Woodside to buy US ammonia facility from OCI Global for $3.65bn

The deal will counter environmentalist pressure, but shareholders may feel aggrieved with the company making two major outlays in as many weeks.

Woodside Energy has agreed to purchase a low-carbon ammonia production facility in Texas from US company OCI Global in a deal worth $US2.35bn ($3.65bn).

The move marks the latest deal spree by the Australian producer as it snaps up developments in an attempt to boost its global clout and capitalise on growth for lower emission fuels.

Two weeks ago Woodside bought US LNG company Tellurian in a deal worth $US1.2bn, catapulting it into one of the world’s biggest LNG players.

The ammonia deal marks the company’s biggest outlay on what it considers new energy investments, which the West Australian energy giant had planned to spend $5bn on by 2030.

Much of the $5bn spend was expected later this decade, but Woodside CEO Meg O’Neill said the facility was too good an opportunity to pass up.

“This transaction positions Woodside in the growing lower-carbon ammonia market,” she said. “The potential applications for lower carbon ammonia are in power generation, marine fuels and as an industrial feedstock, as it displaces higher-emitting fuels.

“Global ammonia demand is forecast to double by 2050, with lower-carbon ammonia making up nearly two-thirds of total demand.”

The OCI Clean Ammonia facility in Texas is under construction and Ms O’Neill said the facility was on course to produce its first ammonia production next year.

The facility is expected to be bolstered with carbon capture and storage capabilities in 2026, which Woodside says will allow the facility to tap a rapidly growing market.

Ammonia has traditionally been used for fertiliser but Woodside said it was increasingly being used in power generation, marine fuels and perhaps most importantly as a hydrogen transporter.

Global interest in hydrogen continues to grow but it cannot be transported due to its volatile nature. Ammonia will allow the safe transport of hydrogen, proponents insist.

The deal will counter some pressure from environmentalists, who have questioned Woodside’s commitment to reducing emissions and its role in global efforts to reduce carbon dioxide output – a notion that was fuelled by the company’s aggressive LNG expansion.

Woodside has insisted it is committed to reducing emissions, and LNG will allow major-emitting countries that have insufficient renewable energy assets to wean from coal.

The OCI facility produces so-called blue ammonia, however, by using gas as the fuel source – a technique that critics say will prolong the use of fossil fuels.

Woodside said the OCI Clean Ammonia deal was likely to abate 1.6m tonnes of carbon dioxide equivalent per year.

With the addition of Phase 2, the project had the capacity to abate 3.2m tonnes of carbon dioxide equivalent per year, or more than 60 per cent of the company’s scope 3 abatement target.

The deal is also opportunistic from Woodside, which has vowed to be prudent and not overpay despite its hunt for growth opportunities.

OCI has been under mounting pressure from shareholders amid a fall in its share price and the company recently implemented a strategic review. But Jeff Ubben, a US activist investor who last year acquired a 5 per cent stake, has continued to press the group to explore asset sales to improve shareholder returns.

MST Marquee energy analyst Saul Kavonic said the asset was at first glance excellent, but that investors may be wary as Woodside commits more cash at the expense of shareholder returns.

“Coming on the heels of the large Tellurian acquisition, this exacerbates concerns by shareholders who want to see shareholder returns prioritised over reinvestment, see little value add here, and would have preferred to see Woodside withdraw its $5bn green target and instead buy back its share,” he said.

Woodside said the project had a 10-year payback period and it expected to meet its target of 10 per cent return on investment.

Woodside last year explored a $80bn deal to buy rival producer Santos, but the deal collapsed.