Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Welcome to Fear and Greed Q and A where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson and today why oil and gas giant
Woodside is so frustrated with Australian over regulation. This week,
Woodside posted a profit of one point twenty five billion
dollars for the six months to June thirty, down twenty
four percent on last year, but it was in line
(00:27):
with expectations, partly as a result of lower oil prices.
But Woodside is a fascinating company. It's been on a
real investment spree over the last couple of years and
this interview today with CEO Meg O'Neil looks at where
those projects are up to, but it goes into the
role also of gas in the energy transition, why it's
not going to have another crack at buying rival Santos,
(00:50):
and why there is so much frustration with government over
a major gas project off wa. This is Meg O'Neil,
CEO of Woodside, speaking to Andrew Gagan on Osby's.
Speaker 2 (01:06):
Was great halfier for us. We had really strong production
from one of our newest assets, the Sangamar oil Field
offshore Senegal, and that took our production number actually up
eleven percent versus the previous the comparable period, so production
was up. Team did a fantastic job of managing costs
in an inflationary environment, so our unit production cost was
(01:28):
down seven percent. Prices were a little bit softer, but
that contributed to revenue being up ten percent versus the
previous period. Now profit is down. That's a result of
depreciation from the new asset. And this is not a surprise.
You know, when you put a new asset into service,
the depreciation rate is very high. But as we continue
(01:48):
to develop our understanding of the subsurface and add reserves,
that's going to bring the depreciation rate down. So overall,
when we look at the bottom line, you know, really
outstanding baseline operational performance, really strong top line financial numbers,
and the profit you know, look, we feel very pleased
actually at our ability to continue to return value to shareholders,
(02:11):
even in a period where the commodity prices are a
little bit softer.
Speaker 3 (02:14):
So I'll get to that in just a moment. But
your reference obviously the Sentingle project their high appreciation plus
production costs, so you expect that's going to even out
over time.
Speaker 2 (02:23):
Yes, we do expect that we even out over time overall.
Speaker 3 (02:26):
Then you mentioned just those price market prices we're seeing
at the moment, average realized price you're receiving for oil
and gas slipping by one percent. How are you looking
at the overall global market at the moment, particularly, I
guess that uncertainty over Russia and its supply into the
broader market.
Speaker 2 (02:46):
Yeah, it's really interesting. And look, when we sell our product,
even our energy, much of our energy is sold with
the linkage to oil pricing, so we always pay very
close attention to the oil market. Oil prices are softening
as OPEC plus have been unwinding some of their production cuts,
so there is more supply coming into the market. That said,
(03:08):
gas prices remain strong. So when we look at gas
prices in both Europe and Asia, the gas prices have
continued to be very strong through the course of this year,
and that's actually had a very positive impact on our
bottom line. We save call it twenty five to thirty
percent of our produced LNG to be able to sell
on those gas price markers, and that gave us about
(03:29):
a three dollars per mmbtu uplift versus if we'd sold
those same volumes on oil indexation. So even though oil
prices are down ten plus percent, we've been able to
keep our real life pricing down only one percent because
of that gas exposure.
Speaker 3 (03:43):
How do you see that overall supply and mind dynamic
in the gas market at the moment, particularly given the
ongoing decarbonization process. I might ask you whether you feel
as though that's slowed obviously, given what the Trump administration
is doing and the role of gas in that transition.
Speaker 2 (04:00):
Look, if we just take a look at what's happening
in Australia, I think we're starting to see a greater
realization of the importance of natural gas as we try
to decarbonize the economy and try to do it in
a way that keeps energy prices affordable for everyone, both
households and businesses. Look, we fully support the need for
global action on climate change, but we need to do
(04:22):
it in a way that brings everybody along. And you
don't have to look too far off. You look at Germany,
you look at the UK. You're starting to see a
backlash as people start to suffer the impact of higher prices.
You're seeing de industrialization of places like Germany, which has
historically been the heartland of Europe's manufacturing, so we've got
the opportunity here in Australia to get the settings right.
