Stocks In Focus: Woodside, January 21 2025

0:10G'day, I'm Scott Phillips, the Motley Fool's Chief Investment Officer here in Australia. and welcome to the very first, yep, we're kicking it off again, Stocks in Focus video for 2026. Time flies when you're having fun. We're already halfway through January and it's well past time that we got back in your eyes and in your ears. We are, of course, on YouTube and the Motley Fool Money podcast feed. Twice the goodness. Well, the same thing, but you can, anyway, you get the idea. If you are watching us on YouTube, thanks for being part of the Motley Fool YouTube community. Please make sure you do the usual YouTube things.

0:43If you like the video, and you will, because I know who I'm going to speak to and on what we're going to speak, hit the like button for me. Also do me a favour, hit the subscribe button if you want more good stuff from us. This is the first video for 2026. We've got heaps more coming. We've got stock of the month. We've got what I've been reading. We've got some Motley Fool live TV. We've produced some YouTube Q &As. We've got heaps of good stuff in 2026. Maybe even some new features. Talking with some YouTube shorts and stuff. So stick around for that. By the way, the bloke I'm chatting to, he's the brains behind turning some of these videos into the YouTube shorts.

1:16So you're welcome. If you've been watching those, it's all Mitch's responsibility, his great work. So thank you, Mitch, for doing that. Before I let you talk, I'll keep talking. If you're on the YouTube, if you're on the podcast, thank you for doing that, the Motley Fool Money podcast. And if you're not on the other one, do that too. If you're watching on YouTube, hit the usual buttons and then go and check out Motley Fool Money. If you're on Motley Fool Money, go check out the YouTube channel. It's really easy to find. Motley Fool Money on podcast. Just search Motley Fool Australia on YouTube or go to youtube.com forward slash fool au.

1:41Very, very, very simple. Thank you for doing that. This stuff's free. If you're enjoying it, we're glad. If you want more of it, I hope you do. And also, if you subscribe and like it, it helps other people find it. So that'd be cool if you don't mind. All right, that's enough of the ads. I did promise you an introduction. You've seen this man before. You've heard him before. He is, of course, Motley Fool analyst, Mitchell Lawler. Mitch, g'day. G'day, Scott. How's it going? Mate, I'm very, very well. Hey, great work on the YouTube short stuff. Mitch has done a whole lot of work on AI and automation.

2:08It's really cool. Super detailed stuff, like an amazing amount of work's gone into it. And he said one day, hey, I think I want to do this. Should I go? I was like, yeah, give it a go. If you're watching the shorts on YouTube, if they're popping up for you, thanks for watching. But also, this guy made them happen. So thank you, Mitch, for me, for the work you're doing, making sure we're spreading our foolish message to many, many, many more people on the YouTubes and the internets in general. Mate, we're not here to talk about that, though. We're here to do Stocks in Focus. Now, this is the series where we peel back the curtain a little bit on one of the companies that is widely owned, widely talked about, maybe it's in the news, you know, the sort of business most people have heard of.

2:42If not, we think are interesting and want to tell people about. They are not formal Motley Fool recommendations. Let me be very clear with that upfront. Secondly, this is general or personal advice. And thirdly, we're recording this in the middle of January, 2026. If you're watching this in a day, a week, a month, a year, or in 115 years, because the internet's forever, that was our view at this point about the company. Things will have changed. So just bear that in mind. Whatever information, whatever views, It's all point in time. Not an excuse, by the way. We don't expect to change our minds regularly, but just like it happens, like stuff happens.

3:10So yeah, it is a point in time. We try to make this as evergreen as possible. We tell you about stuff rather than making predictions because that's a bit silly. I will ask Mitch at the end, by the way. Yes, I will. Or whether he thinks it's likely to beat the market over the next five years or so. But again, not a formal recommendation from him, from me or from the Multifield. It's just a way for us to talk about a company you might own or you might be curious about. Maybe you looked it up, found a search engine, and you went, oh, I wonder what Woodside's worth because that's the company we're talking about.

3:33or maybe is it worth buying? I don't know. I'll go and have a look. Maybe that's how you got here. So if you have, thanks, and I'll get on with it so you can listen to some of the good stuff from Mitch. Mate, let's do it. Let's talk about what the company is. We'll talk about the pros of investment, the cons of investment. And again, I will ask you to put your neck on the line, but let's start with what is Woodside? Yeah, Woodside, when people hear the name, most Australians think big gas and that's probably not a bad place to start. it's australia's largest independent energy producer it's one of the world's most important suppliers of lng which is liquid natural gas and i suppose really it's it's the stuff that keeps the lights on it's the energy that keeps the world spinning um it's it's critical to every everything we really do to that requires energy um and and so woodside is a very big player in that at a practical level woodside does three things it produces lng which it ships all over the world it produces liquids which is you know oil condensate ngls which i didn't know what an ng well ngl was until i looked it up but it's uh you know your derivatives like butane propane uh and different gases like such as those um and it's starting to build some options in new energy as well, like ammonia for sort of future applications or, you know, the sort of green endeavor.

