Woodside CEO praises company for always being ‘significant’ dividend payer

Key Concepts

• Dividend Payout Ratio: Woodside's commitment to returning a high percentage of net profit after tax to shareholders.
• Franking Credits: A tax credit mechanism valued by Australian shareholders.
• Australian vs. US Listing: The strategic decision to remain an Australian-listed company despite perceived advantages in US capital markets and regulatory environments.
• Energy Security and Decarbonization: The role of natural gas in transitioning away from coal and ensuring reliable power.
• Regulatory Challenges: Difficulties and delays in obtaining approvals for energy projects in Australia.
• Value Addition: Moving up the value chain by processing natural gas into products like ammonia and hydrogen.
• New Energy Strategy: Woodside's focus on lower-carbon intensity molecules.
• Bass Strait Project: The acquisition and potential for further gas development in the Bass Strait region.
• Communication and Narrative: Woodside's efforts to educate politicians and the public about the importance of natural gas.

Dividend Policy and Shareholder Returns

Woodside has historically been a significant dividend payer, consistently returning 80% of net profit after tax to shareholders over the last 12 years. This policy was particularly emphasized after the Pluto LNG project commenced, generating substantial cash flow. The company aims to reward shareholders who supported them through capital-intensive construction phases and continues to maintain high returns even during ongoing capital expenditure. Woodside acknowledges the high value Australian shareholders place on franking credits, which are tax credits attached to dividends, and views it as inefficient to retain them, preferring to distribute them to individual investors.

Strategic Location: Australia vs. United States

Despite being one of the largest energy companies globally, Woodside remains proudly Australian, with its origins in the town of Woodside over 70 years ago. Its business is built in Western Australia, with a material presence in the Gippsland region as well. However, this Australian base does not preclude them from accessing significant opportunities in the US. Woodside has substantial growth investments in the US and maintains strong access to capital markets, including raising $3.5 billion in the US bond market earlier in the year. The company asserts that being Australian-listed is not an impediment to leveraging US market advantages.

Australian Capital Markets and Regulatory Environment

While the US capital markets and regulatory environment are perceived by some as richer and more favorable, Woodside maintains a strong Australian shareholder base and derives 75% of its revenue from Australia. Even as the business transforms, Australia will remain a crucial market. The company can access US opportunities while remaining listed on the ASX.

However, Woodside highlights significant challenges within the Australian regulatory scheme for energy companies. The approval process for projects like the extension of the Northwest Shelf and the development of the Scarboro and Browse fields has been notoriously slow. Woodside argues that this slowness poses a danger of leaving valuable hydrocarbons in the ground due to insufficient government speed and astuteness in development approvals.

The Role of Gas in Energy Security and Decarbonization

Woodside emphasizes the critical role of gas in both the Australian and international energy systems. They highlight its importance for energy security and national security for customer nations abroad. Furthermore, Woodside points to LNG's potential to displace coal in global power generation and aid in decarbonization efforts. Within Australia, gas is presented as a necessary component for decarbonizing the power sector by replacing brown coal with renewables and gas as a low-emissions alternative that ensures the lights stay on.

Despite making headway in public understanding, the regulatory environment remains challenging. While the Northwest Shelf Life Extension received approval, Woodside is involved in multiple court matters related to other developments. Their message to the government is a clear call to "speed things up" as it is currently too difficult to invest in Australia.

International Operations and Government Relations

Woodside operates in various jurisdictions, including Africa, the United States, Mexico, and Korea. In these locations, governments generally expect companies to operate responsibly, pay taxes, invest in communities, and create jobs. Woodside asserts it has a 40-year track record of doing so in Australia and is replicating this in Mexico and Louisiana. They express a desire to continue this in Australia with projects like Scarboro and Browse, but acknowledge that governments make policy choices about national direction.

Woodside suggests that encouraging the Australian government could involve recognizing the energy needs for critical mineral processing and the re-industrialization of Australia, both of which require natural gas for heat. This is particularly relevant for emerging technologies like artificial intelligence, which demand large-scale power.

Value Addition and New Energy Strategy

Woodside is actively exploring opportunities to add value to its gas resources. The company is nearing completion of a large ammonia plant. This move up the value chain, producing products like ammonia and hydrogen, is part of their "new energy strategy" focused on alternative molecules with lower carbon intensity. While ammonia has existing uses in fertilizers and explosives, Woodside is pursuing its application in energy, specifically for power generation and marine transportation.

Positive policy signals exist from Europe, Japan, Korea, and Singapore for lower-carbon ammonia. However, Woodside emphasizes disciplined investment, noting that markets for lower-carbon ammonia are developing more slowly than anticipated. They are laser-focused on demonstrating value from their acquired Bonaparte new ammonia project, securing high-quality customers, and will be disciplined before further expansion.

Bass Strait Project and Future Potential

Woodside is excited about the Bass Strait project following the BHP petroleum merger, which granted them a 50% stake. Their team has identified opportunities to extract additional gas from this asset. The joint venture agreement with ExxonMobil allows Woodside to pursue these opportunities even if ExxonMobil's interest is lower.

There are approximately 200 petajoules of gas discovered but not yet developed in Bass Strait. Woodside anticipates taking over operatorship next year, with around 600 ExxonMobil employees joining the Woodside team. They are optimistic about unlocking further value through hard work, engineering expertise, and creativity. While Bass Strait was projected to run out in the early 2030s, Woodside is cautiously optimistic that these new resources will extend its operational life.

Communicating Woodside's Narrative

Woodside acknowledges that politicians and others in Australia may not fully understand their story and future vision. They are actively engaged in a communication journey to effectively convey the importance of natural gas in the power and manufacturing sectors. This includes highlighting their supply of natural gas to mineral processors, smelters, and other businesses reliant on it for profitability. The goal is to help both politicians and the general public understand why natural gas remains crucial.