Woodside Increases Stake in North West Shelf for Higher Dividends

About Woodside Energy Group

Woodside Energy Group (Woodside, the Group, ASX: WDS) is a global energy company founded in Australia in 1954. It initiated Australia’s Liquid Natural Gas industry as operator of the North West Shelf Project where it shipped its first LNG cargo to Japan in 1989. In 2022, Woodside merged with BHP’s petroleum business to become the largest energy company on the ASX.

Equity participation in North West Shelf Project now 50 percent

Woodside has increased its equity stake in the North West Shelf Project to a 50 percent participating interest after acquiring Chevron Corporation’s 16.67 percent equity interest this month. In exchange Woodside agreed to transfer its 13 percent non-operated interest in the Wheatstone Project and its 65 percent operated interest in the Julimar-Brunello Project.

Woodside will also acquire Chevron’s 20 percent interest in the Angel Carbon Capture and Storage Project as part of the exchange. The acquisition will take Woodside’s interest in the Angel CCS Project to 40 percent, and supports future development of this large-scale, multi-user carbon capture and storage hub in Western Australia.

Under the asset swap terms, Chevron will make a cash payment of up to $400 million, making the transaction immediately cash flow accretive for Woodside upon execution. The cash payment by Chevron to Woodside of up to $400 million comprises a cash payment of $300 million at completion, and additional contingent payments of up to $100 million in aggregate related to handover of the Julimar Phase 3 Project and subsequent production performance. Additional cashflows estimated at approximately $400 million are expected from utilising depreciable tax bases on completion.

The transaction simplifies Woodside’s portfolio and enhances the Group’s efficiency by consolidating its position in its key LNG assets that have operated for 40 years. The transaction also creates greater opportunity to fill emerging processing capacity and maximise value accretive recovery from the North West Shelf Project.

Production through 30 September 2024 from Woodside’s interest in Wheatstone has averaged 34 thousand barrels of oil equivalent per day while production from Chevron’s interest in the North West Shelf Project has averaged 54.5 thousand kilo barrels of oil equivalent per day. The barrel of oil equivalent is a unit of energy based on the approximate energy released by burning one barrel of crude oil.

Woodside’s increased participating interest comes at a time when the Western Australian Government has agreed to extend the environmental approval for the North West Shelf Project. This decision improves the commercial prospects for Woodside’s proposed Browse to North West Shelf Project and improves joint venture planning for decarbonisation opportunities at the Karratha Gas Plant. Woodside’s increased equity of 40 percent in the Angel CCS Project also supports future development of this large-scale, multi-user carbon capture and storage hub in Western Australia.

This transaction creates greater opportunity to fill emerging processing capacity and maximise value accretive recovery from the North West Shelf Project for Woodside.

What are the implications for shareholders?

Woodside considers that moving to a 50 percent participating equity interest in the North West Shelf Project will strengthen the Group’s near-term cash flow and support shareholder distributions. The North West Shelf Project is highly cash flow generative and Woodside’s unit cost of production is about US$8 per barrel of oil equivalent. In the third quarter of 2024 Woodside achieved an average realised price of US$65 per barrel of oil equivalent. Clearly Woodside’s earnings are leveraged to global oil prices.

Woodside’s dividend policy is to pay a minimum of 50 percent of underlying net profit after tax (which excludes non-recurring items, with a target payout ratio of between 50 and 80 percent. Recent dividend history implies a fully franked dividend yield of above 7 percent.

Future dividends are tied to oil prices and oil prices are fundamentally driven by global economic growth. Higher economic growth increases the demand for energy to manufacture and transport goods in response to rising consumer demand. Other influences on the price of oil include geo-political events, weather conditions and OPEC production volume.

However, economic growth is the key to future oil process and while economic growth rates fluctuate from time to time, the world is all about growth, driven by a rising population and more importantly, higher living standards. If oil prices decline, Woodside being a low-cost producer is in a strong position to absorb the negative impact of lower oil prices.

Woodside maintains a conservative gearing ratio within the range of 10 to 20 percent through the investment cycle and gearing today is about 15 percent. This comfortably supports a dividend payout policy of 50 percent to 80 percent. Over the last decade, Woodside has consistently paid at the top end of this range.

So, in an overall sense, Woodside shareholders can reasonably anticipate a continuation of Woodside’s attractive dividend yield, at least in the medium term, based on the now 50 percent participating interest in the highly cash flow generative North West Shelf Project.