Shareholders reap benefits of slowdown
In news welcomed by investors, the oil and gas giant announced a US63¢ (61¢) a share fully franked dividend, to be paid on May 29.
Even more significant was Woodside's decision to increase its dividend payout ratio to 80 per cent of underlying net profit, up from 52 per cent. Shares in Woodside surged $3.36, or 9.7 per cent, to $37.96 on Tuesday.
Woodside said it expected to maintain the higher level of dividends for "several years" but that it would be subject to review in the event of significant new capital investments.
The news caps off a momentous fortnight for Woodside, with sharply rising costs prompting it to shelve its massive $40 billion-plus Browse LNG project at James Price Point in WA, while also putting the brakes on expansion plans at its Pluto LNG venture.
"[It is] a huge diversion from its existing policy and a change I had been hoping for in light of the reduced near-term capital expenditure expectations," industry analyst Shannon Rivkin said.
"With a cost environment making a lot of these developments a much more questionable commercial decision, Woodside is doing the responsible thing by rewarding shareholders rather than commit to these iffy growth options," Mr Rivkin said.
Alternative developments that Woodside said it would be considering with venture partners, which include Shell, BP, Japanese consortium Mitsubishi and Mitsui, and PetroChina, were the use of floating technologies, building a pipeline to the North-West Shelf in the Pilbara or smaller onshore facilities.
Analysts have warned Woodside was facing a plateau in production after the initial swell in production fuelled by the Pluto start-up, and called for either a return of capital or increased investment to sustain near-term growth.
"In our view, a combination of a special dividend and increased ordinary dividends should offer continued support for the stock," Deutsche Bank analyst John Hirjee said in a note to clients on Tuesday.
Mr Hirjee said while Woodside was increasingly a dividend yield-play in the near-term, there remained significant growth options for it in the longer-term, including Leviathan, the Sunrise project in the Timor Sea, and offshore exploration in Myanmar.
Woodside's decision to shelve the Browse project on April 12 was seen by analysts as a sign of Australia's lagging global competitiveness in mega-projects.
"Woodside is in the fortunate position, at the present time, of having a number of promising growth prospects ahead of it and also experiencing strong cash flows," chairman Michael Chaney said on Tuesday.
Frequently Asked Questions about this Article…
Woodside announced a special dividend totalling more than half a billion dollars, issuing a US63¢ (61¢) a share fully franked dividend. The special dividend is scheduled to be paid on May 29.
Woodside increased its dividend payout ratio to 80% of underlying net profit, up from 52%. The company said it expects to maintain the higher level of dividends for "several years," though this will be reviewed if significant new capital investments are made.
Rising costs and uncertainty around the commercial viability of large developments prompted Woodside to shelve its Browse LNG project and slow expansion at Pluto LNG. Analysts cited the tougher cost environment and argued it was more responsible to reward shareholders now rather than committing to risky mega-projects.
Shares in Woodside jumped by $3.36, or 9.7%, to $37.96 on the Tuesday following the announcement, reflecting investor approval of the special dividend and the higher payout ratio.
Woodside said it will consider alternatives with partners such as Shell, BP, Mitsubishi, Mitsui and PetroChina. Options mentioned include floating LNG technologies, building a pipeline to the North-West Shelf in the Pilbara, or smaller onshore facilities.
Analysts warned of a possible production plateau following the initial boost from the Pluto start-up and recommended either a return of capital or increased investment to sustain growth. Deutsche Bank noted the combination of a special dividend and higher ordinary dividends should support the stock, making Woodside more of a dividend-yield play in the near term.
While Woodside shelved the Browse mega-project, analysts and management still point to longer-term growth options such as Leviathan, the Sunrise project in the Timor Sea, and offshore exploration in Myanmar.
The article highlights that Woodside is returning capital to shareholders and boosting its payout ratio, which increases near-term dividend appeal. However, the higher dividend policy is subject to change if Woodside undertakes significant new capital projects, and the company has paused or rethought some major developments due to rising costs—factors investors should weigh when considering income versus long-term growth potential.
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