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Woodside CEO: Gas 'Very Important' to Global Decarbonization

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Meg O’Neill became CEO of Woodside Energy in August 2021. In short order, she executed a groundbreaking deal to acquire mining giant BHP’s petroleum business. The combined portfolio spans Australia, North America and the Caribbean offshore, with a focus on LNG. Energy Intelligence sat down with O’Neill to find out how she’s thinking about moving ahead after the merger, how soaring commodity prices might impact those decisions and how Woodside will approach the energy transition.

Q: After the BHP merger closes, Woodside will have a range of development projects in its portfolio. How are you thinking about timing and prioritization of the opportunities? 

A: There are a couple of different dimensions. We’ll take a look at the portfolio mix from the perspective of oil and gas, the different countries we’re going to be in. With the growth opportunities, we’re going to take a look at the returns. We did a capital market day in December where we talked about the expected financial outcomes that we have from oil investments, how those compare to gas investments, and how those compare to new energy investments. So, as we bring the portfolios together, we’ll be taking a look at the opportunities against those financial metrics as well as considering things like the risk of the portfolio. We want to make sure we've got a portfolio that is diversified, that is resilient to a variety of price outcomes, that’s robust through the energy transition.

Q: Has the criteria for moving ahead with projects changed at all? 

A: In the capital markets day, we sharpened the differentiation between oil and gas investments and the sort of financial outcomes we would expect from those kinds of projects. When it gets to other factors, nothing’s changed. We need to have confidence in the resource, we need to have robust technical designs, we need to have good execution plans with the right contractors, we need to have the commercial framework in place. So, all of the foundations that underpin a final investment decision, that’s unchanged. But the financial criteria that we’re expecting from oil, gas or new energy is clearly articulated to our shareholders.

Q: Are you starting to see any resistance from banks on financing oil and gas projects? Are there more criteria, has this become more complicated? 

A: I’d say that banks, like our shareholders and society at large, want to understand what are we doing as an energy producer to support the decarbonization journey. How do our investments support the world on that journey? We’re a firm believer that LNG and gas play a very important role in the world’s decarbonization pathway. So, most of our product goes to Japan, Korea, China — all of them have net-zero commitments; all of them still have a very significant production of coal in their power-[generation] mix. So, we believe that coal-to-gas switching is going to be part of their decarbonization.

Q: Has the run-up in global oil and gas prices changed your thinking around production growth? 

A: When we take an investment decision — because we’re largely focused in conventional and large-scale offshore — it’s going to take a couple of years to yield results. So, we need to make sure we don’t get caught up in near-term prices, be they the highs we’re seeing today or the lows we saw in 2020 and make sure that we’re making our investment decisions on the basis of the pricing we think will be enduring over the long term.

Q: What’s your outlook for the LNG market given the volatility we are seeing in global gas markets, particularly in Europe right now.  

A: The LNG market has gone through a tumultuous two years. In 2020, we hit record-low spot prices; late 2021 we hit record-high spot prices. The signal that sends globally is a couple things. The market is more tightly balanced than many had thought. So, market tightness will drive some slightly different behaviors from buyers and sellers. In 2020, we had a lot of buyers saying they weren’t interested in longer-term contracts because they felt like the market was quite liquid. What we’re seeing now — and we’ve seen plenty of announcements recently — is that buyers are appreciating the value of long-term contracts. I think it will give the market more certainty as both buyers and sellers commit to ongoing supply increases. The reality is, it’s very hard to change LNG output in the short term. I think what we’re seeing in Europe is a consequence of a few years of decisions and a few years of underinvestment. There’s probably a bit of a ripple effect of countries thinking they can move to renewables faster than they’re really ready. The reality is you need to have some sort of firming capacity. In our mind, gas is the perfect firming fuel. It is the most adaptable and the lowest-carbon intensity. We’re of a view that the energy transition needs to happen, but it’ll be best for society if it happens in a well-thought-out and orderly way.

