Full Year 2023 Woodside Energy Group Ltd Earnings Call
From Sydney, and I would like to begin by acknowledging the traditional custodians of this land the <unk> people of the Euro nation and pay my respects to their elders past present and emerging.
Today I am joined on the call by our Chief Financial Officer Graham timber.
Together, we will provide an overview of our 2023 performance before opening up to Q&A.
Please take the time to read the disclaimers assumptions and other important information.
I'd like to remind you that all dollar figures and today's presentation are in U S dollars unless otherwise indicated.
I would side our strategy is to thrive through the energy transition. This is underpinned by three strategic priorities and in 2023, we delivered on all three.
The first is providing energy.
Through our high quality portfolio now and into the future.
I am pleased to report that in 2023, we delivered record full year production with excellent LNG reliability.
We also made significant progress on our major growth projects.
Our second strategic priority is creating and returning value through disciplined capital management.
In 2023, our underlying net profit after tax was $3 3 billion.
Based on this our board has determined a fully franked dividend of <unk> 60 per share.
This represents a payout rate payout ratio of 80% of underlying <unk>, which is at the top end of our range.
We also generated zero $6 billion of free cash flow.
This is a significant achievements in a period of major capital expenditure and normalized prices.
And our third strategic priority is to conduct our business sustainably.
I am pleased to report we have further reduced our net equity scope, one and two emissions in 2023, and we are now 12, 5% below our starting base.
I'd like to highlight that we are launching our climate transition action plan today, and we will be hosting a special investor briefing about our climate plan on the <unk> of March.
Please take this as a sign of our continued commitment to action and transparency.
Conducting our business sustainably means more than reducing emissions. It includes ensuring everyone who works here goes home safely and we did not achieve that in 2023.
I'd like to reflect on that.
We are steadfast in our commitment to learning from the tragic death of a colleague at the North Rankin complex last year.
We commissioned an external review of our safety systems, and we will work relentlessly to improve our processes tools and training programs.
There is nothing more important to us in 2024 and improving safety.
I'd like to look now at the macroeconomic backdrop.
As you can see on the charts, we saw extraordinarily extraordinary volatility in 2022, resulting from Russia invasion of Ukraine, and subsequent impacts on global oil and gas trade.
Periods of volatility underlying the importance of LNG and ensuring global energy security.
During this time, we were able to provide our customers with reliable affordable and secure energy.
At the same time, the fundamentals of long term LNG demand remained strong.
Global demand for LNG is forecast to grow 53% in the coming decade between now and 2000 22033.
This demand is expected to emerge from China and Southeast Asia.
Our assets are geographically advantaged to supply.
Looking at the second graph in 2023, the majority of contracts signed in the global LNG market, where for durations of 20 or more years.
This long term demand for LNG supports our conviction that gas will be a key part of the global energy mix for decades to come.
The sell down of Scarborough to LNG, Japan, and Europe at full value provides further evidence of Asian players looking to secure access to long term LNG as they navigate the energy transition.
With strong fundamentals our high quality portfolio is positioned to provide energy now and into the future.
Focusing now on our portfolio.
We see clear benefits of our merger with Bhp's petroleum business.
Looking at the Green line on slide eight.
You can see our production has more than doubled compared to pre merger levels.
Our outstanding LNG reliability contributed to this record overall production, which we achieved while also successfully delivering planned turnarounds.
We also took steps to further increase our capacity to supply our customers with LNG in the future for.
For example, we signed an off take deal with Mexico Pacific LNG and expect first cargo in 2029.
This strengthens our position as the portfolio player supplying our own LNG as well as third party volumes to our customers.
At the same time, we have made significant progress on our major projects.
Going to slide nine the Sangamo project was 93% complete at the end of 2023.
Since then the DSO has arrived safely in Senegal, and as you can see the mooring chains have been connected to the <unk>.
17 wells have been drilled and completed.
We're targeting first oil in mid 2024, and expect production to ramp up through the year.
Okay.
Moving to Australia.
At year end, Scarborough with 55% complete and is targeting first LNG cargo in 2026.
A key achievement was for offshore environment plans were accepted by the regulator in December 2023.
The seismic work is now done and the pipe lay in drilling are underway.
We've also made progress across the other work streams, we have for our Scarborough energy projects.
We have recently completed the initial drydock of the FTE Hall.
And as you can see site works are well advanced at the Pluto train two sites, where we will process the gas.
Let's now have a look at our financial performance.
Overall commodity prices were lower compared to the highs we saw in 2022.
And this is reflected in our financial performance.
But thanks to our strong underlying business, we have demonstrated resilience across our financial metrics.
Our unit production cost of $8 30 per barrel of oil equivalents as remained steady despite the inflationary environment and planned turnarounds.
Demonstrating our focus on cost efficiency.
