Languishing and vulnerable, Australia’s oil and gas champion looms as tempting prey for America

In Perth this week — where the logos of mining giants loom large over the city’s skyline — you could have been forgiven for thinking the biggest business issue in town was the gas industry interests of a few squillionaires.

Months of speculation were ended when the state government announced it was relaxing the ban on the export of gas from the Perth Basin, which stretches north of the city under farms and bushland to the state’s Mid West.

The likes of Gina Rinehart, Australia’s richest person, and Chris Ellison, a mining magnate worth about $2 billion, would have until the end of 2030 to sell some of that gas to overseas buyers.

Sure, it would be capped at 20 per cent of a field’s reserves, and many of the affected projects would struggle to be up and running by then.

Perhaps, as some industry analysts estimated, the policy would only free up enough gas to fill a few shipments of liquefied natural gas, or LNG, per year.

In other words, a drop in the vast ocean of LNG traded around the world annually.

“On our estimates, at most we might see one million tonnes of LNG exports out of the Perth Basin in total this decade as a result of this policy,” said Saul Kavonic, the head of energy market research at MST Marquee.

“A million tonnes is about 0.2 per cent because the global market is about 400 million tonnes.”

But a win is a win for an industry – and its rich, powerful investors – who had been pushing for a liberalisation of the state’s gas export rules.

For all the excitement from some, though, the fate of a few onshore gas projects on the western fringes of the Australian continent is small fry in a greater game that’s reportedly being played.

And it’s a game that concerns the future of Australia’s de facto oil and gas company, Woodside.

Specifically, will Woodside remain the country’s flag-bearer at all?

An increasingly American hue

Ever since a Nebraskan named Don Voelte swaggered into the building 20 years ago, there is a view that Woodside has become more and more American.

Increasingly, Woodside’s executives have been drawn from the ranks of US oil and gas firms – none more so than the biggest beast of them all, ExxonMobil.

Woodside’s current chief, Meg O’Neill, and its immediate past boss, Peter Coleman, are both alumni of the company.

Conversely, it has been shedding its strong links to the Dutch-Anglo major, Shell, under which it learned the ropes of the LNG trade.

More pointedly, Mr Kavonic said, Woodside was growing up – it was less and less a big fish in a small WA pond and more a player on the world stage.

“That Perth directors club … has had a lot of influence on Woodside,” Mr Kavonic said.

“And I think you’re starting to see that more parochial Western Australian lens fall away.”

Recent history doesn’t lie.

As Mr Kavonic and others have noted, Woodside became much more of a global player the moment it merged with the oil and gas business formerly controlled by mining giant BHP in 2022.

Many of those assets were in North America.

Under the eye of Ms O’Neill, Woodside’s interests in that part of the world have grown like Topsy.

Last year, the company gave the green light to develop the $US7.2 billion ($10.5 billion) Trion oil project off Mexico.

In July, it forked out $US900 million ($1.3 billion) to buy the US firm Tellurian, principally to get control of an LNG export terminal in Louisiana.

And just last month, Woodside got out the chequebook again, spending $US2.3 billion ($3.7 billion) on a clean ammonia project in Texas.

“The writing is already on the wall,” Mr Kavonic said.

“If you look at the last three big strategic announcements Woodside has made … that’s a commitment of over half of Woodside’s market capitalisation to projects all in North America.

“Once those projects are delivered, the majority of Woodside’s value is going to be coming out of North America rather than Australia.”

Could Woodside leave Australia?

Such has been Woodside’s bet on the US, speculation has been growing the company could up stumps and move its headquarters there.

Woodside already has a secondary listing on the New York Stock Exchange, where the company can more easily tap the enormous pools of money available to oil and gas players in the States.

And, as Mr Kavonic noted, some of Woodside’s functions are now in America’s centre of oil and gas power, Houston, rather than Perth.

One senior gas industry player, not authorised to speak publicly, this week said it was a “running joke” among Woodside employees that they would soon be moving to Houston.

