Editorial: Woodside doesn’t just need a new CEO. It needs a new strategy

Woodside is searching for a new chief executive. But as the board begins that process, it should also be asking a more uncomfortable question: is the company’s aggressive growth strategy still fit for purpose?

The answer is no.

Over the past five years, Woodside has doubled down on growth. Since 2020, the company has invested in around five billion barrels of new oil and gas supply, a strategy that is expected to lift production by roughly 370 per cent through the 2030s. Yet despite this, Woodside has consistently underperformed the sector, the Australian market and global equity markets, including over one-, three- and five-year periods.

The departure of Meg O’Neill – an outspoken proponent and driver of the growth strategy – creates a window for Woodside to confront the elephant in the room: that aggressive expansion has not translated into improved shareholder value. Like much of the oil and gas sector, Woodside demonstrates that more barrels do not automatically mean more value.

Our latest Woodside analysis, Fork in the road, shows that the four large oil and gas projects it has sanctioned since 2020 have collectively eroded around US$3.5 billion in net present value. This pattern mirrors the experience of global peers such as BP, soon to be O’Neill’s new home, where years and billions of dollars of heavy upstream spending have also failed to deliver competitive shareholder returns.

Woodside’s forward project pipeline offers little reassurance that this approach will suddenly start working. Its LNG projects are high cost by global standards; its material gas developments are uncompetitive against lower cost supply elsewhere in the world (such as Qatar’s LNG expansion that is much larger and costs less than half as much to produce); and its largest oil project (phase 2 of Sangomar) is immaterial to overall value.

What is the alternative? A leaner, lower risk and higher value company. Our analysis shows that Woodside would be almost US$3 billion better off if the company ceased oil and gas exploration and development altogether, instead of continuing a business-as-usual growth strategy. O’Neill’s departure gives Woodside the chance to make this alternative a reality.

The market has shown that it supports tighter capital discipline. Santos provides one example: during periods when company management restricted capital allocation, it outperformed the market. When the company has pursued growth, it has underperformed. CEO Kevin Gallagher warned in 2018 that "our industry has got a habit of blowing themselves up when they go into growth mode".

Woodside’s growth hasn’t paid off and shareholders should be warning Woodside to not blow itself up, to use Gallagher's vernacular. The oil and gas sector has long promised that the next wave of projects will deliver superior returns. That promise has not been fulfilled – now is the time for financial realism.

Investors will be looking for a clear signal that Woodside’s next CEO will break from the company’s habit of pursuing high-capex, marginal-return fossil fuel projects, and instead prioritise capital discipline, balance sheet strength and shareholder returns.

Woodside’s executive incentives, as outlined in its 2024 annual report, include elements that reward growth over value. It explicitly includes a component called “growth” related to building new projects. It also ignores write downs when considering the financial performance of the company via its adjusted EBITDA metric, which creates a perverse incentive for executives to take on high risk projects: they are rewarded when projects go well but not penalised when they go badly. Incentives set by the board that favour growth over value creation inevitably steer strategy toward expansion rather than disciplined capital allocation, contributing to Woodside’s weak shareholder returns.

Woodside does not appear to have a strategy for shareholder value beyond building projects like Browse – a project that promises a marginal return and is more expensive than around 80 per cent of competing prospective gas supply globally.

The irony of course is that O’Neill now arrives at BP with the same challenge on her desk from day one. A group of institutional investors, including some of the largest pension funds in Europe, have filed a shareholder resolution arguing that BP’s oil and gas spending lies at the heart of its long-term financial underperformance. The message from investors is growing louder and more consistent: growth without value is not good enough.

Woodside's Board now has an opportunity to embrace that message. Finding a new CEO is important. Finding a new strategy is essential.

Brynn O’Brien is the Co-Chief Executive Officer of ACCR.