Now it makes us tremendously proud is that in this inflationary environment, we continue to return strong dividends to our shareholders.
We target paying between 50% and 80% of our underlying net profit in dividend.
And over the last decade, we have consistently paid at the top end of the range.
I'll now hand over to Graeme to take you through our capital management.
And Hello, everyone.
Our cash flow generation in 2023 was strong.
At the chart on the left you can see we have delivered a cash margin of 80%.
Importantly, we've achieved positive free cash flow of <unk> 6 billion.
Heavy capital investment year with record tax payment.
Turning to the balance sheet.
Gearing of 12% is at the lower end of the target range and we closed the year with liquidity of seven 8 billion.
We are also sustained credit writings of triple B plus or equivalents.
Our strong balance sheet supports major capital investments, which provides near term growth.
It also allows us to continue providing strong returns to our shareholders.
Our financial performance and balance sheet have remained resilient because of our strong underlying business and our consistent approach to capital management.
The main point I would like to highlight is that our capital management framework remains unchanged.
As do our priorities for cash.
As we seek to create value we will continue to be disciplined to ensure the business remains resilient.
Looking at our sources of cash in the period 2024 to 2028.
We expect a significant increase in our cash generation.
As each of our three major projects Sangoma, Scarborough and <unk> come online.
Assuming an oil price of $70 per barrel, we expect to generate cash flow from operations that more than covers our current budgeted capital expenditure and dividends.
Creating a projected surplus of cash through the period of 2024 to 2020.
Decisions on surplus of cash allocation will be guided by our capital management framework.
Continuously balancing investing for growth.
Managing managing our balance sheet and strong returns to our shareholders.
Those decisions will be influenced by a number of factors, including macroeconomic conditions and.
And growth pipeline at a particular point in time.
In addition, there was further optionality within our gearing range. So we are currently sitting towards the low end of our target range of 10% to 20% gearing.
We expect that after 2026, our operating cash flow will increase significantly, creating even more capacity in our balance sheet.
These graphs on this slide do not include the impact of our recent Scarborough sell down to zero, which is subject to completion.
We are pleased with this transaction and the value it creates for Woodside. In addition to the sale of 15, 1% interest in Scarborough. We are also partnering with zero for an off take agreement and collaboration and new energy.
Steel is further evidence of market confidence in the quality of Scarborough and as makes it underlines the long term value our partners see in the assets.
And this positive cash story has been bolstered by our merger with Bhp's petroleum business in 2022.
<unk> is an example of how we unlocked value as part as part of the merger.
As an asset which came into it saw its portfolio and we progressed to a positive final investment decision.
Adding cash generative and debt free assets the merger transformed our balance sheet.
It has also enabled us to have enabled us to bring together global capabilities and bolster our marketing and trading expertise.
We implemented initiatives to deliver over $400 million in synergies.
Within the first seven months of operating as a merged company.
This is how we have created and return value in 2023.
I'll now hand back to make.
Thanks Graham.
At Woodside, we are committed to running our business sustainably. It's why I am pleased to report we are on track to meet our targets to reduce our net equity scope, one and two emissions by 15% below our starting base by the end of next year.
We also progressed our asset de carbonization plan for.
For example, the picture on the left of Slide 16 shows the modifications we've made a pluto LNG to be ready to receive power from the proposed Woodside Solar project.
Over the course of 2023, we listened to a wide range of stakeholders in the climate space, we consistently heard requests for more information about our scope three emissions plan.
Today, we are announcing a new complementary scope three emissions abatement targets.
This target is to take final investment decisions on new energy products and lower carbon services by 2030 with total abatement capacity of 5 million tons per annum of Cotr quibbling.
This will complement our existing $5 billion investment targets, which remain a key part of our scope three plan and tracks our work to bring these new products and services to market.
The new emissions abatement target will allow us to track the potential impact of these investments on our customers' emissions.
With that I'd like to look at where we're going from here and finish with a recap of our investment case.
We are focused on building value in 2024 and beyond we will do this by operating our base business reliably and efficiently while progressing our next wave of growth through value, creating major projects.
We will maintain a disciplined approach to capital management and on this point I'd like to emphasize that I am pleased with our portfolio as it stands.
We will only pursue growth opportunities that are value accretive.
We will also continue to implement and identify emissions reduction opportunities and above all else, we will work to improve safety.
In closing our investment case is clear Woodside is positioned to thrive through the energy transition.
We have a high quality portfolio geographically advantaged to meet growing LNG demand.
We are a reliable supplier celebrating 35 years of LNG delivery in 2024.
We deliver strong and consistent returns to our shareholders.
And we are on track to deliver our emissions reduction targets.
I am immensely proud of our achievements in 2023, they demonstrate disciplined adherence to our strategic goals.
We will now open the call to questions May I request that you ask one or two each so that everybody has an opportunity to participate.
