Woodside Energy (ASX:WDS)
Current Price: $20.48 | Target Price: $23.40 | Upside: 14.3% | April 23, 2025
Investor Profile Snapshot
| INCOME | VALUE | GROWTH | QUALITY | THEMATIC |
|---|---|---|---|---|
| ★★★ 75% | ★★★ 80% | ★★★ 70% | ★★★ 75% | ★★★ 85% |
Note: This report provides analysis and commentary based on public information and is not intended as investment advice. Investors should conduct their own research and consult with financial advisors before making investment decisions.
Latest Update - Q1 2025 Key Takeaways
- Production of 49.1 MMboe (546 Mboe/day), up 9% year-on-year despite weather impacts at North West Shelf
- Strong International segment growth with revenue increasing 8.2% quarter-on-quarter and 67.4% year-on-year
- Sangomar achieved exceptional production of 78 thousand barrels per day at 97.6% reliability
- Major projects progressing well: Beaumont New Ammonia 90% complete, Scarborough 82% complete, Trion 26% complete
- Louisiana LNG partnership with Stonepeak provides $5.7 billion in accelerated capital funding
- 25.4% of produced LNG sold at prices linked to gas hub indices, realizing a 23% premium
What's Changed?
- Stonepeak Partnership: New agreement for 40% equity interest in Louisiana LNG Infrastructure LLC, providing $5.7 billion toward development
- Sangomar Performance: Contingent resources migrated to developed reserves, adding 7.1 million barrels to 1P reserves
- International Expansion: International segment now represents 36.1% of total production compared to 32.8% in Q4 2024
- LNG Contracts: New long-term agreements with Uniper and China Resources Gas International Limited
- Asset Divestment: Agreement to divest Greater Angostura assets in Trinidad and Tobago for $206 million
Executive Summary
Woodside Energy delivered strong operational performance in Q1 2025 with production of 49.1 MMboe (546 Mboe/day), up 9% year-on-year despite weather impacts at North West Shelf and unplanned outages at Pluto. Quarterly revenue of $3,315 million increased 13% year-on-year, driven by Sangomar production and higher gas hub-linked prices.
The company continues to make significant progress on its major growth projects with Beaumont New Ammonia at 90% completion (targeting H2 2025 startup), Scarborough Energy Project at 82% completion (targeting H2 2026 first LNG cargo), and Trion at 26% completion (targeting 2028 first oil). These projects position Woodside for substantial production growth and free cash flow expansion over the next three years.
The recently announced partnership with Stonepeak for Louisiana LNG represents a significant strategic enhancement to Woodside's financial flexibility, with Stonepeak providing $5.7 billion toward development and contributing 75% of project capital expenditure in 2025-2026. This arrangement significantly reduces Woodside's near-term capital burden while maintaining strategic control.
Woodside's balanced approach to energy transition combines traditional hydrocarbon development with emerging decarbonization technologies. The company's geographic diversification strategy continues with international assets representing 28.1% of total production, up from 22.5% in 2023, reducing Australian regulatory exposure while capturing premium pricing in both Atlantic and Pacific basins.
Financial Highlights
| Key Metric | Q1 2025 | Q4 2024 | Change |
|---|---|---|---|
| Revenue ($m) | 3,315 | 3,484 | -5% |
| Production (MMboe) | 49.1 | 51.4 | -4% |
| Sales Volume (MMboe) | 50.2 | 54.1 | -7% |
| Average Realized Price ($/boe) | 65 | 63 | +3% |
| Capital Expenditure ($m) | 1,806 | 2,681 | -33% |
| LNG Reliability - Pluto | 89.9% | N/A | N/A |
| LNG Reliability - NWS | 96.5% | N/A | N/A |
| Sangomar Production (Mbbl/d) | 78 | 75.5 | +3% |
| Sangomar Reliability | 97.6% | 94% | +3.6pp |
Segment Performance
| Segment | QoQ | QoQ Production | Key Developments |
|---|---|---|---|
| Australia | -8.8% | -9.2% | North West Shelf achieving 96.5% LNG reliability despite weather challenges |
| International | +8.2% | +5.1% | Sangomar exceeding performance expectations with 97.6% reliability |
| Marketing | -23.9% | - | 25.4% of produced LNG sold at prices linked to gas hub indices, realizing 23% premium |
| Other | +39.3% | - | Agreement to divest Greater Angostura assets for $206 million |
Key Outlook Points
| Category | Current/Near-Term | Medium-Term | Long-Term |
|---|---|---|---|
| Production Growth | 186-196 MMboe (2025 guidance) | 4-5% CAGR through 2030 | Continued growth from LNG and oil assets |
| Free Cash Flow | ~$700M (2025) | ~$1.7B (2026) | ~$3.0-4.0B (2028-2030) |
| Capital Intensity | 40-41% of revenue (2024-2025) | Declining through 2026 | ~20% of revenue (2027+) |
| Shareholder Returns | 80% payout ratio at top of target range | Maintained dividend growth | Substantial growth in dividend per share |
| Energy Transition | Beaumont New Ammonia 90% complete | First production H2 2025 | Additional new energy projects |
| Unit Production Cost | $8.5-9.2/boe (2025 guidance) | Declining as projects ramp up | Further efficiencies as scale increases |
Color Key:
- Positive for the company
- Neutral or moderate
- Challenging or negative
Color Key:
- 🟩 Positive for the company
- 🟨 Neutral or moderate
- 🟥 Challenging or negative
Valuation Summary
Our analysis derives a base case valuation of $23.40 per share, representing 14.3% upside to the current price of $20.48. This valuation is primarily based on a Discounted Cash Flow (DCF) methodology, which most appropriately captures the company's approaching inflection point in production and free cash flow generation.
