The Australasian Centre for Corporate Responsibility (ACCR) is commenting on Woodside Energy Group’s announcement to the ASX this morning that it has made a final investment decision (FID) on the Trion greenfield oil development in the Gulf of Mexico.
In March, ACCR built an emissions and cash flow forecast of Trion and found that weak economics, high emissions and significant downside risk means Woodside does not have a strong case to support a positive FID on Trion.
Our analysis of today’s FID shows:
- The 16% IRR is based on an oil price assumption of a 2028 US$78 per barrel, which is when production is scheduled to begin. The Brent Crude Futures price for June 2028 is currently US$66 per barrel. When adjusting for this, the IRR for Trion appears to be below the targeted 15%> IRR hurdle rate that Woodside sets for new offshore oil projects.
- Capex for the project has been revised upwards. Trion’s capex has increased from KPMGs US$6,630 million estimate in the April 2022 Independent Expert's Report to today’s US$7,200 million announcement. This remains a risk.
Alex Hillman, Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR) said:
“The approval to proceed with Trion is glaring evidence that the board of Woodside has no credible transition strategy and is failing to comprehend the economic risks of the energy transition by throwing billions of investor dollars into a flawed oil project.
“Analysts have quite rightly been wary of Trion. Our analysis shows it’s a low-margin project, with a constellation of risks, several of which are new to Woodside’s portfolio.
“Today Woodside has pulled a rabbit out of the hat by claiming the project has value, however its plan is based on risky assumptions that will undoubtedly leave investors uneasy.
“Of particular note is Woodside’s bullish assumed oil price that is around 20% above the current June 2028 futures price.
“Woodside’s answer to managing transition risk at Trion is to extract two thirds of the oil resource in the first ten years of operation from 2028. But with the range of risks this project faces, the probability of such rapid construction, commissioning and production must be questioned.
“Trion will be a carbon emissions bomb, representing a 14% increase against Woodside’s current estimated emissions.
“This decision tells investors exactly what Woodside is as a company: a pure play oil and gas producer denying that the world is decarbonising and without a credible transition strategy.
“Woodside even states that Trion’s returns will be used to fund new oil and gas projects, indicating that no end is in sight for its hydrocarbon expansion plans.
“This is a board that is willing to risk shareholder funds on precarious oil projects because it doesn’t know how to do anything else. If there was ever a time to demand fresh thinking and strategy at Woodside, today is the day.”