Woodside (ASX:WDS) Pays A$320m to Beat China and Japan to Browse, So Why Are Shares Falling?

Woodside Energy (ASX:WDS) made a bold move on Friday to take greater control of the Browse gas project off Western Australia, but its shares still slipped about 2%. So why did a confident move get such a cool reception? The short answer is that the drop is more about falling oil prices than about the deal, and investors are nervous about putting more money into a project that still cannot get the go-ahead.

The deal itself was a clever piece of business. Woodside used its right to buy PetroChina’s stake before anyone else could, blocking a sale that Japan’s Inpex had already agreed to. That lifts Woodside’s share of Browse to around 41%.

Woodside Blocks Inpex and Tightens Its Grip on Browse

Here is what actually happened. Woodside is paying US$225 million now, around A$320 million, to buy out PetroChina. A further US$175 million is only due later if the project finally gets the green light to be built.

The interesting part is who Woodside beat to the deal. Inpex had a sale lined up, and Woodside stepped in and took it instead. That tells you something. Companies do not pay good money to block a rival on an asset they think is second-rate. This move shows Woodside genuinely believes in Browse, which is the largest untapped conventional gas resource in Australia and is meant to feed the country’s big North West Shelf gas plants.

Woodside is not the only one reshuffling, either. BP recently sold a stake in the same project to South Korea’s GS Energy, trimming BP’s holding to about 39%. With its new stake of around 41%, Woodside edges past BP to become the biggest partner in Browse. It is worth being clear, though, that Woodside still owns well under half and runs the project alongside BP, GS Energy and other partners. As the operator and now the largest shareholder, it simply has more say over how, and how quickly, Browse gets developed.

Why Are Woodside Shares Falling Despite the Deal?

Two very different things are weighing on the share price, and it helps to keep them apart.

The first is oil. Prices dropped sharply as tensions between the US and Iran cooled off, and that pulled the whole energy sector lower. This is a market-wide move, not a Woodside problem.

The second is Browse itself, and this is the real worry. The project still has not been approved. Regulators are weighing up the effect on Scott Reef, and the final call sits with Federal Environment Minister Murray Watt. On top of that, there is still no firm decision to actually build it, and that decision could be years away. So while Woodside talks up the huge long-term value of Browse, spending more on a project that is stuck in the approval queue is exactly why some investors held back. In our view, the prize is real, but the approval risk is what matters most right now.

The Investor’s Takeaway for WDS

This is a long-term bet, not something that lifts earnings tomorrow. For it to pay off, Woodside needs two things to fall into place: approval from the government and a firm decision to build. Until then, the cash is tied up in a resource that will not earn anything for years.

For investors who hold Woodside for its dividend and its existing gas business, very little changes today. For those who want exposure to a world of higher gas prices, a bigger Browse stake adds long-term upside, but only if the project actually goes ahead. The main thing to watch is approval. The quality of the gas is not in question. Getting it out of the ground is.

In short, Woodside shares are not falling because management made a bad move. They are falling because oil dropped, and the reward from Browse is still a long way off.