Yes.
Okay.
If you wish to ask a question. Please press star one on your telephone and wait for your name to P&L.
If you wish to cancel your request please press star. Thank you.
If youre on a speaker phone please pick up the handset to ask your question.
The first question comes from James <unk> with Bank of America. Please go ahead.
Good morning Graham.
I guess two questions. Please I guess the first one.
Focus on the.
The targeted reduction in scope two emissions by 2030, just wondering if you could please maybe walk through what the key drivers will be in achieving that target of 30% reduction by 2030. Please thank you.
Sure. Thanks James.
Great to have a emissions oriented question.
I said, we released today, our climate transition action plan, which provides a fair amount of detail on the work that we're doing our focus in the near term is <unk>.
Much on the asset de Carbonization plans, which provide a roadmap and a list of opportunities for each of our existing assets too.
Try to reduce their emissions and in the climate transition action plan document Youll see some good examples of the work that we're progressing on this front.
Probably the biggest low hanging fruit is to bring solar power.
Low emissions power into the Pluto LNG facility.
And so I'd encourage you to take a look at the climate transition action plan.
As we've said we also have a strong focus on designing out and you'll be aware James we've got three new facility starting up between now and 2030, we've taken a number of steps in the design of those assets too.
Really ensure that we are avoiding emissions rather than having to operate out later.
So there are key steps in the design phase there are steps in the operate phase.
And then as we need to we've built a carbon portfolio to be able to offset any further emissions and just to be really sharp. It is our net equity scope, one and two emissions. So it's our working interest share across all of our assets operated and non.
Perfect. Thanks Meg.
Second question, if I can please.
Maybe just maybe some comments around wood.
<unk> growth strategy with regards to inorganic growth I'm, just wondering with the preference between.
Expanding or growing.
LNG.
I guess.
Portfolio deepwater oil projects, I guess, I guess I'm asking privilege between people to oil and LNG in terms of organic growth opportunities. Thank you.
Sure. Thanks, James and I know that's a question that many on the call are interested in so let me first and foremost start up by the fact that we are in the process of recapitalize the business already with our very significant investments in sangoma Scarborough Pluto train two and three on.
We are very comfortable with the portfolio as it stands and.
And we're very pleased with the progress that we're making on these growth projects.
Now as we look further down the track we are always going to be looking for ways to profitably grow the business in line with our capital management framework.
We have assets that are in our portfolio today and teams working on.
The best way to unlock value from those assets.
Do spend modestly and in a risk managed way on exploration, we have new energy opportunities as well that we are pursuing largely from ground up at this stage.
And we've been really clear that our strategic priorities, our LNG deepwater oil and new energy and we will look at a range of other ways to grow in those spaces, but as I said in the call. We're pleased with the portfolio as it stands today.
Okay. Thanks, Mike.
Thanks James.
The next question comes from Nick <unk> with Jarden and Australia. Please go ahead.
Yeah, Thanks, Mark and Graham.
First of all just on the Pluto.
To see an increase in Pluto two P reserves production and reserve statement and.
Production has been extremely strong I guess, the flipside of Hog production is shorter reserve life.
Lighting.
<unk> reserve philosophy around three or four years at current production rates.
Can you just talk through how we should think about <unk> production profile from here, how much longer we will be able to process gas at the KCP and when should we start seeing natural field decline start to kick in and then once Scarborough start stop how should we think about.
Production from there. Thank you.
Okay. That's a very comprehensive question on Pluto.
We are very pleased with how fleet has been performing Nicole one of our crown jewel asset.
I think it's a great proof point.
Merit or taking a project through with high working interest as you get significant.
So once you get into that operational phase.
I think we've been public about this in the past, but the agreement to process gas at <unk> is a four year agreement. So we're two years through that and.
Continuing to look for opportunities to maximize value of the asset and maximize near term cash generation.
We were very pleased with the reserve add again, we're seeing really pretty positive resource performance from that set of assets.
One of the things that is.
<unk> to bear in mind is that when Scarborough comes online, we will ramp back Pluto gas production.
So we're still working the details of this but you're right to observe that we are past the 50% Mark with play Doh.
But again, it's a fantastic asset and it's generating tremendous cash sets, enabling us to continue to invest in profitable growth.
And return value to shareholders, who have stuck with us through the through the cycle.
Alright, maybe another question just on Shenzhen Chintzy North reserve downgrade.
Gain some confidence and your Gulf of Mexico portfolio.
It's relatively new portfolio to a number of us and this is not a lot of detail except for what was in the independent expert report.
Just can you give us some confidence that I might talk face to performing in line with expectations and have you undertaken a broader review of the undeveloped reserves in the portfolio.
You can just talk to those thank you.
Sure so probably worth.
Some framing comments, so shandy represents about.
5% of our production last year. So it is reasonably modest contributor to the business.
