Australia's Woodside posts 24% drop in first-half profit on lower prices, depreciation costs

Woodside Energy reported a 24% decline in first-half underlying net profit to $1.25 billion, primarily impacted by lower realised oil prices and depreciation costs from its Sangomar project. Despite the profit contraction, operating revenue increased 10% to $6.59 billion, significantly bolstered by the Sangomar contribution. The company declared a reduced interim dividend of 53 cents per share and is actively pursuing further sell-downs of its Louisiana LNG project, while also engaging with the Australian government regarding its North West Shelf LNG extension, indicating ongoing strategic portfolio adjustments.

Analysis

Woodside Energy's first-half results present a mixed financial picture, with underlying net profit declining 24% to $1.25 billion, a figure that was in line with consensus estimates. The profit contraction was driven by two primary factors: slightly lower realised prices, which averaged $61.8 per barrel of oil equivalent, and significant depreciation and amortisation costs of $773 million related to the new Sangomar oil project. In contrast to the profit decline, operating revenue grew 10% to $6.59 billion, bolstered by a nearly $1 billion contribution from the Sangomar project, indicating that new assets are successfully boosting top-line performance even as they create near-term pressure on net earnings. Reflecting the lower profitability, the company reduced its interim dividend to 53 cents per share from 69 cents a year prior. Strategically, Woodside is actively managing its portfolio by exploring further sell-downs of its $17.5 billion Louisiana LNG project, where it notes strong interest from potential partners, and is also navigating regulatory approvals for its key North West Shelf LNG project extension.

Key Decisions for Investors

• Investors should weigh the near-term margin compression and reduced dividend, driven by Sangomar's depreciation costs, against the project's demonstrated contribution to revenue growth.
• Monitor progress on the Louisiana LNG project sell-down, as successful transactions could de-risk the balance sheet and serve as a significant catalyst for the stock.
• Pay close attention to the outcome of consultations with the Australian government regarding the North West Shelf LNG extension, as regulatory conditions will be critical for the long-term value of this core asset.
• Given that the profit result met market expectations and the stock reaction was muted, the focus should shift to the execution of strategic initiatives rather than the backward-looking earnings decline.