Woodside Energy (ASX: WDS): Oil and gas aren’t dead just yet, but where does this energy giant’s future lie

Woodside Energy (ASX: WDS) is the ASX’s largest energy company, capped at nearly $50bn. A traditional oil and gas giant, a large player in the LNG, many would perceive it is part of the problem that increased carbon emissions represent and that the planet would be better off without it. Whether or not that is the case, the company wants you to believe it is part of the solution. But is it?

And the decarbonisation debate aside, where is this company headed? More of the same sideways movements…or could it become a legitimate giant?

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Overview of Woodside Energy

Woodside began 70 years ago, in 1954, named after the Victorian town where it first began drilling for oil. Today it is a global company with its headquarters and the bulk of its major assets in Western Australia, along with assets in Trinidad & Tobago and in American waters in the Gulf of Mexico. In 2022, it merged its petroleum business with that of BHP.

Since 1989, Woodside has been in LNG (Liquidifed Natural Gas) and its flagship LNG project has been Pluto, which consists of oil fields off the coast of WA and an onshore processing facility near Karratha with a gross capacity of 4Mtpa and annual production over 46MMboe. It also has a minority stake in North West Shelf Project which has a capacity of 16.9Mtpa and 33MMboe LNG production.

Woodside also owns the Scarborough LNG project which will be Australia’s biggest oil and gas project for at least a decade, expected to produce 9m tonnes of LNG annually when it enters production. The oil field has proved plus probably reserves of 1,810MMboe and Woodside retains a majority stake for the time being. Specifically it owns 74.9% with 15.1% owned by Japan’s JERA following its February 2024 acquisition of that share for A$1.4bn and another 10% belongs to LNG Japan, which paid $500m in August 2023.

Source: Company

Why is Japan so interested in LNG?

Well it is the world’s second biggest LNG importer, as it relies on LNG for a third of its electricity mix. Scarborough has taken such a long time to get off the ground, but first production is scheduled for 2026 – a target date that has not shifted for some time. The company has told investors it is 67% complete.

Among other projects, its Trion project in the Gulf of Mexico is 10% complete an on track for first oil in 2028, while its Sangomar oil field off the coast of Senegal began production in June 2024. Overall, the company expects to produce over 500,000 barrels of oil equivalent per day. Its most recent dividend represents a yield of 7.3%. And finally, it boasts to have 98% LNG reliability across its operational assets.

Hot on LNG and Ammonia

The company boasts that there is strong demand for LNG going forward. Australia is already one of the world’s largest exporters and demand has grown by over 60% in the last decade. Over the next decade, demand is expected to grow by another 50%, and indeed, most contracts secured in the global market have been for over a decade. Australia is well positioned to service the markets that demand LNG the most, particularly markets with Asia.

Further to Woodside’s diversification efforts is the Beaumont New Ammonia project. It is an ammonia production plant in Texas that’ll have 1.1mtpa capacity for carbon capture and storage. It picked up the project for US$2.35bn and has made progress, being 97% complete. This will help the company meet its emissions reduction targets. First conventional ammonia production is scheduled by the end of 2025 and then lower-carbon ammonia production is due in the second half of 2026.

Is Woodside part of the solution or part of the problem?

Woodside is not one of those commodities companies that is pivoting away from its roots for the sake of the planet. It is doubling down on gas, given its persistence with Scarborough LNG project despite significant costs and environmental opposition.

During the summer of 2023-24, Woodside attempted to merge with Santos, a move that would’ve created an $80bn company, although the talks ended with no one getting except both companies’ corporate advisors who got a sweet $28m. Clearly Woodside thinks it is part of the solution rather than the problem so far as reducing emissions are concerned? Is it?

Let’s look at LNG more generally. It has half the lifecycle emissions of coal to begin with, and emissions can be even lower dependant on technology. It is very mobile, seasonally adaptable and can fit into existing natural gas networks. Woodside thinks LNG may play a big part in replacing coal, which accounts for a quarter of the world’s energy consumption according to the Energy Institute. In fact, Woodside reckons LNG is playing a role already with the largest driver in emissions reductions in the US was switching form coal to gas.

Some countries rely more heavier on coal, China for instance relies on coal for over 60%, but it is expected to turn to natural gas as part of decarbonisation efforts. It used 390bcm in 2023, but S&P thinks demand will reach 605bcm in 2040. If only 12% of coal-fired power generation was converted to LNG today, it would double the current global market. If more than that…use your imagination.

But ultimately, Scarborough will still generate some emissions (880 million according to its own development proposal). A good run in the oil price in the aftermath of Russia’s invasion of Ukraine masked the fact that oil and gas is on the way out in the long-term. From an ESG standpoint, Woodside is on track to meet its goal cut its direct emissions by 15% by 2025, although 15% is arguably paltry in the eyes some investors.

Whatever you think of Woodside’s ESG credentials, think about its financials

Woodside’s financials fluctuate significantly. It follows the calendar year and its profit for CY23 came in 37% lower, dragged down by lower oil prices. Initially, CY24 looked to be worse its revenue and profit for 1HY24 coming in 19% and 14% lower respectively. But a better second half saw its revenue come in just 6% lower than the year before, and the lack of writeoffs in its profit saw its statutory profit rise 115% to US$3.6bn. Its underlying profit was US$2.9bn, down 23%. The company produced 193.9MMboe (a company record), but the averaged realised price was US$63.6/barrel, down 7%. 12.9mboe came from Sangomar in the second half of the year and this netted US$950m in revenue.

In the first half of 2025, it grew revenues by 10%, but its profit came in 24% lower, free cash flow 63% lower and averaged realised price was 1% lower. Its production was up 11% but it isn’t having the smoothest time maintaining costs and even with capex. It spent US$2.4bn in 1H24 and a further $2.6bn in 1H25 ($785m of which was Louisiana LNG).

There are some milestones to look forward to including continued revenues from Sangomar, progress on Scarborough which remains on track for its first LNG cargo in 2026, the Beaumont New Ammonia Project is 90% complete as well. The company’s capex on Louisiana will fall now that it sold a 40% stake to Stonepeak. It is clearly making the effort to diversify into ammonia and lower-carbon products. The LNG outlook appears positive,

Nonetheless, it remains vulnerable to commodity demand and commodity prices. Delays or cost overruns (e.g. higher development costs, regulatory hurdles, supply‑chain challenges) could impair returns. Consensus estimates expect revenue to be nearly 10% lower in 2026 (to US$12.1bn), although they then expect growth to $13.4bn in 2027 and US$13.9bn in 2028. It is trading at 20.4x P/E and 5.4x EV/EBITDA for 2026.

Conclusion

The risk of commodity price fluctuation is a risk you face with any company in the commodity space. Woodside is no different in that regard. If it can get Scarborough into production successfully and the demand for LNG is what Woodside and economists claim it will be, the current market cap will seem like a bargain in the years to come. But…this is an if.

Moreover, it remains to be seen if it can continue to keep cost inflation under control and how prices will go. We’d hold off on any investment in Woodside until CY26, when it will have Scarborough in production.