The Australasian Centre for Corporate Responsibility (ACCR) has today published a risk-adjusted financial analysis of Woodside Energy Group’s growth portfolio, revealing the company’s portfolio of unsanctioned oil and gas projects does not appear to be a material source of value for shareholders.
The analysis shows that reallocating the capital earmarked for these projects towards a share buyback offers more value and less risk than delivering them.
The analysis is based primarily on economic and production data from Rystad Energy, an oil and gas research firm, adjusted for the risk profile of each project.
Key findings include:
Woodside's unsanctioned projects are not a material source of value for shareholders. Woodside’s unsanctioned projects represent a forecast NPV of only 2.5% of market capitalisation. These projects have a combined capex of 41% of Woodside’s market capitalisation, suggesting even minor slips in project execution will result in value destruction.
A “capital return” strategy appears to create more value, with lower risk and fewer emissions than a “production growth” strategy.
- As a portfolio, Woodside’s unsanctioned projects are forecast to create less value than a share buyback, assuming investors see Woodside’s shares at a 10% discount to the current NPV.
- The few projects that are forecast to create incremental value over a share buyback, do not justify the expense of Woodside maintaining its project development capabilities.
- Woodside’s production growth strategy results in significant expenses on exploring and progressing non-viable projects. For example, Calypso does not appear to be a viable project, despite more than $500 million having been spent on exploration.
- A capital return strategy delivers value accretion without further emissions growth. Whereas, the projected lifecycle emissions of Woodside’s unsanctioned growth portfolio are 536 MtCO2e.
A production growth strategy faces increasing challenges
- Historically, chasing production growth hasn't added value when the oil price has stayed flat. Over the past 16 years Woodside’s total shareholder return is only 3.5% p.a. while production has doubled. Over a 30-year period, Woodside’s total shareholder return (TSR) seems to be more closely related to the oil price than production growth.
- Woodside’s fossil fuel investment criteria appear to be more bullish than most large European and US oil companies, with higher oil price forecasts and lower new project Internal Rate of Return (IRR) hurdle rates relative to the peer group
Alex Hillman, Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR) said:
“This report calls into question whether Woodside’s production growth strategy will deliver an optimal outcome for shareholders.
“Woodside’s operating assets are delivering a lot of cash and will do so for a long time. But pursuing its portfolio of unsanctioned projects and expecting this to generate strong shareholder value looks like Icarus flying too close to the sun. The numbers just don’t appear to stack up.
“Woodside’s unsanctioned projects are either low return and high risk, or just too small to matter. It has spent hundreds of millions of dollars in shareholder funds on projects that don’t appear to be even viable.
“Woodside is using fossil fuel investment criteria that look to be more bullish than most large European and US oil companies. This seems to be why it keeps progressing projects that other companies wouldn’t.
“Its unsanctioned projects are beset on all sides by risks, increasing the likelihood of slippage. Woodside’s track record on execution leaves a lot to be desired. It delivered Pluto late and over budget, and has increased Sangomar’s cost estimate twice since FID. Based on past performance, projects that look marginal today could get even worse.
“An alternate strategy focused on capital return appears to provide more value to shareholders, with lower risk. It’s hard to see why Woodside wouldn’t put this option on the table.
"It has been clear for some time that Woodside's portfolio is not well placed for a low carbon transition; this analysis shows that its unsanctioned growth portfolio isn't even well placed for a mainstream market outlook.
“This analysis suggests there is a way Woodside can deliver on the holy grail of value accretion without further emissions growth.
"Reallocating the capital from uncompetitive fossil fuel projects to a share buyback would avoid almost 1.5 billion tonnes of greenhouse gases from being released into the atmosphere, making it a win for shareholders and a win for the climate.
"Chasing new projects with lots of emissions, but without a solid financial basis does not appear to be a responsible strategy. Woodside’s board can do better for shareholders.”
Note: The original version of this media release said reallocating the capital from uncompetitive fossil fuel projects to a share buyback would avoid half a billion tonnes of GHG being released into the atmosphere. This figure represents only Woodside's share of the emissions from joint venture projects. The total emissions of these projects, including for other owners, is almost 1.5 billion tonnes. We have updated the figure to reflect total real-world emissions.