Woodside on the slide with gas on the rise?

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Becker

Mates,

Love your show. I just started investing again and was hoping someone can help me with this question?

I have been watching the oil price tank, thinking this would be a great time to enter the market and go long on an Oil company. Looking over the financials I find Woodside financially sound and a market leader in Australia.

I buy into Woodside when oil is priced around $53 per barrel, hearing that the US (world’s largest oil producer), is made up of Oil Fracking which cannot operate at a profit under $50 per barrel.

I look deeper into Woodside and find out I’m the proud owner of a LNG (Natural Gas) company not an Oil company. Woodside produce 78% Natural Gas and only 15% Liquids in the first half 2018.
Okay the WTI has dropped from $76 October High to $50 November Lows that’s 35% drop which will effect 15% of Woodside’s liquid output.
But here is the kicker, at the same time Natural gas prices has gone up from $2.80 September to $4.25 November. That’s 52% increase to 78% of Woodside’s production. Natural gas has be sitting around $3 for some time so I don’t believe the $1.25 increase has been priced in to Woodside’s market price.

So I don’t understand why Woodside’s price has dropped so much from $39 highs in September to $31 lows in November (21% drop) on good news (Natural Gas) that out weights bad news (WTI).
Have I missed something?

  • Edit
    Becker

    Hello again,

    I’m not sure if anybody is reading my question, but I felt like I should share my new understanding to be the question. Sorry if you have answered my question on a pod cast (Woodside on the slide with gas on the rise) but I love your show so much I started from episode 1 a month ago and I’m only at episode 80. I know ‘nerd’.
    What I have found at the bottom of their reports is the average price for their natural gas and oil. Their report shows oil which is at market price but natural gas 4 x higher than the futures market price. This makes me believe all of their natural gas is locked in long term contracts 10 or 15 years at a premium price.
    Woodside’s Oil on the other hand, floats with the market price. With oil prices at current levels the masses have decided Woodside is not going to meet expected returns. But like the saying ‘buy straw hats during winter’ that’s my strategy.
    My theory (which isn’t worth much because I’m as green as they come) behind my strategy in buying Woodside during this market turmoil is –
    1) Trump puts tariff on China and tweets it out loud.
    2) China puts tariff on USA (Trump laughing ‘we buy a lot more goods from you. America first!’)
    3) Trump talks to his Saudi buddies “ramp up production I’m going to put sanctions on Iran’
    4) China stops buying oil from the USA (But doesn’t tweet it to the world- that’s cheating)
    5) Trump put sanctions on Iran, but puts waivers on oil exports. Saudi’s have been double crossed. Trump “America first Bitches!”
    6) EIA counts oil inventory numbers “Holy shit we have a lot of Oil!” Futures markets freaks out. Note: What I can tell the Futures market base oil price on US inventory levels. I can’t blame them after watching the China Hustle on Netflix.
    7) Oil price crashes. World’s biggest consumers are cheering! China and Trump (Cheap oil = growth)
    8) Oops! Trump forgot to tell the oil Hedge funds his game plan. Banks are knocking on the Hedge Funds door to pay up the difference on their highly geared investments.
    9) Hedge Funds start selling off stocks to give cash to the banks. Market goes into a tail spin with oil.
    Predictions
    1 – G20 Trump makes peace with China. Outcome – 90 day truce. Not bad outcome. China has started buying oil from the USA again. I’ll take that one
    2 – OPEC cut oil output to bring balance to the market. Waiting
    3 – Iran sanctions come into full effect. Outcome still pending. A number of countries have already stop buying oil from Iran. I’ll take that one.
    Hopefully with the cut to supply and China buying from the US will bring the oil price back up within the next three months then I’ll sell. I welcome any advice on my strategy. Poke holes through it. It’s how we learn.
    Cheers,