5:00We saw that with Fortescue as well, you know, delving into hydrogen. So, it's getting involved in that as well. But most of Woodside's core assets are in Australia on the northwest Coast, which one of their key projects is the Northwest Shelf and also Pluto LNG. And they've been delivering gas and oil for many years. They're long life assets, industrial scale, and they just keep ticking along. So, Woodside, I think in the latest half-year report, produced about 100 million barrels of oil equivalent, which is just phenomenal. Mind-blown, isn't it? It is. But it's not just an Australian story anymore either.

5:50In the last several years, it's begun to migrate into international assets. So, they have oil production offshore of Senegal in West Africa, assets in the Gulf of Mexico, which that alone, maybe you call it the Gulf of America, not too sure at the moment. Whichever you prefer. and now they have a major LNG project in Louisiana as well, right in the heart of the US energy system. So they've got their irons in a lot of fires at the moment beyond Australia and I'll speak a bit more about what that means as we get into the pros of Woodside, I suppose. Nice, thank you for that. And of course, Woodside as we know it today, also was merged into it with the BHP oil assets.

6:42So a slightly different business than it might've been five or six years ago. Let's do that, mate. Let's talk about the pros and the cons. Now, we're gonna talk about the pros of an investment and the cons of an investment. And investment is, again, if you've been around for a while, you know this stuff. If you haven't, if you knew or you're a reminder, there's the company and there's the shares. And they're kind of the same thing, but they're kind of not, right? Because if you have a great business, it's a terrible investment. Very hard to have a terrible business that's a great investment. I guess it's possible.

7:04But those two don't always sit side by side. So we're going to focus, we'll talk about the company, but when I ask about the pros and the cons, we're going to talk about the company in the context of the investment potential for the business. So, Mitch, let's do that. What are some of the pros? What are some of the reasons why our viewers and listeners might want to invest in Woodside shares? Yeah, they're a low-cost operator. So, you know, some of the assets are able to produce that oil and gas at very competitive rates. You know, the cost to actually get the oil or gas out of the ground. allows them to actually break even at a low price.

7:41I think it's around$35 US per barrel for Woodside is their break-even point. Ultimately, they're a price taker. They're dealing with a commodity. They have no control over what the price is of that commodity, but they do have control over, to some extent, the price that actually costs for them to extract that commodity. And so, as the price of crude oil falls, maybe it goes to$50 or$40 per barrel, they're still able to make some amount of money in that with a low break even point. They have also part of that is they've funded through a lot of CapEx over the years, the build out of these new projects.

8:29So, they're investing in Scarborough, Louisiana LNG, which I mentioned previously, they're getting that progressed to the point of upcoming production. And all whilst doing that, they're still able to pay dividends. So at the moment, Woodside is yielding close to 7 % dividend yield. So it's quite impressive that because of these low-cost production assets, that they're able to simultaneously invest in that new supply and also new energy, whilst also giving out quite attractive dividends to shareholders. Secondly, I'd say a pro of the business is more of a macro aspect and macro in the context of individual stocks is maybe a bit wish-washy, but I think it's important to mention in this discussion is, you know, AI and the power constraints of AI.

9:30And Woodside is sort of, and all oil and gas companies are the same, are sitting in this position where, you know, the grid's infrastructure has not been, there hasn't been enough capital invested into it to sustain the amount of new demand that's coming onto the grid through data centres. And I was reading a really interesting forecast from IEA, which expects that global data center electricity demand will more than double by 2030 to nearly 1000 terawatt hours. And that's a big number in terawatt hours is sort of hard to conceptualize. So to put it into context, that's roughly 3.5 times Australia's total annual electricity consumption.

10:21yeah and so the these data centers as they come online and the grid is it's slow and hard to build you know if if you go towards nuclear energy that's going to be a 30-year development um sort of horizon renewables can't keep up um with the demand in it in themselves and so natural gas is becoming a very popular means of feeding turbines, natural gas turbines, to power these data centres. So having attractive assets that produce this gas puts Woodside in an attractive position if the demand outstrips supply for energy as well. Nicely pulled, mate. Lots of pros there, lots of reasons to think about maybe jumping on board the Woodside train.

