Woodside Energy's earnings to drop as investors focus on strategic deals

Woodside Energy is Australia's largest independent gas producer and on course to report a decline in its interim earnings on February 2, with investors focused on the company's deal-making strategies after a failed $52 billion merger between Santos.

According to Jarden's Visible Alpha consensus, Woodside, based in Perth, is expected to report a underlying net loss after tax of $1.11billion for the six-month period ended June. This compares to $1.90billion reported a year earlier.

Woodside's portfolio has a high concentration in the Scarborough field, which is yet to be started. In our opinion, this is a problem and requires M&A," Citi analysts said in a recent research note.

The company will report its first-half earnings before the markets open on Monday, August 27.

Woodside has received the first environmental approvals of its $12.5 billion Scarborough Gas Project in Western Australia. This project is seen as an economic catalyst with its LNG cargo expected to arrive in 2026.

Analysts are unsure about Woodside's plans for future M&A to expand its LNG portfolio despite recent billion-dollar deals including the acquisition by the energy company of Tellurian, a developer of LNG.

Analysts at Citi said that "the current share price... combined with our cautious approach to oil until 2025, and the uncertainty surrounding the dividend and future M&As, we cannot yet argue about value."

Woodside's P/E on Monday was 20.2 based on its last 12 months earnings. The broader Australian market, however, had a P/E at 17.9 according to LSEG.

Brent crude prices have fallen sharply from their highs of 2022 due to geopolitical tensions and lower demand from China, the top consumer.

Jarden analysts have reduced the estimate of Woodside's payout ratio for dividends from 80% to 65% due to recent acquisition costs.

Santos, on the other hand, reported a bigger-than-expected decline in its half-year profits to $654 millions, citing higher costs and lower realized prices.

Santos, Australia’s second largest independent gas producer has been identified as a possible takeover target, after Woodside and Santos failed to reach an agreement on the valuation of a merger.

Kevin Gallagher, Santos chairman, has expressed a willingness for the company to be sold. The company has been underperforming the energy index and its share price has fallen. (Reporting and editing by Byron Kaye, Niveditarjee, and Archishma Mukherjee from Bengaluru)

(source: Reuters)