Woodside faces big questions in year ahead after strong 2022

Woodside beat its 2022 production guidance after a record December quarter and enters 2023 facing questions over a tumultuous gas market abroad and regulatory risks on both sides of its home country.

The oil and gas giant reported a 0.7 per cent increase in production for the quarter compared to the three months earlier. At the same time revenue for the three months fell 12 per cent to $US5.16 billion ($7.32 billion) due to reduced trading and the oil price retreating from mid-year highs.

Woodside CEO Meg O’Neill faces two massive regulatory challenges in 2023 - government intervention in the east coast gas market and securing approvals to construct its Scarborough gas project off WA.
Woodside CEO Meg O’Neill faces two massive regulatory challenges in 2023 – government intervention in the east coast gas market and securing approvals to construct its Scarborough gas project off WA.Credit:Dominic Lorrimer

Delivered sales volumes fell 8.5 per cent in the December quarter primarily due to fewer third-party trades.

Woodside chief executive Meg O’Neill said the average price it received for its products dropped from $US102 a barrel of oil equivalent (boe) in the September quarter to $US98.

The war-fuelled spike and then softening of oil prices in 2022 resulted in Woodside losing $US872 million before tax on oil price hedging for the year with 44 per cent of the pain coming from hedges related to its contracted purchase of LNG from the Corpus Christi LNG plant in Texas.

“I think there are still a few wild cards for us,” O’Neill said of the global gas market.

Record high winter temperatures across Europe countries attributed at least in part to climate change have allowed more gas to remain in storage and dampened an expected price bonanza for sellers of liquefied natural gas.

“There are still questions around the rest of the European winter,” O’Neill said.

“If winter is colder, in February for example, that could result in Europe needing to draw more LNG to resupply their inventories.”


O’Neill also has her eye on how fast the Chinese economy restarts under its new open COVID policy.

“There are a lot of open questions actually about 2023,” she said.

Two of those are closer to home: federal government intervention in the East Coast gas market and whether the approvals it seeks to develop the Scarborough will open be to challenge.

Woodside’s statement to the ASX made no mention of whether it would recommence offering new supply on the East Coast. Both Woodside and Shell shuttered their marketing efforts in December in protest at the federal government’s efforts to rein in gas prices, but Shell relented on Monday.

In the second full quarter it has owned 50 per cent of the ExxonMobil-operated Bass Strait operation Woodside’s sales of gas were down 28 per cent due to planned offshore maintenance and the annual demand drop after winter.

The stark difference in Australia’s two domestic gas markets was shown by what Woodside received for gas on each side of the country: $5.3 a gigajoule in WA and $14.2 on the East Coast where no gas is reserved for domestic use.

Woodside is also facing the growing risk that offshore construction to develop its Scarborough gas field could be stopped even after plans are accepted by the offshore environment regulator NOPSEMA.

Santos was forced to suspend drilling its Barossa field last year after losing a Federal Court case over whether it properly consulted Indigenous groups.

This week the regulator revealed installation of a pipeline for Barossa was stopped just weeks before it was due to commence as Santos had to check it would not disturb seabed sites of significance to the Indigenous people of the Tiwi Islands.

Woodside spent $US1.77 billion on the Scarborough to Pluto gas export project in 2022.

“The combined projects are now one-quarter of the way to completion and are on track for targeted first LNG cargo in 2026,” O’Neill said.

Credit Suisse energy analyst Saul Kavonic said Woodside will have more time to adjust to the threat of challenges to its project than Santos had for Barossa.

“The environmental activist litigation is creating uncertainty and backlogs for all environment plans which raises the project risk profile and can start to eat into economics, which is part of the activists’ goal to deter investment in Australian gas more broadly,” he said.

Late this year Woodside should start producing oil from its Sangomar project which is 77 per cent complete.

“In Senegal, subsea installation and development drilling has progressed well, with seven of the planned 23 wells now completed,” O’Neill said.

Production guidance for 2023 is unchanged at 180 to 190 million boe.

Woodside shares were down one per cent to $37.35 a share in late trading on Wednesday.

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