LNG Expansion Will Fuel Global Growth Despite Transition Hurdles

Key Takeaways

• Early project execution, capital discipline, and portfolio flexibility position Woodside for outsized returns and revenue growth ahead of peers as global LNG supply tightens.
  
• Expansion into clean energy and technology adoption provides cost advantages, margin growth, and de-risked earnings while supporting premium valuations for the energy transition.
  
• Accelerating global energy transition, regulatory risks, and limited diversification threaten Woodside's profitability, growth prospects, and asset values amid rising ESG and decarbonization pressures.

Catalysts

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

• While analyst consensus expects strong free cash flow from Scarborough, Trion, and Louisiana LNG, the exceptional delivery, disciplined capital management and early sell-downs (like Stonepeak covering 75% of project spend in 2025-2026) position Woodside to unlock even greater project returns well ahead of schedule, accelerating both revenue and shareholder distributions.
  
• Analysts broadly see LNG demand growth in Asia supporting long-term pricing, but with Woodside's portfolio flexibility, premium hub indexation, and strategic exposure to spot markets, realized LNG prices could far exceed peers' due to a $3 per MMBtu premium over oil-linked contracts, driving materially higher revenues and margin expansion as global supply tightens.
  
• Woodside's operational excellence and technology adoption-including AI-driven analytics and digitalization-continue to deliver outsized cost reductions and safety improvements, which have already driven consistent 7% unit production cost cuts, providing a structural advantage to net margins even as the company scales production.
  
• The company's leading foothold in Australia, a politically stable jurisdiction at the heart of rising energy security concerns, reinforces its status as a preferred LNG supplier, suggesting further upside as governments and buyers increasingly prioritize reliable and resilient supply chains-a factor likely to support elevated long-term contract values and de-risk earnings.
  
• Beyond hydrocarbons, Woodside's imminent entry into commercial ammonia and planned growth in hydrogen and CCS projects open up new premium revenue streams; leveraging partnerships like the MOU with Aramco positions it to capture outsized value from the energy transition and command a higher future valuation multiple.

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 4.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 21.4% today to 18.0% in 3 years time.
• The bullish analysts expect earnings to reach $2.8 billion (and earnings per share of $1.48) by about August 2028, down from $3.0 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 19.8x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 13.8x.
• 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 6.96%, as per the Simply Wall St company report.

Woodside Energy Group Future Earnings Per Share Growth

Risks

• Global decarbonization policies and net-zero commitments in key markets could gradually reduce demand for LNG and oil, making Woodside's large-scale fossil fuel investments increasingly exposed to long-term volume and pricing risk, ultimately depressing future revenue and net profit.
  
• Delays and uncertainty around regulatory approvals, such as those impacting the Northwest Shelf extension, highlight Woodside's vulnerability to shifting government policy, increasing the risk of project slowdowns or cancellations that could limit growth and lower earnings.
  
• Heavy capital spending on major projects like Scarborough, Trion, and Louisiana LNG risks margin compression if future energy transition trends diminish long-term demand or if new projects underperform, raising the likelihood of stranded assets or reduced returns on invested capital.
  
• The company's limited diversification outside of hydrocarbons, especially when compared to international peers moving into renewables or low-carbon solutions, means Woodside could see a sustained erosion of market share and margin as global energy shifts accelerate and investor capital reallocates.
  
• Heightened ESG scrutiny, the potential for carbon pricing or litigation, and rising decommissioning costs-exemplified by unexpected cost overruns and technical challenges in legacy asset retirements-pose structural risks to profitability and could lead to increased liability provisions that depress net income.

Valuation

• The assumed bullish price target for Woodside Energy Group is A$37.48, which represents two standard deviations above the consensus price target of A$27.57. 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$42.96, and the most bearish reporting a price target of just A$23.19.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $15.7 billion, earnings will come to $2.8 billion, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$26.16, the bullish analyst price target of A$37.48 is 30.2% 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.