You'll probably recall Nic.
There have been a couple of.
Campaigns to test the extensive shenzen in the greater Shensi area. The wildly opportunity we pursued in 2022, and then that was unsuccessful.
NZ North with a project that was sanctioned in 'twenty, one I am pleased with the project execution, we were able to bring the program online ahead of schedule and under budget, but unfortunately, the resource performance has disappointed.
I feel like we've got our arms around where <unk> is at this point in time, we will continue to watch the reservoir performance closely and update our models and we'll see if there's further infill but at this point in time, we are focused on maximizing value from that asset.
Mad Dog Phase II.
You'll recall, we were limiting our managing performance sorry, managing production last year, because we were continuing to work through some of those integrity issues. Those have been worked through the flex joint replacement campaign was conducted late last year early this year.
Pleased with what we're seeing from the subsurface at this point in time and so the non operated assets we feel like there is.
Those are performing well and perhaps another proof point is the Mad dog southwest.
Appraisal well that gave us confidence and further expansion in the Mad dog in the Mad Dog resource.
Okay.
That's great. Thanks, Mike.
The next question comes from Gordon Ramsay with RBC capital markets. Please go ahead.
Well, thank you very much great results.
Just on the maintenance plan this year for the.
Northwest shelf LNG train can you confirm which trained items.
Sorry, Gardner, you're asking about which trend is likely to be decommissioned.
I know, there's some maintenance work that was planned in the third quarter on one of the trains.
I misunderstood.
Yes, I think we'll have we'll have to get back to you on that Gordon at this point in time I think we've been signaling that is that we've got capacity in the plants and the crop the gas plants already to.
To the extent that we are likely to take where we are planning to take one LNG train offline this year.
Train LNG train two but the fact that we've got spare capacity this year means that.
Any train maintenance, we do ahead of that point in time, we'll have a pretty modest impact on production.
Okay, and then secondly, just on the impairment charge with respect to Wheatstone it was related to short.
Look on the short term LNG pricing can you just explain.
What that means why was taken.
Yeah. So this is a great feature if the accounting treatments where we've.
And if you went back over time Gordon you would've seen we've impaired unimpaired Wheatstone a couple of times.
Accounting standards drive that I'll, let Graeme has our accountants give you some of those details. So I think thank you Mick.
So yes in terms of.
We had an impairment reversal in the prior year and 2022 and that was predominantly driven.
Short term pricing, which was the extreme highs of 2022, when you factor the prospect for the forward.
Short term and then into the long term.
Resulted in a position where.
The carrying value was potentially below its full value. So we had to.
Promote payment reversal this year with crosses dropping.
It's seen a part of that unwind and I guess.
Which way Wheatstone is today, we're watching that process very closely Gordon, but it's very very clear. This has nothing to do with the underlying performance of Wheatstone. So wheatstone is performing very well. This is just the nature of accounting treatments when we get into impairing assets you have to check those on an annual basis.
Okay. Thank you very much.
Thanks Gordon.
The next question comes from James Byrne from Citi. Please go ahead.
Good morning, Tim.
I am going to ask a question on slide 40, and sources and uses of cash Chris Lee. Thank you just the tightening up that disclosure, making it a little ambiguous thats very helpful.
Firstly can I confirm that the gas hub prices that you have used to determine the source of the cash is the same as what you gave us in November at the <unk> de <unk>.
Because if you mark to market there for lower future process, then that would infer that the business is performing better than.
And then what you had given us a few months ago.
James that is correct no change to the assumptions, which we.
As part of the IBD.
And as you've clarified units based on $70.
Current oil price today is it.
And.
So important to include in your models.
Yes, Okay, so no change to get that prices okay.
Brian in your <unk>.
Section earlier, you said you are.
Balancing investing for growth maintaining a strong balance sheet and strong capital returns back to shareholders.
Dividend component of the uses of cash there is call. It a three 7% yield that the last close.
Let's say you wanted to bring that up to 5% with some special that's going to aid into around half of your surplus capital bucket. There the remaining surplus cash Si would push gearing over 20% on my numbers. If you wanted to reinvest in the business of flat production of course.
Projects to invest in that could be organic or inorganic, but nonetheless, I still really struggle.
With how you're going to satisfy those three things around great balance sheet and capital returns I would love to use the Q&A to four employee to suggest where I might be wrong in that conclusion, which of course largely relies on your own disclosures as opposed to my assumptions.
So James let me, let me start with some framing points and then I'll hand over to Graham first and foremost we've never said that we target flat production.
I think the industry is littered with companies that have targeted production growth or we're maintaining production at the detriment of shareholder value. So we are focused on profitably investing.
And assets that will deliver shareholder value over the long term.
And our existing slate of projects I think is a great example of that and so we want to make sure that we continue to be disciplined and let the capital.