Energy

Woodside dividends still at risk despite bumper Q3 output and higher guidance

Wed 16 Oct 24, 11:06am (AEDT)
Oil rig with gas pipeline 1
Source: iStock

Key Points

  • Woodside reported record Q3 production and revenue, exceeding analyst expectations, driven by Sangomar ramp-up and higher LNG prices
  • The company tightened its full-year production guidance upward and lowered capex projections
  • Woodside's recent acquisitions and elevated capex cycle may impact dividends and prevent significant stock re-rating in the near term, according to Macquarie

Woodside (ASX: WDS) shares are ticking higher on Wednesday after the oil and gas major reported better-than-expected third-quarter production and tightened its full-year production outlook.

Woodside shares have struggled over the past twelve months, down 26% to near two-year lows amid falling energy prices and an aggressive growth strategy that's lengthening its heavy CAPEX cycle and placing dividends at risk.

Q3 highlights

Here are the key numbers for the September quarter 2024.

  • Record quarterly production +20% quarter-on-quarter to 53.1 MMboe

  • Record production due to ramp-up of Sangomar, increased up-time across operated assets and increased seasonal domestic gas demand

  • Quarterly revenue +21% quarter-on-quarter to $3.67 billion, due to Sangomar sales and higher average LNG prices

To add some perspective, quarterly production volume revenue was respectively 2.5% and 6.0% ahead of consensus expectations (54.4 MMboe and $3.46 billion respectively).

Tightened full-year guidance

Woodside narrowed its full-year production guidance from 185-195 MMboe to 189-195 MMboe. At the midpoint, this represents an increase of 2.2% and marginally ahead of Macquarie estimates (10-Oct) of 189.7 MMboe.

The Group also lowered its full-year CAPEX guidance from $5.0-5.5 billion to $4.8-5.2 billion or a 4.7% cut at the midpoint. Macquarie had forecasted CAPEX of $5.2 billion for 2024.

Why does this matter?

Woodside's Q3 results surpassed the bullish forecasts of analysts like Goldman Sachs and Macquarie. Quarterly revenue exceeded expectations, bolstered by Sangomar production and unexpectedly high LNG prices.

The full-year outlook is equally promising, projecting above consensus output and a slightly reduced CAPEX. This latter point addresses a key concern for Woodside as it pursues several acquisitions in the US.

In August, Woodside announced its $2.3 billion acquisition of the Beaumont Ammonia Project, with regulatory approval anticipated by year-end. In addition, the company finalised its previously announced $1.2 billion purchase of US LNG developer Tellurian last week.

"Woodside is driving an aggressive growth strategy, and as a result, we forecast a dividend payout cut to 60% in our forecasts is necessary to ensure gearing doesn't run to levels materially above the 20% guardrail," Macquarie analysts said in a note dated 10 October.

"Woodside didn't see this as necessary at the 1H24 result, but with deals now completed, this could change."

CAPEX concerns

Woodside shares have had a lacklustre performance over the past year and declining energy prices are only partly to blame.

The company's recent acquisition strategy has prompted Macquarie analysts to revise their forecasts downward. They've reduced 2024 and 2025 earnings projections by 3% as higher debt raises interest costs. For 2026, they've cut estimates by 10%, factoring in higher interest expenses, increased depreciation and amortisation for Sangomar, and lower anticipated LNG prices.

2024-10-16 10 42 45-Search results - kerry@marketindex.com.au - Market Index Mail
Source: Macquarie Research October 2024
2024-10-16 10 42 31-Search results - kerry@marketindex.com.au - Market Index Mail
Source: Macquarie Research October 2024

While Macquarie analysts believe the stock is trading at an attractive valuation, the "elevated CAPEX cycle [is] now effectively locked in for the next 5-6 years is likely to prevent a major re-rating for now."

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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