Woodside holding off on 2024 gas sales talks amid price cap brawl

Woodside says it’s selling “every molecule” produced by its east coast operations in 2022 to local consumers but is holding off on contract offers for 2024.

Woodside Energy boss Meg O’Neill says the company has not yet resumed negotiations over east coast gas sales for 2024 despite Shell reversing its position on the subject this week.

Shell and Woodside pulled offers to sell gas on December 13, blaming the government’s intervention into energy markets.

Shell withheld sales of up to 8 petajoules of gas for delivery in 2023 and Woodside suspended a process for 2024 contracts.

Shell this week reversed its position on 2023 sales, after the Australian Competition & Consumer Commission warned of a crackdown on suppliers it believed were running “avoidance schemes” to avoid a price cap of $12 a gigajoule.

Ms O’Neill said in the company’s December quarter production report that the company had contributed 29.4 petajoules of gas to the east coast Australian gas market during the quarter.

“Every molecule produced by Woodside’s east coast gas business went into the domestic market to support Australian households, businesses and manufacturers,” she said.

But on Tuesday she added that Woodside had not yet floated 2024 gas sales into the market – partly at the request of some buyers – as the company was still waiting on the federal government to reveal new market rules for the industry, and for details of its planned mandatory code of conduct for gas suppliers.

“We completed our marketing activities for the Bass Strait for 2023 well ahead of any discussion about price caps,” she said.

“And we continue to offer gas that‘s available above those contracts to the spot market should demand present itself. Our buyers are not taking their full daily contractual entitlements – a flexibility that’s permitted under our sales agreements.”

Woodside on Tuesday said it booked record production in the 3 months to December 31 and its global operations delivered 51.6 million barrels of oil equivalent in the period. The company booked revenue of $5.16bn in the quarter, down 12 per cent from the September period as oil and gas prices eased from record levels. Its average realised price of $98 per barrel of oil equivalent was down $4 from the September quarter.

But the company said it would take a $US872m ($1.2bn) charge on its February annual accounts after oil and gas prices outstripped the company’s 2022 hedging positions, put in place for 21.8 mmboe worth of production at an average price of $US74.50.

Woodside said it was making good progress on its major expansion plans. Work on the Scarborough and Pluto Train 2 projects in Western Australia was now 25 per cent complete, according to Ms O’Neill.

“The teams working on Scarborough and Pluto Train 2 have done an outstanding job over the latter part of the year,” she said.

“The combined projects are now one quarter of the way to completion and are on track for targeted first LNG cargo in 2026, bringing essential volumes into a market demanding more LNG.

“Most of the major equipment for the Scarborough floating production unit has been ordered and module construction … has commenced.”

Ms O’Neill said Woodside was yet to ramp up construction, but did not expect any problem recruiting the 3200 workers needed to build the Scarborough and Pluto Train 2 expansions.

She said construction conducted to date had mostly been conducted by offshore fabricators in Europe, Indonesia and China. “So at this point in time we’re not seeing the labour crunch. But we are ramping up activity at Pluto Train 2 site, so the contractor is increasing numbers of staff there,” she said.

“But what we’re seeing is that the jobs within our construction workforce are highly desired, so we’re not seeing labour constraints at this point in time. The peak labour force will be about 3200 people and that will peak in 2024, but we have full confidence we will get the people we need.”

Ms O’Neill said Woodside had exceeded its annual production guidance for 2022, producing 157.7 mmboe, on the back of the strong performance from the assets acquired from BHP in the mega merger of the pair’s oil and gas assets.

RBC Capital Markets analyst Gordon Ramsay said shareholders were likely in line for a bumper dividend from the company when Woodside delivers its annual financial results in February. “We think Woodside continues to look attractive on our forecast dividend, of more than 10 per cent yield based on 80 per cent of underlying net profit after tax, and its high level of hub LNG pricing exposure,” he said in a client note on Wednesday.

Woodside maintained its 2023 output guidance of 180 to 190 mmboe as it continues the integration of BHP’s overseas assets with its own. “This quarter’s operational outperformance versus RBC expectations and consensus continues to highlight the operational and financial strength of the newly incorporated BHP assets,” RBC Capital’s Mr Ramsey told his clients.

Woodside shares fell 1.2 per cent, or 44c, to close Wednesday at $37.31. Surging prices and demand has pushed the company’s shares almost 51 per cent higher in the last 12 months alone.