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Woodside Energy Group Ltd (ASX:WDS) has experienced a 4% drop in its share price following the announcement of a significant acquisition. The company, renowned for its oil and gas operations, is investing US$2.35 billion in OCI Clean Ammonia Holding and its lower carbon ammonia project based in Beaumont, Texas.
Details of the Acquisition
Woodside is acquiring 100% of OCI Clean Ammonia Holding, including its lower carbon ammonia project, which is currently under construction. The project, associated with ASX energy stock Woodside Energy Group Ltd, is expected to start producing ammonia by 2025, with lower carbon ammonia slated for production from 2026. The US$2.35 billion consideration includes the capital expenditure required to complete the first phase of the project.
This initiative is set to be the world's first ammonia plant utilizing auto thermal reforming with over 95% CO2 capture. Woodside views this acquisition as a strategic move to gain an early advantage in the burgeoning lower carbon ammonia market. The company anticipates that the investment will surpass its capital allocation target of a 10% internal rate of return (IRR).
The project is projected to contribute to free cash flow from 2026 and enhance profit and earnings per share (EPS) from 2027. Additionally, it is expected to abate 3.2 million tonnes per annum (mtpa) of CO2-e at full development, representing over 60% of Woodside’s scope 3 abatement target.
Management’s Perspective
Woodside CEO Meg O’Neil emphasized that this acquisition aligns with the company’s strategy for thriving amid the energy transition. The project supports Woodside's goal of making significant strides in the lower carbon ammonia market, which is anticipated to see substantial growth in the coming decades. Global ammonia demand is projected to double by 2050, with lower carbon ammonia expected to constitute nearly two-thirds of this demand.
O’Neil noted that the project surpasses Woodside's capital allocation framework targets for new energy ventures, with both phases expected to achieve an internal rate of return above 10% and a payback period of less than 10 years. The acquisition represents a significant step towards meeting Woodside’s Scope 3 investment and abatement objectives.
Current Market Reaction
Despite the strategic nature of the acquisition, Woodside’s share price has continued to decline, falling an additional 4% today and 9% since Thursday. Over the past year, Woodside shares have dropped by 34%.
While the current lower share price and substantial dividend yield may attract attention, it is essential to consider the broader context of market conditions and investment strategies. The focus on expanding into lower carbon energy could present future opportunities, but potential investors should weigh these developments against the overall market environment.
