Woodside CEO Peter Coleman spent most of last year tackling the company's image of out without growth options amid the darkness of a two-year oil slump.
Morgan Stanley has clearly become a true believer, lifting its price target on Woodside from $34.09 to $40 per share.
Woodside traded at $31.31 this morning, down 2c but still near its 52-week high of $32.59 hit on January 18.
The firm believes 2016 was a turning point for Woodside, which reshaped its portfolio as OPEC's willingness to defend prices helped the oiler beat the ASX Energy 200 index's trading performance over the past 12 months.
Its growth will now differentiate Woodside from its peers, with Wheatstone and Greater Enfield to boost production to 100 million barrels of oil equivalent by 2019, and potential for Senegal and North West Shelf backfill to boost production to more than 110MMboe, Morgan Stanley said.
Debt-funded acquisitions could also add another 10-20% to Woodside's production base, and Morgan Stanley believes there will be spare debt capacity of more than $US1 billion ($A1.3 billion) next year if it doesn't fund more acquisitions.
Though Woodside will be ideally positioned to engage in more M&A focused on oil, with asset prices for conventional assets still low, Morgan Stanley believes the oiler doesn't need to rush given its existing growth potential.
The firm's client note, released this week, bucked the consensus view that that no value should be given for Woodside's growth projects.
Morgan Stanley said a quick glance at the cash flow multiples of Oil Search, which is swimming in the success of PNG LNG, and Santos, which analysts are slowing warming to under new CEO Kevin Gallagher, showed the market was discounting the cash flow multiple at which Woodside trades.
The firm conceded Woodside's production had been relatively flat in recent years, and given stalled projects like Browse and Greater Sunrise, the "ex-growth" tag was understandable.
Yet 2016 was a watershed, with the Greater Enfield oil project approved, ConocoPhillips' interest in Senegal acquired, Myanmar exploration delivering two discoveries, while momentum now appears to be building for a NWS backfill project.
Wheatstone is due to start up mid-year and peak in 2018, at which time it will add 13MMboe to Woodside's production base, while Greater Enfield should start up by mid-2019 and add more than 6.5MMboe.
While the timing of a final investment decision for Senegal is less certain, Morgan Stanley assumes all will be well given its size and quality.
Brownfield LNG - a new era
The consensus view also holds that Woodside has overinvested in LNG and will underperform given the glut is expected to last longer than that of oil.
Though LNG markets are still challenged as buyers balk at long-term offtake commitments and sellers cautious about committing to new projects as they finish off existing ones that cost far more than planned, Morgan Stanley believes things will get better.
In this light, Woodside is particularly well placed to benefit from a number of brownfield opportunities presenting themselves, such as Browse, Scarborough and other gas, Morgan Stanley said.
The production streams on its projects vary, with Woodside's projections calling for both Pluto and Wheatstone to produce out into the 2030s - potentially longer if more gas is found over time.
And while the NWS project, which has been producing since the 1980s, starts to show production decline from late this decade, there is potential to keep it producing at current levels for longer, should Woodside and its JV partners successfully negotiate deals with resource holders close to the project.
"Woodside's LNG projects are very low cost and have low maintenance capex requirements, meaning they generate higher free cash than competing projects at similar oil prices," Morgan Stanley said.
"These attributes are important, particularly in the current low-oil-price cycle.
"Woodside's LNG projects have strong free cashflow characteristics because there are limited ongoing drilling requirements, in contrast to the east coast LNG projects, which required hundreds of wells per project per year."
While some analysts believe existing LNG contracts could be terminated and sellers would become reliant on selling into a weaker spot LNG market, Morgan Stanley believes that is highly unlikely because there is no precedent in Australia for that.
It said there would be long-term ramifications for future contracts were this to happen.
Most LNG industry forecasters expect LNG supply and demand to tighten considerably by the early 2020s.
New countries are entering LNG markets on the demand side every year, so demand could surprise, with about 12 importing nations in 2000 compared to nearly 35 today.
Finally, the firm believes spot LNG markets seem to be correcting to the high side quicker than market participants were speculating last year.
"We think Woodside is well positioned to benefit from brownfield LNG over time, given its footprint on the west coast of Australia, which remains a differentiator to peers," Morgan Stanley said.