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11:21Let's move on to the cons. Again, not necessarily reasons not to, although they might be, or it's just things to be mindful of. If you are going to look at Woodsofa, if you're thinking about it, you always want to consider the bull case and the bear case, right? Don't you look at what could happen and go well? It's really important. Look at what might not go well, might actually hurt your investment. maybe it's not as attractive. Again, this isn't the business is going to go broke. It's just, why might it disappoint? Let's go with those, Mitch. What are some of the cons, the reasons investors might not want to invest in Woodside or they should consider, at least have in mind when they do buy the shares?

11:50Yeah. The biggest one for me is, ultimately, it is a price taker. It's operating in a commodity. And I love businesses that have a defensible moat. That's a product that isn't purely driven by supply or demand because it's much easier to sort of anticipate, I suppose, consistent growth in cash flows over a number of years. Whereas commodity, such as oil or gas, it's all over the place. It differs week to week, month to month, year to year, depending on whether war breaks out in whatever country, if there's a supply shock, and you can't really predict that, and neither can Woodside. And that's why they're really working on their cost of production, but ultimately, they're at the whim, to a certain extent, what happens with those prices.

12:47And so, if we saw a situation, it wasn't that long ago, if you think back to 2020, where oil prices actually went negative. No one thought that was possible, but it happened. And I don't think there's a high likelihood of that happening anytime soon again, but will the price of oil maybe be$20 a barrel in three or five years' time? I'm not sure. And so that makes it really hard to have with any degree of certainty how profitable Woodside's business will be over an extended period of time. And in addition to that, I'd say the capital intensity of the business, at the moment, they're managing to juggle the difficulty of trying to grow internationally with these big projects that honestly requires billions of dollars each year to really stand up whilst also paying dividends.

13:48But if there's an issue with scheduling, timeline blowouts, cost blowouts, it's a very capital intensive business and that could weigh on what shareholders get in the form of dividends and the profitability of the business. And then you also have the regulatory aspect, that's unknown. In Australia, there's been, in some situations, push back on whether oil or gas plants are extended for their operations or whether new ones can be built. Woodside is trying to address that by focusing on their international business. And the international business is actually expected to be the bulk of their growth over the next five to seven years, I believe.

14:38So they're trying to combat that. But at the same time, Australia is a good chunk of their business. And if there's a continuance of pushback on expanding their operations, then that could impact Woodside and their earnings as well. There's kind of lots to think about, right? You're right. I mean, the point of the price taker and working in a global market means it's not the sort of business that has a lot of pricing power, and I'll not even control over its destiny to some degree. It executes as well as it can, and then kind of has to wait and see what happens from there. So lots to think about.

15:11I'm not sure which way you're going to go on this one. I mean, sometimes when I do these, you or other analysts will give me a bit of a sense, not in advance, we don't talk about it in advance at all, but I normally can tell why the pros and cons, which way you're going to lean on this one. We haven't talked about the price either, right? So that really matters. But I'm going to put you on the spot. Give me a sense, if you're a betting man, and again, this is not a formal recommendation, if you're a betting man, Do you reckon Woodside beats the market over the next five years or does the ASX, the All Lords, take the bickies?

15:37Honestly, I think there's a fair chance that Woodside could beat the market over the next five years. And that comes back to this capex in some really great projects. You know, Louisiana is expected to add a considerable amount of production to their business. And I think over that five to seven year timeline, we're more likely to see a shortfall in energy supply than an excess. I think mostly attributable to the data center build out and the fact that it's just very difficult to build new infrastructure to cater to that demand for energy. And so Woodside having the assets, putting in those billions of dollars of capex now and over the next year or two should put them in a really good position as we hit that fourth or fifth year.

16:30And look at the current dividend yield, almost 7%. If they can sustain that sort of payout, I think they pay out about 50 % of their earnings currently. If they can sustain that, you're almost getting the market return in the dividend solely just the dividend yield. And so, it doesn't really require much more from the core business, you know, capital growth to beat the market from that point. But, you know, in saying that, it is a commodity-based business. It is a price taker. So, you know, there's that word of caution there. But if I had to look at it, everything weighed up equally. Yeah, I think it's a good chance of possibly beating the market over the next five years or so.

17:13There you go. You heard from Mitch. Mitch, thank you for a very thorough, interesting summary of Woodside, the business and the potential for it as an investment, Fools. Thanks for watching. Thanks for listening. Thanks for being part of the Motley Fool community. We appreciate you spending a little bit of time with us. And we know, I know, you certainly enjoyed it. This one, you got a lot out of it. Plenty more coming, as I said, in 2026. Like, subscribe, do all the usual things. Until next time, thanks for watching. Thanks for listening. And Fooler. The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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