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Highlights:
- Acquisition Details: Woodside Energy (ASX:WDS) will buy OCI Global’s Beaumont low-carbon ammonia project in Texas for USD 2.35 billion, aiming for completion in the second half of 2024. The project is 70% finished and expected to produce ammonia by 2025.
- Financial Impact: Woodside’s $45 per-share fair value estimate remains unchanged. Beaumont is projected to enhance cash flow from 2026 and earnings per share from 2027, with an internal rate of return above 10% and a payback period under 10 years.
- Market Reaction: Woodside shares fell 5% post-announcement and are down over a third since July 2023. Despite market skepticism, the stock is seen as undervalued, with potential upside linked to the Scarborough/Pluto T2 project and rising gas demand.
Woodside Energy (ASX:WDS) is set to acquire 100% of OCI Global’s Beaumont low-carbon ammonia project in Texas for USD 2.35 billion cash. The acquisition is anticipated to be completed in the second half of 2024, pending OCI shareholder approval. Currently, Beaumont’s first phase is 70% complete, with OCI overseeing the completion process. The purchase price includes capital expenditure for phase 1, targeting the first ammonia production in 2025.
Financially, there is no change to our $45 per-share fair value estimate. Beaumont is expected to form a significant part of Woodside's USD 5 billion investment plan by 2030 to meet scope 3 emissions targets. The company anticipates Beaumont to be cash flow-accretive from 2026 and EPS-accretive from 2027. However, we will carry the project at cost for now, and it’s unlikely to impact our fair value immediately.
Beaumont is projected to achieve an internal rate of return over 10% with a payback period of less than 10 years. The final 20% of the purchase price is contingent on Woodside’s provisional acceptance of the facility. Additionally, favorable supplier agreements for gas and other feedstock have been secured, reducing risks associated with the project.
Despite this strategic move, Woodside shares fell 5% on the day of the announcement and are down more than a third since July 2023 highs of $38. The market remains skeptical, reflecting a “damned if they do, damned if they don’t” sentiment.
From an investment perspective, we view Woodside stock as materially undervalued and in 5-star territory. Key catalysts for a potential rerate include the commissioning of the Scarborough/Pluto T2 project in 2026, which was more than two-thirds complete by June 2024.
As Australia’s premier oil player, Woodside’s operations span LNG, natural gas, condensate, and crude oil, with significant interests in the North West Shelf Joint Venture and Pluto offshore projects. Woodside has unparalleled experience in LNG project development, supported by long-term agreements with major Asian utilities, ensuring stable cash flows and project financing. The company’s existing infrastructure and regulatory approvals provide a competitive edge for future LNG developments, particularly off the north-west coast of Australia.
Woodside’s deep development pipeline and extensive experience position it well for future growth. Despite current market skepticism, the company remains a standout energy investment at the right price, with gas demand expected to rise, particularly in China.
