Asia-Pacific Demand And Scarborough Will Shape LNG Markets Amid Risks

Key Takeaways

• Rapid project execution and geographic diversification position the company for sector-leading cash flow growth and superior pricing power as new assets come online.
  
• Early adoption of lower-emissions technologies and strong legacy asset performance provide resilience, margin expansion, and enduring appeal for climate-focused customers.
  
• Intensifying global decarbonisation, ESG pressures, regulatory risks, and rising competition threaten Woodside's margins, financing, project execution, and long-term demand for its fossil fuel assets.

Catalysts

Engages in the exploration, evaluation, development, production, marketing, and sale of hydrocarbons in the Asia Pacific, Africa, the Americas, and the Europe.

• While analysts broadly agree that Woodside's new growth projects like Scarborough, Trion, and Louisiana LNG will drive free cash flow and top-line growth, they may be underestimating the scale and speed; with Scarborough over 80% complete and Louisiana LNG's unique fully-priced EPC contract with Bechtel, Woodside is positioned to deliver a transformational step-up in both cash flow and EBITDA margins as these assets come online, potentially exceeding consensus growth forecasts after 2026.
  
• The analyst consensus reflects confidence in long-term LNG pricing, but this likely underappreciates the persistent and structural global supply tightness Woodside's leadership highlighted, as well as the near-monopoly pricing for reliable, flexible LNG that Woodside's Asia-Pacific focus and long-term contracts ensure, setting the stage for materially higher realized prices and margin expansion through the late 2020s and into the 2030s.
  
• Woodside's proven operational resilience and focus on extending the productive life of core assets-such as successful reserve additions and production life extensions at the North West Shelf and Sangomar-suggest a stronger-than-expected base business, which can further support higher volumes, improved reserve replacement ratios, and lower decline rates, positively impacting recurring earnings.
  
• The company is leveraging geographic and customer diversification, with U.S., Australian, West African, and Mexican assets, plus new energy projects like Beaumont New Ammonia, allowing for inter-regional portfolio optimization that provides superior cash flow stability and greater optionality for premium pricing, reducing risk and supporting earnings durability.
  
• Woodside's early investments in lower-emissions technologies, carbon management, and hydrogen, alongside demonstrated carbon intensity reductions, give it an advantaged position to command premium pricing amid tightening environmental regulations; this enables sustained net margin outperformance while positioning Woodside as a supplier of choice for increasingly climate-conscious buyers.

Woodside Energy Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Woodside Energy Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Woodside Energy Group's revenue will grow by 4.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 27.1% today to 16.5% in 3 years time.
• The bullish analysts expect earnings to reach $2.5 billion (and earnings per share of $1.21) by about July 2028, down from $3.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 14.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

Woodside Energy Group Future Earnings Per Share Growth

Risks

• Intensifying global decarbonisation efforts, net-zero policies, and the rising adoption of renewable energy and electric vehicles threaten to reduce long-term demand for LNG and oil, which could erode Woodside's core business and lead to revenue and earnings pressure beyond the current decade.
  
• Increasing environmental, social, and governance (ESG) mandates are diverting capital away from fossil fuel companies, potentially raising Woodside's cost of capital and reducing access to competitive financing, which could ultimately put downward pressure on net margins and limit future shareholder returns.
  
• Heavy reliance on large-scale, capital-intensive LNG projects like Scarborough, Trion, and Louisiana LNG exposes Woodside to project execution risks, including potential cost overruns, regulatory delays, and market uncertainty; such risks could impair future free cash flow, dampen return on investment, and weaken long-term earnings growth.
  
• Regulatory and legal environments, particularly in Australia, pose a significant risk, as illustrated by protracted multi-year delays in obtaining environmental approvals for the North West Shelf expansion; further delays or adverse regulatory outcomes could restrict production, increase decommissioning costs, and create revenue uncertainty.
  
• Escalating international competition from lower-cost LNG suppliers such as Qatar and the U.S. threatens Woodside's market share and pricing power, which could squeeze export revenues and profitability, especially as technological advances in green hydrogen and battery storage accelerate substitution away from natural gas in Woodside's key markets.

Valuation

• The assumed bullish price target for Woodside Energy Group is A$36.42, which represents two standard deviations above the consensus price target of A$26.75. This valuation is based on what can be assumed as the expectations of Woodside Energy Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$40.65, and the most bearish reporting a price target of just A$21.54.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $14.9 billion, earnings will come to $2.5 billion, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of A$24.85, the bullish analyst price target of A$36.42 is 31.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.