Q&A: No Red Lines for Woodside in Portfolio Review

Australian independent Woodside Energy has announced a strategic review of its portfolio following its $40 billion acquisition of BHP Petroleum. In an interview on the sidelines of the Energy Intelligence Forum in London, Woodside CEO Meg O'Neill says the company won't draw red lines around certain types of assets and discusses its plans to monetize carbon capture and storage (CCS). An edited transcript follows.

Q: What is the rationale behind the strategic review?

A: We have just completed a merger with BHP Petroleum, so we have a set of assets with the combined company that is bigger than what either company separately held. So, the purpose is to understand what do we have, how do things fit together, what does the shape of the business look like going forward, and where do we want to go from here? We've already communicated that we're going to withdraw from the Orphan Basin exploration, offshore eastern Canada. A very quick outcome from the review was it doesn't look like that's going to fit with us.

Q: Where do you set the red line in terms of what assets are not going to fit Woodside’s portfolio anymore?

A: We don't redline. I think it's always a dangerous practice to say I will or won't do a certain thing quite emphatically. We just need to take a look at how things fit together. We have a very significant Australian position, a very big LNG position. We have got a few offshore facilities, a big position in the Bass Strait. In the Gulf of Mexico, we have got three significant assets, all of which have ongoing running room. Trinidad is probably a smaller business, but we've got the Calypso gas discovery there. It is a country that really is very supportive of oil and gas development. There's an existing LNG facility with ullage. There's a strong domestic network or domestic industry for things like ammonia, which is one of the products that we're interested in starting to produce. So, I think the portfolio is in really good shape.

Q: Is a divestment of Sunrise in the cards following recent statements made by the president of East Timor?

A: Sunrise is an important asset. It's an asset Woodside has held for a very long time. We're actually very pleased that the government of Timor-Leste is trying to restart the conversation and raise the profile of the opportunity. Since the Maritime Boundary Treaty was agreed, we've been working with the two governments involved on trying to negotiate a PSC [production-sharing contract]. To be frank, that's been going slowly. So, the recent level of energy from the Timor-Leste government has been very effective in terms of getting a bit more momentum in that process. So, we are working to complete the discussions on the PSC, come to that agreement and then we will be able to figure out what's the right development concept going forward.

Q: Woodside recently secured some acreage offshore Australia. Is CCS part of the review in terms of growth opportunities?

A: We are starting with CCS in our backyard because that's where we know the opportunity. We know the reservoirs. We have got facilities for a couple of the areas. Browse, for example, which is one of our gas opportunities with 10% reservoir CO2. We are doing the technical work to get comfortable with CCS to manage that reservoir CO2. But I think we will be open to looking at other parts of the world. The US is a big market, [has a] long history in oil and gas, long history in CCS. So, I would expect we will be looking at that, but the focus in the near term is Australia.

Q: As part of Woodside’s CCS strategy, there is the idea that CO2 is going to be a commodity and that you can sell storage capacity to generate new revenue. What do you need exactly for that to work?

A: If you're economically rational, a price on carbon would be the clearest way for people to make decisions in this space. Absent a price on carbon, and many nations find that a politically difficult decision to make, it comes down to working on business to business on their own decarbonization commitments. We recognize for CCS as a service to be attractive, it has to be cost competitive against other alternatives which today would be carbon credits or the carbon market. So that's exactly what we're working towards.

Q: How is the conversation going with potential clients to secure the CO2 feedstock?

A: Customers need to make investments on their side to capture CO2. Depending on where they are, they may need to make arrangements for the transportation of CO2. As they're doing the cost stack, there is the capture of emissions, transport and then pay a service fee.

What we can control is the work that we do to design the facility to drive that service fee down as low as we possibly can. We're having those conversations with customers around what does the total need to be? Then we can decide, is there a role for government to support this kind of new industry? Because while CCS has been done in the US for 50 years, doing CCS as a service is a new business model. Ultimately, what makes it attractive for a customer is to bring down the cost per ton and the way you do that is to get the tons up. So securing more feedstock.

Q: Your company's final environmental report for the proposed Browse gas project off Western Australia says CCS does not form “part of the referred proposed action.” What are Woodside’s plans?

A: We've been working on our environmental approvals for over three years and our CCS work has only been under way for probably a year and a little bit. So, we need to close out the work that we've been doing to date, but there are processes to work with the government to change things after those initial approvals have been granted. So even in the initial application, it said that we would retain space on the FPSO [floating production, storage and offloading unit] to retrofit for CCS.

So, it has always been in part of the design. It wasn't intended though when we filed those applications that we would have CCS to start up, but we always had space on the FPSO. So, we had the facilities, through the turret to be able to do CCS locally at a point in time where we felt it was appropriate. Now with the passage of time, we've been able to mature the work on understanding the costs and the economic impact and we've got a greater level of confidence now than we had at that point in time.

Q: How is the current gas-price environment impacting your views on the share of contracted versus uncontracted LNG volumes?

A: Following the merger with BHP Petroleum, about 30% of our production is oil, whereas before we were 15% oil. A lot of LNG contracts are sold with oil indexation. So, it is an open question for us, and our treasury and marketing teams are working through exactly that question of: when we start having contracts come off and have uncontracted volumes available, how much do we want to be able to sell on gas price markers? We don't have an answer yet, but we hope to have a bit more light on that topic by the end of the year.