"The biggest driver and the biggest risk" - Woodside’s $19 billion bet

As part of Livewire’s Reporting Season coverage, I spoke to Suhas Nayak from Allan Gray for his thoughts on the outlook for Woodside and what investors should be paying attention to.

Full-year 2025 results summary

• Record production of 198.8 million barrels of oil equivalent
  
• Underlying net profit down 8% to US$2.65 billion
• Unit production cost down 4% to $7.80 per barrel
• Average realised oil price down 5% to US$60.02 a barrel
• Final dividend up 11% to US 59 cents per share
• Full-year dividend down 8% to US 112 cents per share, maintains payout ratio at 80%

Do you currently hold Woodside Energy in your portfolio?

Yes, we do currently hold the stock. It is one of our top three holdings in the fund.

What matters most from the latest results? What are the two to three key metrics for Woodside, and how did they perform?

A lot of what was released today is actually not new news because their quarterly report discloses much of this information. The one new piece of news was the dividend, which surprised to the upside. Beyond that, we focus on progress on their very large projects that are underway, and those seem to be on track.

How do these outcomes affect the outlook? What is your medium-term view?

One to two years is probably a little short term for us when looking at Woodside, because their capital cycle is much longer. The big swing factors for Woodside's earnings trajectory are oil and gas prices, and what they do around sell-downs for their largest new development project in Louisiana. Those are the key drivers that will determine how the next five to ten years play out.

What should investors be paying attention to as the story unfolds? What are the biggest upside drivers and risks?

The sell-downs around Louisiana are a big determinant of returns. At the moment, Woodside has about US$19 billion of assets under construction. How Woodside performs from here will be determined by the returns they can generate on those assets, from which they currently generate zero return because they're still under construction.

The optimisation of that very large asset base - about 40% of enterprise value, potentially a little more - will really determine how investors fare over the next while. It's both the biggest upside driver and the biggest risk.

A good analyst knows where their blind spots are. What could you be wrong about?

Oil prices are a big and volatile factor in determining where earnings could go for Woodside. Increasingly, the spread between gas prices in Europe and Asia versus gas prices in the United States will also be a major factor as some of their US projects ramp up. If those move against you, that would be one potential reason for underperformance from here. Other reasons would include large cost overruns on their projects and poor capital allocation decisions.