Woodside Petroleum [ASX:WPL] is up for the start of 2016. That’s right, Australia largest producer of oil and gas is already yielding returns for shareholders. Shares jumped 2.92% this morning to a high of $29.59. Ok, so shares haven’t skyrocketed — but analysts were predicting further declines in commodities. Thus companies dependent upon commodities, like Woodside, should be declining. So what made shares jump?
Source: Google finance
Woodside’s new discovery could mean big bucks
Woodside has been drilling off the shore of Myanmar, west of Thailand, since 2012. Today Woodside announced that their efforts have finally paid off. They found gas.
Along with a consortium, Woodside has explored six different areas within the Myanmar region. The drilling efforts have found gas 129 metres deep. The reports are promising to start commercial production.
But ‘further analysis will be undertaken to understand the full potential of the play, but this de-risks a number of leads which will now be matured,’ said Woodside CEO, Peter Coleman.
Even if the gas found is not enough to fuel Woodside wildest dreams, the discovery is still promising. ‘This discovery is an encouraging outcome for future exploration and appraisal activity in the area,’ Mr Coleman said.
And I couldn’t have said it better. Myanmar is one of the world’s greatest spots for exploration right now. Political reforms in 2011 allowed international companies to re-enter the market. This gave drilling explorers the green light.
But wait, isn’t oil and gas going down in price? Why is it good news that Woodside has found more of a declining commodity?
It seems that prices aren’t at dire levels. Margins are being squeezed and profits are being hit. Yet companies like Woodside can’t bear to leave money in the ground. And obviously investors approve.
Myanmar holds an estimated 3.2 billion barrels of oil and 18 trillion cubic feet of gas. So Woodside’s future may be a prosperous one — even if oil and gas prices are declining.
What to do about Woodside shares
If Woodside can manage to obtain sustainable gas production from the Myanmar region then shareholders might be able to regain losses sustained from late last year.
As long as oil gas prices don’t fall too aggressively, Woodside could be a smart play for 2016. Timing, however, is important. Share prices are trading around 23% lower than the start of last year. And they could continue to decline.
Junior Analyst, Money Morning