STRUCTURE ANALYSIS............................................................................................1
1.2 COMPANY AND INDUSTRY OVERVIEW.......................................................................4
2. CAPITAL STRUCTURE ANALYSIS........................................................................................7
2.1 Historical Company Financing/Leverage Analysis and Peer Leverage Analysis...................7
2.1.1 The financing and leverage history of the company and characterise the company’s
historical (and current) leverage policy using:..........................................................................7
2.2 Optimal Leverage Analysis...................................................................................................10
References.......................................................................................................................................12
Appendices.....................................................................................................................................13
Appendix 1..................................................................................................................................13
Appendix 2..................................................................................................................................14
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1. EXECUTIVE SUMMARY and COMPANY AND INDUSTRY OVERVIEW
1.1 EXECUTIVE SUMMARY
Capital structure of a Company allows determining various indicators for a particular Company.
In the current scenario Woodside Ltd has been taken for consideration for its financial leverage.
In order to compare its capital structure, BHP Billiton and Santos has also been taken from the
petroleum market. The analysis reveals that firms generally try and stick to the target leverage
that has been determined for their companies. Though Woodside has been able to stick to its
targeted leverage however the other two companies had not been able to do the same. The
analysis reflects that the companies are mature companies with availability of high cash flows;
this implies that from the leverage point of view, the companies are not attractive to invest in. The
companies need to lower their levels of debt such that they are able to effectively attract newer
investors towards their company. In order to analyse attractiveness of the companies, optimal
leverage for the companies had to be determined. The optimal leverage range for the companies
includes 1.5 to 2.0.
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1.2 COMPANY AND INDUSTRY OVERVIEW
Firm’s Business Activity: Capital Structure of a Company is integral to be determined as it
allows reflecting on the debt and equity present in the Company’s capital. In the current analysis
Woodside Petroleum Limited, which is an Australian petroleum company has been taken into
consideration. The Company was founded in the year 1954 and its headquarters is based in Perth
in Western Australia. The current CEO of the Company is Peter Coleman. The Company has
approximately over 3300 employees and deals in petroleum and LNG products. The Company is
one of the largest operators in oil and gas production in Australia and is publicly listed in the
Australian Securities Exchange. The firm’s business activities concerns exploration and
development of operation activity. It operates a number of international areas such as United
States, Senegal Republic of Korea, Canada, Cameroon, New Zealand, Myanmar, Ireland,
Morocco and Gabon. In Australia, it operates in Enfield and Vincent oil fields that are located
offshore from Exmouth in Western Australia. The firm’s business activities is confined to oil and
gas exploration along with developing a number of LNG (liquefied natural gas) projects in
Australia and other areas in which it is operational.
Business Segment: The Company is one of the largest in Australia. It is primarily connected with
hydrocarbon exploration, evaluating, developing, producing and marketing of the products. There
are three business segments in which it operates, comprising of North West Shelf (NWS) Project,
Australia Oil and Pluto Liquefield Natural Gas (LNG). Its developmental activities consist of
Wheatstone LNG and Browse floating liquefield natural gas (FLNG) along with others. With so
many oil and LNG exploration and development fields, the Company occupies a leading position
in the Australian market.
Recent developments in the company: The Company with multiple gas exploration across
Australia and other countries of the world has several developments. Analysis of the Company’s
financial statements revealed that the Company’s Q1 revenues rose to 30% with its increased
output and due to higher prices in liquefield natural gas (LNG) (Reuters, 2018). In the second
quarter in this year, the Company was to undertake a decision on whether to invest in Sempra
Energy’s Port Arther LNG project in Texas or not. The Company recently in September was
recorded to load its last Enfield oil cargo as the field has reached its end of production capacity.
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