Q: You hear a lot of talk globally about “green LNG.” Will it become requirement for producers, and if so, over what time frame? 

A: Last year, we did sell one, we’ll call it a “carbon offset” LNG cargo. We think it’s important that we get precise in our language on what exactly is being produced here. But also two things. One, we absolutely recognize that as we think about LNG production and future LNG investments, that we need to be driving towards the lowest-carbon intensity LNG projects. If you look at the Scarborough-to-Pluto project, the Scarborough reservoir has very low reservoir carbon dioxide, about 0.1%. We’ve taken a number of design decisions both offshore and onshore to ensure that the facilities deliver LNG to the customer that is the lowest-carbon intensity LNG coming out of Australia. That’s important to customers. The next step, of course, is looking at offsets and offering customers LNG that’s accompanied by offsets, to either account for the CO2 in production, or the CO2 all the way through the value chain. There’s a lot of interest in those offerings from customers. We’re still working through the mechanics of how do you certify that? What offsets do customers want to receive? The fact that Article 6 was resolved is helpful, but the mechanics to implement that are not there yet. But the fact that there’s that agreement that removing CO2 in one place can be accounted for in another place — that’s quite positive.

Q: What are you hearing from investors? What are they telling you is important to them? 

A: Many of our shareholders, of course, are quite focused on ESG [environmental, social and governance] issues, and they want to understand what is Woodside’s response to climate change. What are the actions we are going to take to decarbonize our own operations, as well as the actions we’re going to take to change the product mix we offer, to offer products that are lower-carbon. The second theme, of course, is returns, and investors do remain keenly focused on ensuring that they’re getting value.

Q: How does the BHP deal advance your transition strategy? Does it add opportunities for carbon capture or hydrogen? 

A: Absolutely. If you look at our aspirations in our capital markets day, we told the world we set ourselves a target of spending $5 billion on lower-carbon products and services between now and 2030. There are a number of specific projects we’re pursuing. A couple in Australia, but one that’ll be noteworthy here is an opportunity in Oklahoma. We’ve secured land, we’ve signed an MOU [memorandum of understanding; in December] with Hyzon Motors, a hydrogen truck manufacturer, and we’ve taken that project into Feed [front-end engineering and design] actually. It would be a liquid hydrogen plant that would be focused on the ground transportation market. If you think about sectors that are easier and harder to decarbonize, heavy transport is a harder-to-decarbonize sector. We think hydrogen is an attractive way to go. It gives you better range than batteries, better horsepower than batteries, faster refueling. The merger gives us a significant footprint in the US that will allow us to springboard into some of these opportunities that we’ve been pursuing from Australia already.

Q: Looking at your carbon capture plans, have you set targets for how much carbon you’d like to sequester? What carbon price might you need to make these projects work? 

A: We’ve focused predominantly at this stage on the offshore opportunities. We’ve got depleted reservoirs and there are some other opportunities that we’re looking at offshore Australia that we think would be good prospective fields for carbon sequestration. But we’re in the earlier study phase, so it would be premature to talk about cost targets. We recognize it’s going to need to be cost-competitive. And we recognize to do offshore CCS [carbon capture and storage] you have to do it at scale. So, the opportunity that we’re looking at within our depleted reservoirs is one that we would target 5 million tons per year. We’ve got a bit of work to do to work through the technical aspects, work through the business case, and how you aggregate that amount of CO2 for injection.

Q: As you said, the BHP acquisition gave you a much bigger footprint in North America and the Caribbean. What was it you found attractive about the various elements of the Americas portfolio: the Gulf of Mexico, Mexico and Trinidad. 