Even so, Mr Kavonic said it would be a huge step to delist from the Australian Stock Exchange and leave the country for good.

“There are some legal and market challenges to actually move that listing,” he said.

“Not least, Australian investors would actually need to vote to make that happen.

“I think the idea of the listing changing tomorrow is very unlikely.

Tim Buckley, a director at advocacy group Clean Energy Finance, doubted Woodside would walk away from its seat of power in Australia.

Mr Buckley said the company enjoyed unrivalled influence compared with another other oil and gas players in the country.

But he also said it was undeniable Woodside had fared much worse than its American peers in recent years and it would be tempted by the likelihood of a share price bump in the States.

So, too, might its shareholders.

“They will never be a material player in America,” Mr Buckley said.

“Sure, you’ll get a more investor-friendly audience in America.

“If there was a big (share price versus profitability difference) between Exxon-Chevron and Woodside, that would be a financial motive to do it.

“You don’t need too many hedge funds to come in and tell you ‘list in America, delist in Australia’.

A question of value

At the heart of any move would be money.

Woodside’s value, like many of its peers outside of the US, has been languishing in recent years as local investors shun the company and industry for causing greenhouse gas emissions.

Its shares are trading at levels not seen since 2022, and that’s despite its near doubling in size courtesy of the BHP merger and healthy profitability.

The market capitalisation of the company is $47 billion.

Meanwhile, the value of US energy giants has been going gangbusters.

ExxonMobil shares have more than tripled in value since the depths of the pandemic in 2020, giving the company an overall value of almost a trillion dollars.

It’s a similar story at fellow US heavyweight Chevron, which is worth almost $400 million.

Mr Kavonic said the link between profitability and share price – and therefore the value of a firm – was broken outside of America.

Oil and gas companies in many places such as Europe and Australia were on the nose, he said – a theme that was unlikely to change any time soon.

As a consequence, he said US firms were now getting so much bigger than their global rivals that they were preying on them.

And he said few were likely to look as juicy as Woodside.

“Consolidation is well underway,” he said.

“Particularly in the United States, most of the logical M&A targets have now happened.

“So we’re seeing some of the majors around the world … scouring the globe for what the next natural targets for consolidation are.

“The truth is there are not that many big, attractive ones left.

Mr Buckley, a former investment banker, said Woodside was vulnerable to a takeover, but he questioned whether Canberra would stand by and allow that to happen.

“Would someone take over Woodside,” asked Mr Buckley

“There is a risk.

“I would’ve thought that would be a strategic, sovereignty issue, losing out last major gas company.

“But the share price keeps going down – it’s underperformed horribly.”

History no precedent: analyst

Woodside, for its part, declined to comment.

But it told the media as recently as this month that it was a “proudly Australian company”, which had three quarters of its current operations in the country.

The last time one of the super-majors tried to take over Woodside was more than 20 years ago, when Shell made a wholehearted bid for the Australian upstart.

Famously, then treasurer Peter Costello rejected the bid on the grounds that it was not in the national interest.

Mr Kavonic said some of the reasons Mr Costello killed the proposal stand – Woodside was still seen as Australia’s oil and gas champion and therefore more likely to develop the industry locally.

But he said the federal government’s apparent ambivalence about gas meant a takeover was arguably more likely to succeed now than ever before.

He noted the WA government would have little power to stop any deal.

“I would argue it is not in Australia’s national interest to allow Woodside to be sold to a foreign bidder.

Regardless of whether it was swallowed by a bigger predator or moved to the US under its own steam, Mr Kavonic said it seemed at the moment that all roads led to North America.

To an extent, Mr Buckley agreed.

He said the US was clearly laying out the welcome mat for oil and gas industry – an invitation that may prove irresistible to a company as seemingly unloved as Woodside.

However, he was sceptical it would pay off long term.

“It raises the question about whether Woodside is gradually going to lose political influence in Australia,” Mr Buckley said.

“I mean, that’s what it’s all about.”

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