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Woodside sets $5bn budget for new energy projects

8th December 2021

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Oil and gas major Woodside on Wednesday announced that it would invest $5-billion in emerging new energy markets by 2030.

Speaking to investors, CEO Meg O’Neill said liquefied natural gas (LNG) would remain an important part of the energy mix in the region for decades to come, both as a lower-carbon source of fuel for coal-dependent countries and as convenient firming capacity for renewables.

“But our significant investment target in new energy is aimed at positioning Woodside as an early mover in this evolving market and supporting the decarbonisation goals of our customers.

“We have a vision to build a low cost, lower carbon, profitable, resilient and diversified portfolio. Woodside aims to do this by leveraging our world-class Tier 1 portfolio and allocating capital to the right opportunities at the right time.

“Our investment decisions are informed by robust market analysis, so we understand macro trends for our products and a range of outcomes dependent on different climate scenarios. Individual opportunities are assessed through a disciplined capital allocation framework and clear investment criteria, always considering the fit with our emissions reduction targets and shareholder returns.

“Woodside’s success is underpinned by the commitment of our teams and high performing culture, as well as our application of an environmental, social and governance mindset through the organisation.”

O’Neill noted that in 2021, Woodside delivered on what it set out to do: tackling costs, achieving final investment decisions on the Scarborough and Pluto Train 2 projects, continuing delivery of Sangomar and progressing its new energy opportunities, while also announcing a proposed merger with BHP’s petroleum business.

“The rationale for the merger with BHP’s petroleum business is compelling. After completion, Woodside will have a larger, diversified portfolio of long-life assets and increased cash generation to build resilience and support future investment and shareholder returns.

“The merged portfolio would have an exciting pipeline of near-term developments: Sangomar in Senegal; Mad Dog Phase 2, Shenzi North and other attractive opportunities in the Gulf of Mexico; and Scarborough offshore Western Australia. These, together with other potential oil, gas and new energy developments, will provide an enviable hopper of opportunities competing for capital.

“Scarborough truly is a world-class project and the development of its 11-trillion cubic feet of gas through the expanded Pluto LNG facility is a game-changer for Woodside. The project has an internal rate of return of more than 13.5% and a globally competitive cost of supply of LNG delivered to north Asia of $5.8 per million British thermal units.

“Recently we welcomed Global Infrastructure Partners into the Pluto Train 2 joint venture with their acquisition of a 49% participating interest.

“In recent months we announced progress on four new energy projects: H2Perth and H2TAS in Australia and Heliogen and H2OK in the US. Our projects are designed to be phased, starting small with the potential to build scale. In each case the project location has been chosen for specific reasons, preferably near available renewables or close to market, ensuring they are customer-led.

“We expect that in the mid-2020s the transition to new energy will be underway, including the start-up of the first of our own projects,” she said.

While spending big on emerging new energy markets, O’Neill noted that Woodside would also continue to invest in conventional oil and gas projects, but that these projects would need to fall within the company’s capital allocation framework.

"For future oil developments we will target an internal rate of return (IRR) greater than 15% and payback within five years.

“Oil investments can be attractive due to the shorter development cycle and higher cash generation. Subsea tiebacks to existing oil infrastructure can be particularly attractive,” O’Neill said.

Gas projects typically generate long-term cash flows and tend to be resilient through the commodity price cycle, she noted. Woodside will target an IRR greater than 12% and payback within seven years.

“The recently sanctioned Scarborough project comfortably exceeded these investment hurdles. Gas projects can also include adjacent hydrogen production, depending on nearby resources and market. And of course, we also see a significant ongoing role for Woodside’s LNG production to support our customers’ decarbonisation commitments,” O’Neill added.

She noted that new energy projects tend to carry a lower risk profile as they are not exposed to upstream or resource risk in the way a traditional oil or gas development is. There is also a lower financial barrier to entry, given the lower capital required for development. The lower project risk means a lower return can be expected.

“We will target an internal rate of return greater than 10% and payback within 10 years. New energy projects can potentially be scaled up to meet demand as the market develops.

“The emissions from projects in all capital allocation categories need to be managed to meet our net emissions reduction target of 30% by 2030, and a net-zero aspiration by 2050 or sooner,” she said.

Edited by Creamer Media Reporter

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