(04:44):
There is plenty of gas available. We need to tackle
some of the regulatory barriers that are preventing us from
developing that. But we see the ideal energy mixes one
that's got a combination of renewables and gas to help
provide energy that is both reliable, affordable and increasingly lower
carbon intensity.
Speaker 3 (05:03):
I'm going to come back to the domestic market. Let's
just look first though at your major projects overseas well,
in fact, likeally your Scarborough projects. So what eighty six
complete yep six eighty six percent complete. One of those
other projects you got on the go at the moment,
try on buy mo p neew Ammonia yep.
Speaker 2 (05:21):
So Treon, we'll just maybe go to Scarborough. So Scarborough
is development of a deep water gas field offshore Australia,
so that'll supply gas to both customers in Western Australia
as well as LNG to our customers overseas. Making great
progress eighty six percent complete, targeting first LNG cargo second
half of next year. Treon is a very large deep
(05:45):
water oil field in the Mexican sector of the Gulf
of Mexico as it's still called in Mexico. So that's
about thirty five percent complete, targeting first oil in twenty
twenty eight. But the first project to start up will
be Beaumont PNEU ammonia, So that's an asset we acquire
last year. Construction is being managed by the previous owner
and it's their obligation to complete construction and to deliver
(06:07):
a high performing ammonia plant to our care. But we
do expect to produce first ammonia later this year, and
we'll start producing lower carbon ammonia in twenty twenty six
when the supplier of the industrial gases gets their plant
up and running with carbon capture and sequestration. So that'll
be our first very significant investment in low carbon energy
(06:29):
products and very excited about the opportunity to get those
into markets that are looking for reliable supply of lower
carbon energy products.
Speaker 3 (06:38):
Magie. Of course, you also picked up the Louisiana llen
g project as well. You're you're anticipating your further sail
down the.
Speaker 2 (06:47):
Yeah, So Louisiana Elergy's fantastic acquisition for us, so we
bought a company called Tellurian late last year. They had
done the hard yards in terms of getting all of
the regulatory permits required for this development. We're able to
move really quickly to lock in a fully lump some
turnkey contract with Bechtel for construction of the first three trains,
(07:09):
to bring in a quality infrastructure investor as an equity
partner in stone Peaks. So they've taken forty percent of
the LNG plant investment and with that we were able
to take a final investment decision. We are looking for
partners to come in at the we'll call it the
parent company level, so partners to come in and be
party to the full value chain from gas procurement all
(07:32):
the way through to LNG off take. But you know
we've with with the stone Peak agreement and with the
progress we've made, we've got the luxury of time and
we're going to be very disciplined about selecting partners who
we feel bring complementary skills to the joint venture and
I'll pay a price that is fair for Woodside shareholders.
So those discussions are continuing, but we'll be patient about them.
Speaker 3 (07:54):
So given your outlies, United it is at eight point
sixty six billion US dollargy. Gearing is a top end
of your target, so elevated capis Are you comfortable with
your debt position at the moment?
Speaker 2 (08:05):
We are, and we've done a couple of things to
give ourselves confidence that we have a line of sight
to be able to get through this period of higher
capital investment continue to return value to shareholders through the cycle.
Team has done a great job. We were out in
the US bond market, sourced three point five billion dollars
in the US bond market in an offering that was
(08:26):
heavily oversubscribed. We've updated some syndicated loan facilities, so we're
well positioned a very strong liquidity today. So yes, we're
at the top end of the gearing range, and we'd
signaled that that would be the case for a period
as we go through this significant investment period. But as
(08:47):
we do the forward forecasting, we feel like we're in
good shape to get through it and to continue to
have that strong investment grade credit rating that we've had
for many decades at Woodside.
Speaker 3 (08:57):
So you talk about that discipline capital management, what can
shareholets look forward to in terms of future dividends do
you think, Well, we're.
