Woodside Petroleum sized up GreenCollar carbon deal

Woodside has long harboured a desire to boost its exposure to abatement in the Australian carbon market amid pressure to limit its contribution to global warming.

Woodside battled unsuccessfully with KKR to buy a stake in carbon firm GreenCollar.

Woodside Petroleum reached the final stages of a battle to buy a stake in Australia’s biggest carbon project developer, GreenCollar, before being pipped by private equity giant KKR.

The West Australian gas giant was in advanced talks under the leadership of former boss Peter Coleman to acquire a 49 per cent share in mid-2020 as part of a two-horse race – sources told The Australian – but GreenCollar ultimately sided with KKR’s Global Impact Fund.

The move shows Woodside has long harboured a desire to boost its exposure to abatement in the Australian carbon market amid pressure from investors and stakeholders to limit its contribution to global warming.

The gas giant, midway through a $40bn merger with BHP Petroleum, plans to spend $US5bn ($7bn) on hydrogen and carbon capture this decade as it seeks to pivot into clean energy. It has secured enough carbon offsets to meet its 15 per cent emissions reduction target by 2025 and says existing and planned land-based projects will deliver 2.5 million tonnes of offsets by 2040.

Woodside under Mr Coleman’s successor, Meg O’Neill, has also extended its relationship with Greening Australia to source and lease WA farmland for native tree planting projects.

However, Woodside’s failure to land a large-scale carbon opportunity like GreenCollar may prove a major missed opportunity, according to Credit Suisse.

“Woodside is building one of the largest carbon farming operations in Australia, which could become a standalone profit centre and value accretive business division in time,” Credit Suisse analyst Saul Kavonic said.

“But the carbon farming skill set is in short supply and not easy to build organically, amidst a rapidly consolidating sector, and we consider it a major missed opportunity by Australia‘s energy companies to not have acquired leading carbon farming businesses in Australia in the last year or so, valuations for which could end up an order of magnitude higher within a few years.”

Growth in the Australian carbon market was underlined on Friday with confirmation Canada’s Ontario Teachers Pension Plan will invest an estimated $250m to buy a 33 per cent stake in GreenCollar. Woodside was not involved in bidding for the latest stake, sources said.

OTPP will be the largest shareholder in the carbon project developer along with KKR, which will own 33 per cent after investing $100m to buy a 49 per cent stake in the company 18 months ago.

The two funds will control 66 per cent, with chief and co-founder James Schultz holding 10 per cent and other management being the major shareholders.

Big energy companies have been scanning the market looking for deals with Shell, one of Australia’s biggest gas producers, buying environmental services company Select Carbon, while Australian private equity house Adamantem Capital took a majority stake in carbon farming business Climate Friendly.

Australian oil and gas producers could evolve into major carbon credit producers and traders, Credit Suisse said.

“Australia’s oil and gas sector are already dominant players in the carbon offsets market, and could evolve into major carbon credit producers and traders in decades ahead, leveraging off their existing asset footprint, customer relationships and carbon neutral fuel sales into key Asian markets, bolstered by recent Article 6 progress at COP26,” Mr Kavonic said.

“Carbon farming presents amongst the most exciting growth areas in the energy transition space, differentiated by its near term profitability and advantaged position on the carbon abatement cost curve.”