A: The Gulf of Mexico, you look at the portfolio here, it is a number of Tier 1 assets which we think have quite a bit of ongoing running room. Mad Dog Phase 2 is scheduled to start up this year, Atlantis and Shenzi both have infill and further development opportunities. BHP of course has a pretty attractive exploration portfolio in the GOM. There’s a couple of discovered undeveloped assets in both Mexico and Trinidad and Tobago. Those are assets with some size. Mexico, of course, is a relatively new basin for international investors, but is a very well-established hydrocarbon province. Trinidad and Tobago is one where BHP has an operating footprint, a gas discovery and ullage in an existing LNG plant and ullage in a fertilizer plant. We think there’s good further running room in all those assets.

Q: Do you expect to follow BHP’s development strategy in the Gulf of Mexico targeting infill projects and tie-backs? 

A: One of the things that’s really attractive about BHP’s position is that they have equity in some very large fields, which we think have quite a bit of ongoing running room. It’d probably be pretty premature for me to conclude what our pathways will be, but one of the things that attracted us to the portfolio is that there are large assets with upside.

Q: In Trinidad, BHP has found quite a bit of deepwater gas. How are you thinking about those finds, and do higher global gas prices make development more attractive? 

A: We need to make sure we don’t let recent market factors cloud our thinking too much about long-term investment decisions. But I’d say that first off, our Scarborough investment decision should be a very clear signal to the market that offshore gas absolutely has a role to play in our energy portfolio. One of the things that’s fantastic about Trinidad and Tobago is that it’s a country that's very supportive of the industry. Deepwater is a new province for them, but we think it’s a place that has the right aboveground framework to progress an opportunity. BHP did some appraisal drilling in the fourth quarter, and some more work needs to be done on that particular opportunity.

Q: Mexico initially had a very friendly regime that aimed to facilitate development, and have since become perhaps a little less friendly. Is that a concern? 

A: Every opportunity we look at, we need to look at it in the context of all of the risk factors, as well as all of the opportunity factors. Trion, I’m sure you’re aware, BHP is working through the Feed process. We’re working to understand the aboveground, the belowground risk, the maturity of the project. So we’ll put it in our normal risk-management framework and see where we go from there.

Q: What’s the role of exploration in your strategy?

A: Within Woodside, we’ve had exploration campaigns running for 20-plus years. Over the last couple of years, we’ve very much focused on exploration near existing activities. If we look at BHP Petroleum’s history, they’ve had quite a few exploration successes in the past few years. The key for the explorers is to ensure that there’s clarity on pathway to development. We’ve got assets in our portfolio that were discovered decades ago. We’ve got to get better as an industry — if we’re going to drill for something, that we understand what the pathway is, and make sure the pathway is consistent with a world that is decarbonizing.

Q: Any updates on your portfolio rationalization plans? There has been discussion of selling down at Scarborough and offering stakes in some hydrogen projects as well as a possible acquisition at Chevron’s North West Shelf.

A: You’ll probably best direct your question to Chevron on the NW Shelf. If there was a sale, we would take a look at it. But with a one-third position with the BHP merger, we feel pretty good about our equity position there. We are working on a Scarborough sell-down. We continue to have discussions with prospective buyers there. I think now that the project is post-FID [final investment decision] has helped ... it gives potential partners confidence the development is moving forward. We’re not going to rush. We want a quality partner who is willing to pay what we think is a fair price. We’re also working on selling down our Sangomar asset and continue to have conversations with prospective buyers about that opportunity.

Q: Decommissioning is becoming a growing issue, both in the Gulf of Mexico and Australia. How does that factor into your development strategy?  

A: Decommissioning is obviously an important part of the life of an asset. Even for the Scarborough FID we were talking about, what is the decommissioning plan? We need to be thinking about the end even at the very beginning. In Australia in particular, there’s going to be an increasing amount of decommissioning activity in the coming decades. I think it’s a fantastic business opportunity particularly for the contractors to adapt their offerings in this space. We’ve been working through a number of decommissioning activities. So, it’s something that the industry needs to do what’s right. We promised when we started developing these resources we would clean things up at the end of life. We need to be walking the talk on that front.

Topics:
Corporate Strategy , Independent E&Ps
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