Speaker 2 (09:05):
Very pleased to have a dividend at the top end
of our range in this interim period for the half year,
so paying out eighty percent of underlying net profit after
tax fifty three US cents fully franked, and we know
our Australian shareholders really appreciate the franking credits that we're
able to release with our dividends. We do all of
(09:25):
our forward modeling assuming you know, testing our ability to
continue to pay at the top end of that profit range.
And as we get through the period of high spend,
you know, we've signaled that we were also always looking
at other ways to return value to shareholders and exploring
things like buybacks for example. So you know, nothing in
the cards for the very near term because we are
(09:46):
focused on getting through this investment period. But as we
start to turn the tide to cash gen you know
we'll be we'll be looking at different ways to reward
our shareholders.
Speaker 3 (09:55):
Now, locally, the federal government has will conditionally approved the
extent Northwest she venture. However it appears to run into
a roadblock. What's going on there? How frustrated are you
given to how many years this is taken.
Speaker 2 (10:09):
Yeah. Well, look, I know there's twenty four people in
Canberra today talking about productivity, and today I think they're
talking about regulation. I hope this is a case study
that they talk about. So we have a state regulatory
environmental regulatory agency, a Commonwealth regulatory environmental approval agency looking
at basically the same question. The State took six plus
(10:30):
years a very rigorous process, including a number of rounds
of appeals, to issue an approval that has some quite
stringent conditions on the sorts of emissions that we can
have from our plant and it's all about protecting the
very precious rock art and cultural heritage that exists in
close proximity to where we operate. I was pleased to
(10:50):
see Minister what one of his first decisions after his
appointment as a Minister of Environment issue that preliminary approval.
And all we want from the federal government is exactly
what we have from the state government, which is operational
conditions that are based on the science and are technically feasible.
So we'll continue to work with the governments with the
goal of achieving that outcome.
Speaker 3 (11:11):
End on the East Coast A see you're in support
of a domestic gas reservation system, we are how does
that lock the work?
Speaker 2 (11:19):
Well. Look, one of the complexities in the East Coast
is this is a conversation that should have happened fifteen
years ago, before the LNG projects were developed. If you
look at what happened in Western Australia. By contrast, before
Northwest Shelf was developed, there was an agreement with the
government that a certain amount of our gas would be
provided to domestic customers. That has served the state well,
it has served industry well. Much of our gas goes
(11:41):
to mining companies, you know, whose alternative would be to
burn diesel. Our gas goes into plants that need the
gas for heat, so there's no alternative. So that's worked
very well in the West. The complexity in the East
is you know, now you've got companies that have built
LNG plants on the assumption they can export the gas
they drill. So any sort of reservation policy needs to
(12:02):
be prospective. But one of the key points in our
submission is we've got to tackle this regulatory bureaucracy and
the red and the green tape that is slowing down
investment in gas in Australia. You know, you can reserve
one hundred percent of a field, but if you can't develop,
it's one hundred percent of nothing. It does nothing to
solve the.
Speaker 3 (12:18):
Problem and may just finally have you ruled out another
bid for Santos.
Speaker 2 (12:22):
We have, look, the reason we were looking at Santos
and looking at bringing the two companies together was to
grow our L and G portfolio. They've got a great
L and G portfolio and the Pacific similar to ours.
But what we've done in the US with the acquisition
of Louisiana LNG is we've built an LNG business, or
we're in the process of building an LNG business that
(12:42):
will have a big hub in the Pacific and a
big hub in the Atlantic. And we think there's more
value to be gained for shareholders by operating with this
sort of L and G portfolio than just a Pacific one.
So we are very focused on delivering on our commitments
and continuing to reward shareholders throughout.
Speaker 1 (12:58):
That was Mego and Neil c of Woodside speaking to
Andrew Gagan on Osby's. Osby's is Australia's leading provider of
live and on demand video of the latest news in
Australian business markets, economy, and startups. Sign up for free
at Osby's dot com dot au. And if you've got
something that you'd like to know you'd like us to
delve into on this podcast, then please send through your
question on LinkedIn, Instagram, Facebook, or at Fearandgreed dot com
(13:20):
dot au. I'm Michael Thompson and this is Fear and
Greed Q and A