Scarborough And Louisiana LNG Projects Will Falter Under Renewables Pressure

Key Takeaways

• Reliance on LNG and oil leaves Woodside exposed to demand erosion and margin pressure from global decarbonization efforts and cheaper renewable energy alternatives.
  
• Stricter regulations, rising funding costs, and increased competition threaten profitability, project execution, and long-term earnings growth.
  
• Strong project execution, robust long-term contracts, and a strategic focus on decarbonization and balance sheet health underpin stable margins and resilient shareholder returns.

Catalysts

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

• Woodside's heavy reliance on LNG and oil assets faces direct long-term headwinds from global decarbonization mandates and net zero targets, which are accelerating in both policy and investor circles and threaten to systematically erode demand, jeopardizing projected revenue and undermining growth trajectories across its key markets.
  
• Rapid advancements and falling costs in renewable energy technologies are expected to significantly limit the long-term pricing power of LNG and oil, with Woodside's recent and upcoming high-capacity projects-such as Scarborough and Louisiana LNG-potentially exposed to chronic underutilization and margin compression as global energy consumption shifts away from hydrocarbons.
  
• Funding risks will likely intensify as capital is increasingly diverted from fossil fuel producers to ESG-compliant alternatives, raising Woodside's cost of capital and constraining its ability to finance large-scale expansions and ongoing operations, directly impacting future earnings and capital returns to shareholders.
  
• Persistent exposure to escalating carbon taxes, stricter emissions regulations, and unforeseen decommissioning liabilities-particularly with Australian and international projects-threatens to significantly inflate future operating costs and reduce net margins, while also introducing project delays and cost overruns that undermine reliable cash flow generation.
  
• Heightened competition from decarbonizing energy majors and national oil companies advancing low-carbon strategies is set to erode Woodside's LNG market share, with flexible LNG contracts and global trading strategies unlikely to offset the structural decline in addressable markets, placing sustained pressure on long-term revenue and earnings growth.

Woodside Energy Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Woodside Energy Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Woodside Energy Group's revenue will decrease by 5.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 21.4% today to 8.0% in 3 years time.
• The bearish analysts expect earnings to reach $931.7 million (and earnings per share of $0.49) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 37.2x 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

• Woodside's core LNG projects, including Louisiana LNG and Scarborough, are well advanced and supported by long-term demand growth forecasts, with global LNG demand expected to rise by approximately 60 percent by 2040, thereby underpinning the company's revenue and cash flow growth prospects over the long term.
  
• The company is demonstrating strong execution on project delivery and cost control, with unit production costs reduced by 7 percent year-on-year across its core portfolio and continued adoption of digital and AI-driven efficiencies, likely leading to margin expansion and improved net profitability.
  
• Recent successful sell-downs, most notably a 40 percent interest in Louisiana LNG infrastructure to Stonepeak, have strengthened the balance sheet, reduced capital expenditure exposure, and enabled Woodside to maintain high dividend payouts, supporting total shareholder return.
  
• Woodside's long-term offtake agreements with major customers in Europe and Asia, extending into the 2040s, and a diversified, flexible LNG marketing strategy provide significant contractual revenue stability, limiting downside to earnings even in volatile commodity markets.
  
• The company's focus on decarbonization initiatives, including investment in low-carbon ammonia and carbon capture, as well as progress toward Scope 1 and 2 emissions reduction targets, positions Woodside to maintain its social license and adapt to evolving regulatory and investor expectations, safeguarding future revenue streams and net margins.

Valuation

• The assumed bearish price target for Woodside Energy Group is A$23.19, which represents the lowest price target estimate amongst analysts. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $11.7 billion, earnings will come to $931.7 million, and it would be trading on a PE ratio of 37.2x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$26.16, the bearish analyst price target of A$23.19 is 12.8% lower.
  
• 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.