By Angela Macdonald-Smith
Woodside Energy chief executive Meg O’Neill says investors have not questioned the strategy behind the $1.35 billion acquisition of a massive US LNG development, despite most shareholders rejecting the oil and gas major’s climate plan three months ago.
Speaking a day after Woodside announced a deal to buy Houston-based Tellurian, which has driven a slump in the oil and gas producer’s share price, Ms O’Neill said the feedback from investors was focused on technical issues – not the justification for the move.
Still, Aware Super, one of the giant pension funds that voted against the climate plan and the re-election of Woodside’s chairman Richard Goyder at an annual meeting in April, on Tuesday reiterated its concerns that Woodside isn’t moving fast enough on tackling emissions, and said it would be looking to speak with the company on the impact of the deal.
“Following the recent acquisition of US-based Tellurian, we will be working with Woodside Energy to understand the impact on its climate targets,” an Aware spokeswoman said, emphasising the financial risks to the fund’s portfolio from climate change.
Kim Farrant, HESTA’s general manager of responsible investment, said Woodside needed to build confidence that decisions made now would drive long-term shareholder value and position the company well for the transition to low-carbon energy.
“That requires a balance between taking opportunities now to meet near-term gas demand as the world transitions, while prioritising the technology and cultural change at the company so it can thrive in a low carbon world,” Ms Farrant said.
Wilson Asset Management portfolio manager Matt Haupt said he had no strategic concerns with the deal, given the pivotal role gas would play in the transition. But he suggested Woodside could have picked up Tellurian more cheaply, and also pointed to the potential impact on dividends.
The first phase of the Driftwood project, targeted for a final go-ahead in the March quarter of 2025, will cost between $US9.9 billion ($14.9 billion) and $US10.56 billion for its 11 million tonnes a year of capacity, according to estimates given by Woodside on Monday.
“For people looking at income and the dividends [the deal] does raise some questions around further sell-downs to maintain it,” Mr Haupt said.
“It’s not going to be the transaction that provides relief to shareholders and sentiment … it’s just put some more clouds over it.”
Shares in Woodside, which slid 2 per cent on Monday after the deal was announced, lost up to 3.7 per cent more by mid-afternoon on Tuesday amid concerns it would defer the prospect of higher dividends and lock Woodside into a lower-return project than elsewhere in its portfolio. The shares were at $27.60 on Tuesday afternoon, down 3.5 per cent.
Ms O’Neill said investors’ questions focused on issues such as bringing in partners and marketing the gas, rather than how the deal fits with decarbonisation ambitions.
“A lot of the focus from investors is around what I call tactical matters, the strategic decision,” Ms O’Neill said, after Woodside posted a 2 per cent gain in quarterly sales to $US3.03 billion. The company also announced a cost blowout at its under-construction Scarborough LNG project that shook market confidence in the company’s ability to execute on its projects.
“We’ve not received a single question, and in my mind, that is confirmation that investors understand that this opportunity is fully consistent with our strategy to thrive through the energy transition and build an LNG portfolio for the future,” she said.
The proposed deal was criticised by the Australasian Centre for Corporate Responsibility, an environmental group, which said Woodside was “thumbing its nose” at the majority of its investors, given they had voted against its proposed climate strategy at an annual meeting this year.
Investors back thesis
Ms O’Neill declined to say whether the positive feedback from investors on the deal included some shareholders that voted against the climate plan, Discussions with shareholders only commenced on Monday.
“But again, we feel very strongly that our analysis of the role of LNG in a decarbonising world is sound, and that as the world tackles climate change, the low-hanging opportunity is to displace coal with gas … same power output, half the life-cycle emissions,” she said.
Asked about the fall in Woodside’s share price, Ms O’Neill pointed to the broader market, which was also softer, “driven by a geopolitical announcement”. Investors would take time to digest the deal, she said.
The deal has had a mixed reception among Tellurian shareholders, many of whom had bought shares well above the $US1 a share offer price and were urging fellow investors to vote against the transaction.
Shares in Tellurian traded as high as $US11.19 in 2019, but crashed as co-founder and former chairman Charif Souki failed to replicate the success he had led at US LNG export pioneer Cheniere Energy. Tellurian shares surged 68.2 per cent on Monday to US96¢, just below the offer price.
Ms O’Neill said the deal would probably be “a bit bittersweet” for those Tellurian investors who had high hopes for where it may go, drawing a comparison with Woodside’s early days as an explorer in the 1950s and 1960s when it was “going from fund-raise to fund-raise”.
In the June quarter report, Woodside posted production of 44.4 million barrels of oil equivalent, 1 per cent less than in the preceding quarter due to maintenance and weather impacts.
Costs at Scarborough were increased by 4 per cent to $US12.5 billion from $US12 billion, after a cost and schedule review. The timing of start-up remains unchanged, with the first LNG cargo targeted for 2026.
