Woodside Aims To Maximise Shareholder Returns

Australia | 10:30 AM

Woodside Energy's H1 result included a planned new capital management and allocation strategy which, along with cost-outs targets, is intended to maximise shareholder returns.

• Woodside Energy beats on first half earnings and dividend
• Current projects on track
• Green ambitions to be shelved
• New capital strategy to be announced

By Greg Peel

Woodside Energy ((WDS)) delivered first half 2026 earnings 6% ahead of consensus and underlying profit 1% ahead driven by stronger realised pricing (up 20% year on year) and trading activity.

With revenue already reported in the June quarter report (up 13%), the upside in earnings was due to the trading margin and other income, which included a Pluto Train 2 deferred income release.

Costs were inside the ranges pre-announced with the company’s June quarter report. Higher production costs during the half were offset by lower costs elsewhere.

The interim dividend of US57cps, up 8% year on year, represented an 80% payout of underlying profit despite gearing of 20.6% at the end of the period sitting marginally above management’s 10%-20% target range. Consensus was at US54.6cps.

Higher debt was a result of lower-than-expected free cash flow.

A second half skew in production and realised prices will help, while management also announced a US$350m per annum cost savings target from 2028, to be achieved by targeting lower operating costs, corporate overheads and capex, albeit management is yet to outline specific initiatives.

The full year 2026 production guidance range has been narrowed but guidance is otherwise unchanged.

Project Update

Scarborough (offshore WA) is 98% complete as at end-June with no change to the first LNG target of the December quarter 2026.

Trion (offshore Mexico) is 64% complete with no change to the first oil target of 2028.

Louisiana LNG is 28% complete with no change to first LNG target of 2029. Ord Minnett would like to see progress on a sell-down or execution of LNG offtake contracts here to lower the risk profile.

Woodside is also evaluating a potential Phase 2 development at Sangomar (offshore Senegal), which will leverage existing installed capacity and could be a high-returning growth project.

Woodside announced it will abandon its prior Scope 3 Investment & Emissions Abatement targets including plans to deploy $5bn into New Energy opportunities by 2030.

The company's first major investment under this target was its US$2.35bn acquisition of OCI's Beaumont New Ammonia Project (Texas). Having just cash settled the last payment to OCI over the half, Woodside has announced a strategic review of the asset which UBS anticipates may lead to an asset recycling outcome (either part or whole).

Macquarie believes Beaumont New Ammonia will most likely be divested. Management cited slower-than-expected growth of the clean ammonia market (it is expensive) and management time.

Withdrawal of Scope 3 emissions targets possibly indicate the climate vote expected at the company’s 2027 AGM may be unlikely, Macquarie speculates. The shift is consistent with the global energy sector.

Questions now turn to who would buy the asset and what price to expect.

Macquarie suggests ExxonMobil (specific synergies given it will run the carbon capture & storage), chemical players and Japanese trading houses, although each of these are unlikely to pay for "blue premium" upside, but would see value in operatorship and the operating status of the asset (good neighbourhood, export capabilities) hence, hopefully, Woodside’s exit losses can be relatively contained.

Divestment of Beaumont makes strategic sense to Morgans: Jettison the non-oil & gas, low earnings quality, ESG-sweetener to focus on its core strengths in oil, gas and LNG.

Capital Strategy

The first major strategic shift under new CEO Liz Westcott saw Woodside announce it will release a new capital strategy at its November 5 Capital Markets Day that extends across both capital management, including the dividend, and capital allocation.

The new capital strategy will drive holistic change to current frameworks by moving to a single framework that ensures capital competes equally for investment dollars and considers how Woodside measures risk and its approach to maximise shareholder returns.

The single, standardised investment framework across the portfolio will replace the previous internal rate of return hurdle rates of 10% for new energy, 12% for gas and 15% for oil.

UBS considers this a positive step considering Woodside’s historical return on average capital employed has averaged only 7.2% over the last three years (7% in the first half 2026) and so improving on historical capital allocation and value creation approach is the key challenge for the new leadership.

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