| Methodology | Implied Price Per Share |
|---|---|
| DCF - Base Case | $23.40 |
| DCF - Bull Case | $29.50 |
| DCF - Bear Case | $17.80 |
| EV/EBITDA Multiple - NTM | $16.60 |
| P/E Multiple - NTM | $18.00 |
| PEG Ratio (P/E to Growth) | $19.80 |
| Precedent Transactions | $21.20 |
| Implied Valuation Range | $19.50 - $23.00 |
| Current Share Price | $20.48 |
| Up/Downside to Base Case | +14.3% |
Our Bottom Line
Woodside is successfully executing its transformation strategy, with major projects nearing completion that will drive significant production growth and free cash flow expansion. The Q1 2025 update reinforces our view that the company is approaching an inflection point, with Beaumont New Ammonia at 90% completion, Scarborough at 82%, and Trion at 26%, all tracking on schedule.
While commodity price volatility and energy transition uncertainties present challenges, Woodside's industry-leading margins (70% EBITDA, 82% cash) and low-cost operating model provide resilience through market cycles. The company's strategic position in LNG, enhanced by its geographic proximity to Asian markets and advanced project execution, positions it favorably for sustained growth.
We believe the market is beginning to recognize Woodside's value proposition, as reflected in recent share price performance, but further upside remains as major projects come online and the free cash flow transformation materializes over the next three years.
What to Watch
- Beaumont New Ammonia: Progress toward H2 2025 first production target
- Scarborough Project: Advancement toward H2 2026 first LNG cargo
- Louisiana LNG: Progression toward final investment decision
- Free Cash Flow: Transition from $100M in 2024 to projected $3-4B annually by 2028-2030
- Sangomar Performance: Continued strong production and reliability
Project Timeline
Beaumont New Ammonia (90% complete)
- Now: Pre-commissioning activities to begin in Q2 2025
- H2 2025: First production expected
- Impact: Positions Woodside in lower-carbon markets
Scarborough Energy Project (82% complete)
- Now: FPU hull exited second dry dock, topsides ready for integration
- 2025-2026: Complete subsea installation and commissioning
- H2 2026: First LNG cargo expected
- Impact: 8 Mtpa LNG production capacity, enhances premium LNG position
Trion (26% complete)
- Now: First steel cut for the three FPU topside modules
- 2027-2028: Complete fabrication and installation
- 2028: First oil
- Impact: Major deepwater project adding significant oil-weighted production
Louisiana LNG (Pre-FID)
- Now: Limited notice to proceed with Bechtel, site works underway
- 2025: Potential FID with Stonepeak strategic partnership
- 2028+: First production
- Impact: Positions Woodside as global LNG player across both Atlantic and Pacific basins
Tailwinds
LNG Supply Constraints:
- Industry-wide delays in LNG projects have created a favorable supply window for Woodside
- Approximately 30 Mtpa of capacity shifted from 2026-2029 to 2030-2033
- IEA's 2024 Outlook increased modeled 2050 LNG demand across all scenarios
- Woodside's proximity to Asian markets and premium LNG quality enhance competitive position
Project Execution Excellence:
- Sangomar reaching nameplate capacity within nine weeks and maintaining 97.6% reliability
- Advanced completion of Scarborough (82%), Beaumont New Ammonia (90%), and Trion (26%)
- Track record de-risks the company's growth pipeline
- Enhances returns on capital and accelerates cash flow generation
Geographic Diversification:
- International segment expanded from 13.4% of production in 2022 to 28.1% in 2024
- Two-hemisphere strategy advances with Louisiana LNG adding Atlantic presence
- Reduces Australian regulatory exposure while capturing premium pricing
- Enhances market access and provides natural hedging against regional price differentials
Premium Margins & Cost Discipline:
- Industry-leading margins (70% EBITDA, 82% cash) in 2024
- Exceeds both regional peers (55-60%) and global majors (60-65%)
- Unit costs improving to $8.1/boe despite inflation
- Provides downside protection in volatile markets
Headwinds
Commodity Price Volatility:
- Exposure to oil and LNG price fluctuations
- Every $5/bbl change in long-term Brent assumptions impacts valuation by 8-9%
- Protective measures through hedging (30 MMboe for 2025)
- Balanced portfolio between oil and gas provides some natural hedging
Execution Risk Across Multiple Projects:
- Managing several capital-intensive projects simultaneously
- Scarborough (82% complete), Trion (26%), Beaumont New Ammonia (90%), Louisiana LNG
- Potential for cost overruns, delays, or production underperformance
- Partially mitigated by advanced completion status and project management expertise
Energy Transition Timing:
- Balancing traditional hydrocarbons and emerging decarbonization technologies
- $42.6 billion in oil and gas properties on the balance sheet
- Capital allocation challenges if transition accelerates faster than anticipated
- Emissions reduction of 14% below baseline shows commitment to transition preparation
Australian Regulatory Exposure:
- Substantial Australian exposure (64.8% of revenue and 71.9% of production in 2024)
- Petroleum Resource Rent Tax deductions cap and potential climate policy adjustments
- Policy evolution remains unpredictable despite recognition of gas's role in energy transition
- Concentration of core infrastructure in Australia means this exposure will persist
Discussion