Woodside Energy Group Ltd Q4 FY2023 earnings call

Strategic Priorities:

• Provided energy through a high-quality portfolio with record full-year production and excellent LNG reliability, and significant progress on major growth projects.
• Created and returned value through disciplined capital management, with underlying net profit after tax of $3.3 billion, a fully franked dividend of USD 0.60 per share (80% payout ratio of underlying NPAT), and $0.6 billion free cash flow.
• Conducted business sustainably, reducing net equity Scope 1 and 2 emissions by 12.5% below the starting base, and launching the Climate Transition Action Plan with a special investor briefing on climate plans on March 12. Also, emphasized improving safety after a tragic incident in 2023.

Project Progress:

• Sangomar project 93% complete, targeting first oil in mid-2024.
• Scarborough project 55% complete, targeting first LNG cargo in 2026, with four offshore environment plans accepted and seismic, pipelay, and drilling underway.
• Pluto Train 2 sites with site works well advanced.

Capital Management:

• Strong cash flow generation with 80% cash margin, gearing at 12% (lower end of target range), liquidity of $7.8 billion, and sustained credit ratings. Future cash flow from major projects expected to cover capital expenditure and dividends, with decisions on surplus cash allocation guided by capital management framework.

Overall, Woodside's financial performance showed underlying net profit after tax of $3.3 billion in 2023. They generated $0.6 billion of free cash flow. Unit production cost was $8.30 per barrel of oil equivalent. No detailed breakdown of product segments by revenue contribution was provided in the transcript.

Forward-Looking:

• Expect significant increase in cash generation from major projects (Sangomar, Scarborough, Trion) coming online from 2024-2028, assuming $70 oil price, with cash flow from operations expected to cover capital expenditure and dividends, creating a projected surplus. Decisions on surplus cash allocation will consider macroeconomic conditions and growth pipeline. Gearing expected to increase capacity after 2026. The Scarborough sell-down to JERA is seen as a positive cash story, with collaboration in new energy.

Risks:

• Safety issues: Tragic death of a colleague in 2023 led to commissioning an external review of safety systems and focus on improving processes, tools, and training in 2024.
• Market volatility: Macroeconomic conditions and global energy market volatility can impact commodity prices and project outcomes.
• Project execution risks: Uncertainties in project timelines, such as potential delays in Scarborough or other major projects.

Q: James Redfern from Bank of America asked about the target reduction in Scope 1, 2 emissions and Woodside's growth strategy with inorganic growth.

A: Marguerite O’Neill responded that the focus is on asset decarbonization, design of new facilities to avoid emissions, and a carbon portfolio for offsetting. On growth strategy, they are pleased with the current portfolio and look for profitable growth in line with capital management framework, with exploration and new energy opportunities considered.

Q: Nik Burns from Jarden Australia asked about Pluto's production profile and Shenzi/Shenzi North reserve downgrade.

A: Marguerite O’Neill said Pluto's KGP agreement is 4 years, with reserve add and resource performance positive, and Scarborough will ramp back Pluto gas production. On Shenzi, resource performance disappointed but they are watching reservoir performance, while Mad Dog Phase 2 is performing well with flex joint replacement completed.

Q: Gordon Ramsay from RBC Capital Markets asked about North West Shelf LNG train maintenance and Wheatstone impairment.

A: Marguerite O’Neill said they plan to take LNG Train 2 offline this year with modest impact on production. The Wheatstone impairment was due to short-term LNG pricing outlook in accounting treatments.

Q: James Byrne from Citi asked about M&A and inorganic growth strategy.

A: Marguerite O’Neill and Graham Tiver said they are pleased with current portfolio, look for compelling M&A deals in LNG, deepwater oil, and new energy, with deals needing to create value for shareholders.

Q: Unidentified Analyst asked about Scarborough sell-down to JERA and M&A talks with Santos.

A: Marguerite O’Neill said the JERA deal is a strategic partnership with value creation, and M&A talks with Santos are no longer ongoing as it was not in either party's best interest.

Q: Tom Allen from UBS asked about LNG contracting in Scarborough and Pluto LNG.

A: Marguerite O’Neill said they are in the market for LNG deals, with HOAs with JERA and LNG Japan, and focus on competitive cost of supply to compete in the market. On Pluto, Tokyo Gas stake process is ongoing with Woodside reserving rights.

Q: Dale Koenders from Barrenjoey asked about net debt and tax payments.

A: Graham Tiver said cash flow was positive in high CapEx year, net debt at low gearing range, and tax was due to finalization of 2022 high price returns. Restoration provisions and PRRT were discussed as planned and normalized.

Q: Henry Meyer from Goldman Sachs asked about LNG contracting in Scarborough and Pluto LNG Tokyo Gas stake.

A: Marguerite O’Neill said they are in the market for LNG deals, and Tokyo Gas stake process is ongoing with Woodside reserving rights.

Q: Adam Martin from E&P asked about capital management and Scarborough sale.

A: Graham Tiver said capital management framework guides decisions on dividends and buybacks, and Scarborough sale to JERA is expected to close in first quarter.

Q: Mark Busuttil from JPMorgan asked about Santos deal and LNG strategy.

A: Marguerite O’Neill said Santos deal is off the table, and LNG strategy involves optimizing portfolio through trading and participation in market volatility to create value.

Q: Robert Koh from MS asked about Scope 3 emissions abatement target and free cash flow estimates.

A: Marguerite O’Neill explained the Scope 3 target is tied to $5 billion investments, calculated product by product. Graham Tiver said gas price assumptions are consistent with IBD, around JKM pricing mid-teens in 2024 and lower later.

Q: Unidentified Analyst from Australian Council of Superannuation Investors asked about climate targets and H2OK project.

A: Marguerite O’Neill said climate targets include executive and company scorecard changes for climate and safety, and H2OK delay is due to U.S. government hydrogen production tax credit consultation, with submission sent and expected response in next month.