Woodside 3Q24 Results | Climate Transition Analysis
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Woodside saw a surge in production and revenue this quarter, driven by Sangomar reaching full capacity at the end of 2Q24, though earnings are only reported at half-year and year-end. It was good to see that the company reported capital expenditure for New Energy, with the addition of its Beaumont Clean Ammonia project.
Woodside also announced its delisting from the London Stock Exchange, where depositary interests represent ~1% of its issued share capital. Recent acquisitions in LNG and ammonia raise broader concerns about the company’s transition strategy.
Our view
Woodside's 3Q24 results show that its future is heavily anchored in LNG, with limited flexibility to expand beyond gas + CCS hydrogen in its New Energy portfolio.
At peak, key projects like Pluto 1 & 2 and Louisiana are expected to reach 90% FY23’s oil and gas production. By FY30, we forecast gas and LNG will make up roughly 76% of Woodside’s sanctioned production, up from our previous forecast of 58%. The company’s New Energy strategy is increasingly reliant on the success of third-party CCS services at Beaumont, which will consume 75% of its $5bn New Energy budget. Meanwhile, renewable hydrogen projects have stalled, with the cancellation of H2Tas and ongoing subsidy challenges for H2Ok.
Priority questions ahead of 2025
01 Quantification of levers to decarbonise:
Will Woodside reduce its heavy reliance on offsets to reduce scope 1 & 2 emissions? Offsets are estimated to cover ~70% of emissions reductions to FY30.
Why do Woodside’s emissions targets cover only 8% of total emissions? Current coverage does not address growing customer scope 3 emissions. With sanctioned production expected to grow 16% by FY27 and LNG expansion sustaining sales, how will Woodside align its transition strategy with a comprehensive approach to scope 3 reductions?
02 Increases in low-carbon investment:
How will Woodside’s ammonia project contribute to emissions reduction? The first phase, due in FY25, relies on unabated natural gas, offering no emissions benefit. The 'lower-carbon' ammonia, targeted for FY26, depends on ExxonMobil’s CCS, and the decarbonisation impact for Woodside’s existing customers remains unclear.
What is the path forward for renewable hydrogen? Following the cancellation of H2Tas and ongoing challenges in securing IRA subsidies for H2Ok, Woodside’s only renewable offering faces uncertainty. With Beaumont consuming the majority of its New Energy budget, how material can renewable hydrogen be, and what is needed to meet its 10% IRR target?
Key takeaways
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Q3 results saw a significant surge across reported metrics due to the completion of major portfolio developments.
Production increased by 11% from 3Q23, increasing 5.25 Mboe to 53.1 Mboe. This is due to Sangomar reaching nameplate capacity at the end of 2Q24, contributing an additional 5.9 Mboe for 3Q24. Production guidance for FY24 was upgraded to the top end of the range at 189-195 Mboe (previously 185-195 Mboe). Sangomar materially contributed to a 13% increase in revenue for 3Q24 to $3.6bn.
3Q24 capex surged 123% to $3bn from 3Q23, increasing $1.7bn. This was driven by $1.9bn towards the completion of Woodside’s acquisition of the OCI Clean Ammonia project (‘Beaumont’) in September. The company has lowered capex guidance for FY24 to $4.8-5.2bn (previously $5.0-5.5bn). 4Q24 capex will include $1.2bn from the completion of Tellurian’s Driftwood LNG project last week, renamed to ‘Woodside Louisiana LNG’.
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Woodside’s future is increasingly tied to LNG, following the completion of its Driftwood LNG acquisition, now ‘Woodside Louisiana LNG.’
The company plans for Phase 1 (11 Mtpa) to be FID-ready by 1Q25, with further expansions targeting 27.6 Mtpa across four phases. Woodside intends to sell down 50% of the project to partners but will rely on third-party feed gas rather than developing its own upstream resources.
Louisiana (13.8 Mtpa) and Pluto (7.2 Mtpa) are projected to add 170 Mboe of equity production at peak, equal to 90% of Woodside’s FY23 output. With the addition of Beaumont, we forecast gas and LNG will account for ~76% of sanctioned production by FY30 (up from 58%).
Success hinges on securing favourable LNG prices. By expanding into the US, Woodside claims it will exploit arbitrage opportunities through trading and optimisation. The company must compete with the scale of Shell and TotalEnergies, which are pursuing similar LNG strategies and targeting sales portfolios 2.5-3.5x Woodside’s by FY30.
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With setbacks in multiple green hydrogen projects, and the Beaumont acquisition consuming a significant portion of Woodside’s $5bn New Energy budget, 3Q raises doubts about whether renewable hydrogen will remain a viable part of Woodside’s transition strategy.
The $2.35bn Beaumont ammonia acquisition is now complete, with the company recording $1.9bn in capex for 3Q. Phase 2 (another 1.1 Mtpa) will require an additional $1.2-1.4bn, totaling nearly 75% of Woodside’s New Energy capex target, and leaving little room for the expansion of renewable hydrogen. At peak, it will produce 2.2 Mtpa of ammonia (~6-7 Mboe), only 3-4% of FY23 production. Its emissions impact remains unclear; phase 1 (1.1 Mtpa) by FY25 relies on unabated natural gas, offering no emissions cuts. ‘Lower carbon’ ammonia by FY26 hinges on the success of ExxonMobil's CCS facility to support Linde, Woodside’s primary feedstock supplier.
The company’s green hydrogen efforts continued to suffer setbacks in 3Q, including cancelling the H2Tas project in Tasmania and ongoing struggles to secure IRA tax credits in the US. While Woodside has signed non-binding offtake agreements and is advancing discussions with potential customers, the H2Ok project faces delays as it seeks to reduce costs to attract demand.
So what is the barrier to progressing H2Ok? Unpacking the situation:Woodside will not progress to FID without customer demand at a sufficient price to yield returns
Woodside currently does not qualify for the IRA 45V credit of $3/kg, as the project is connected to the Oklahoma Gas and Electric Grid grid (electricity price average ~$30/MWh). This means it will need to sell hydrogen for ~$6.3/kg to meet its 10% IRR.
There is limited visibility on the offtake price required by Woodside’s potential customers. Its reliance on the grid, without the IRA credit, leaves little flexibility in pricing.
In contrast to peers like BP, which integrate hydrogen projects with renewable assets, Woodside's hesitation in adopting renewable generation has narrowed its options.
Moving forward, exploring PPAs or integrated renewable solutions may be necessary to address these challenges. More information is needed on how Woodside plans to bridge the gap in hydrogen pricing to meet its targeted returns.
