Woodside Energy profit soars on high energy prices

The group’s profit has soared due to high energy prices, with the Perth producer delivering its first results since a blockbuster $40bn merger with BHP Petroleum.

Woodside Energy tripled its dividend amid high oil and gas prices and growth from its $40bn BHP Petroleum merger, and cautioned the Albanese government over intervention in the east coast gas sector, warning it could backfire by sidelining investment.

The Perth-headquartered company’s $US1.09 ($1.58) payout to shareholders marked its highest interim dividend since 2014 and was delivered alongside a fivefold increase in first half underlying profit to $US1.81bn -- beating consensus -- after oil prices more than doubled during the six-month period.

The profit bonanza, spurred by the war in Ukraine, may strengthen further in the December half with Asian LNG prices now trading seven times higher than last decade’s average and Woodside set to cash in by lifting its exposure to spot prices across the balance of the financial year.

“If we contrast to where we were two years ago, there were deals being done,” Woodside chief executive Meg O’Neill said. “What we’re seeing now is an uptick from that level. We certainly have rebounded from the levels we were at in 2020.”

Labor is tossing up a slew of changes to the gas export trigger amid calls for a price mechanism to ease high costs for the fuel in southern markets.

Woodside now has significant exposure to the east coast through Victoria’s offshore Bass Strait fields after its BHP buyout and said governments should be wary of a silver bullet to fix any shortfall or price concerns.

“The reality is it‘s a pretty complex situation. And it’s going to require complex solutions,” Ms O’Neill told The Australian. ”It’s not as simple as saying put a price cap on gas and you’ll solve the problems. That’s not going to be sufficient. It will probably have a detrimental effect by driving supply out of the marketplace.”

The result included one month of combined earnings after Woodside completed its merger with BHP’s petroleum arm on June 1, catapulting it into the top 10 oil and gas producers in the world with assets spread through Australia, the Gulf of Mexico and Trinidad.

A strategic review has been kicked off sparking talk of asset sales including deals for its Australian oil assets.

“We’ll take a look at everything in the portfolio which will help inform our thoughts around prioritisation and sourcing, and where we focus heading into 2023 and beyond,” Ms O’Neill said. “It would be premature for me to conclude anything coming out of that review as it’s just getting underway.”

One of Woodside’s first big decision as a unified company is whether to give the go-ahead on its $US5bn Trion oil discovery in the Gulf of Mexico, with Woodside targeting a potential final investment decision in 2023.

The group indicated on Tuesday there would be further delays as it weighs up the project with volatility in the supply chain forcing it to reassess the cost and schedule of the development and whether it still meets a 15 per cent rate of return.

“One of the things we‘re doing with Trion right now is really rolling up our sleeves and getting into the contracts to make sure that we have confidence in those contracts,” she said. “We’re going to update prices from the markets to ensure that we understand the costs and that’ll inform our decision as to whether or not it meets our investment thresholds.”

Woodside is also keeping tabs on rising inflation and labour strains in Western Australia but said its $US5.7bn Scarborough gas project was well protected from cost pressures.

It plans to bring the Scarborough development online by 2026 through an expansion of the Pluto LNG plant, dubbed Pluto-2, which has recently started construction and said all major materials including compressors, generators and turbines had been secured.

US contractor Bechtel is building Pluto-2 and responsible under the lump-sum turnkey contract for fixed costs.

“Bechtel is wearing the risk of, for example, labour pressures. So the way the contracts were designed it really does provide a high degree of cost certainty for Woodside,” Ms O’Neill said.

It expects to produce between 145m-153m barrels of oil equivalent for the 2022 financial year and spend between $US4.3bn to $US4.8bn with $US400m-$US500m on exploration. Some $US9bn in capital spending is tipped between now and 2024 as it spends money on its big capital projects including Pluto 2 and Scarborough in Western Australia and Sangomar in Senegal which is 63 per cent complete.

Pluto LNG Plant, onshore gas plant. Picture: Supplied

Woodside canned a selldown of its stake in the Sangomar oil project in Senegal and will now retain its stake at 82 per cent. It also noted caution on a long-held desire to sell half of its Scarborough gas project in Western Australia saying it would not engage in a “fire-sale” of any stake.

Woodside also said it was “cautiously optimistic” on agreeing an initial gas deal with East Timor ahead of the arrival of Foreign Minister Penny Wong in Dili on Wednesday.

A production sharing contract needs to be negotiated although the vexed issue of where to house a proposed gas hub remains with East Timor wanting it on home soil and Woodside historically indicating a preference for Darwin.

“The key priority for everybody on Sunrise is to finalise the Greater Sunrise production sharing contract. Then we can start having those discussions on what the right development concept is,” Woodside chief executive Meg O‘Neill said. “So I’d say I’m cautiously optimistic that we can crack this PSC before too long.”

East Timor‘s national oil company wants to start producing gas from its Greater Sunrise field by 2028 with the project blighted by a broader multi-decade standoff with Australia on how the $50bn shared gas resource in the Timor Sea should be developed.

Woodside shares rose 1.5 per cent or 52c to $35.87 on Tuesday. Its shares have surged around 56 per cent so far this year – trading last week at their highest levels since before the pandemic – compared with an 8 per cent slump in the ASX200.