Woodside CEO Meg O'Neill talks record earnings, the dividend outlook and union tensions

Despite oil and gas prices sliding significantly since hitting highs last year, locally listed energy giants continue to generate record profits, delivering income-hungry investors with hefty dividends when they need it most. 

Woodside Energy Group (ASX: WDS) is one such company, having just reported its biggest first half ever, netting US$1.7 billion in profit on the back of its merger with BHP's petroleum business. 

On Tuesday, the oil and gas giant announced it would be paying out a fully franked interim dividend of US 80 cents per share, up around 5% from this time last year. This is an 80% payout ratio at the value of US$1.5 billion. 

It comes as tensions between the energy giant and a union alliance representing workers at Woodside's offshore platform of its North West Shelf facility reach a head. 

Today, the two parties announced they have reached an in-principle agreement on pay and working conditions, potentially thwarting what would have been a major disruption to supply, particularly in Europe. 

For more on Woodside's latest half-yearly result, as well as the outlook for energy from here, I sat down with Woodside chief executive Meg O'Neill as part of Livewire's C-Suite reporting season coverage. 

We discussed the energy giant's latest deal with LNG Japan, its growth projects in the Gulf of Mexico, as well as its foray into the world of hydrogen in the US state of Oklahoma. 

O'Neill also shares her outlook on the future of oil and gas, why she believes both will continue to play a major role in our lives for decades to come, as well as what has kept her captivated by the industry for the past three decades and counting. 

Timecodes: 

• 0:31 - Record results from Woodside's first half 
• 1:41 - The outlook for dividends and whether an 80% payout ratio is sustainable 
• 2:33 - What Woodside's deal with LNG Japan means for shareholders 
• 3:36 - Other avenues of growth for the future 
• 4:41 - Why Woodside is better placed than others to explore hydrogen production 
• 5:59 - Oil and gas prices are still high 
• 7:50 - Union tensions: Hopes of a fair deal and plans for disruption 
• 9:10 - On keeping gas supply fair for Australians, while exporting to global peers
• 10:42 - The role of gas in a decarbonising world 
• 11:39 - The future of oil and the risk of stranded assets
• 12:39 - Broker views (and what the two negative analysts are getting wrong) 
• 13:41 - Meg O'Neill's career journey 
• 15:20 - What companies need to do to improve diversity at the C-suite level 

Note: This interview was recorded on Wednesday 23 August 2023. You can watch the video or read a transcript below. 

Transcript 

We produced 91.3 million barrels of oil equivalent in the period. And you might say, 'Well, what does that mean?' The world uses 100 million barrels of oil every single day, so it was almost the world's consumption in a day for the half-year. 

For a company of our size, that's really fantastic, and I am really proud of what we did operationally. Profit-wise, [we generated] US$1.7 billion in net profit after tax, which is our highest first-half profit and again a reflection of the strength of the new business following the merger as well as the strength of the commodity markets.

Ally Selby: Investors have come to expect quite hefty dividends from mining and energy companies over the last few years. Woodside just announced a dividend of 80 US cents per share for the first half - that's up 5% from this time last year. Woodside also has an 80% payout ratio, which is extremely high. Is that sustainable?

Meg O'Neill: So we've got a couple of other projects that are underway. We've got a project called Sangomar which is a deep-water oil field off the coast of Senegal. That project is 88% complete and we expect to start producing next year. 

A couple of months ago, in June of this year, we took our final investment decision on a field called Trion which is a deep-water oil field in the Mexican sector of the Gulf of Mexico. Really excited [about that]. It's a high-quality asset, it's a very strong resource, fantastic financials, and it pays back in four years. So again, both of these investments are investments that are going to deliver value to our shareholders for the long term. 

Now, I'm sure you're going to get to other opportunities and new energy is front of mind. We've got a hydrogen project in the United States in the state of Oklahoma called H2OK. We're complete with our front-end engineering design and we are working towards a final investment decision later this year. That would be our first big investment into hydrogen, so super excited about that opportunity.

Meg O'Neill: Sure. So from an operational perspective, a hydrogen production facility actually has a lot in common with an LNG production facility. [You need a] reasonably large, complex industrial facility, you have to manage safety and process safety to make sure that you can run them safely. Those are skills that we have today and skills that we've had for many years. The market is a bit different, and that's where hydrogen gets interesting. So traditional markets in LNG largely are utilities and gas customers. Well, for hydrogen it's going to be a different set of customers. 

For the Oklahoma Project, we're targeting the ground transportation market. That market in the US is growing rapidly, particularly led by California, which is very focused on managing their emissions and reducing their emissions. 

So we're very much focused on the ground transportation sector, which without a fuel like hydrogen, it's really hard to abate. EVs can only go so far, and when you think about the load on the electric grid as you start to turn off coal and put other things onto the grid, we think hydrogen's going to be very competitive with EVs, particularly for the heavy vehicle fleets. So that's what we're targeting.

Meg O'Neill: I'd say last year was anomalous. So Russia's invasion of Ukraine caused disruption in all energy commodities. There were sanctions on Russian oil that caused oil trade flows to reroute, Russian gas largely reduced or significantly reduced flows to Europe and that required Europe to scramble for other energy sources and they imported LNG in record quantities. They restarted coal-fired power stations. So last year was a really disrupted year. 

If you look at the pricing that we're seeing today it's still actually high relative to what I would call the last steady-state year we had, which was actually probably 2019 before the COVID pandemic. 

It's been quite volatile the past few years. So for me, that's a signal that firstly, the global economy is still continuing to be pretty resilient despite all the concerns around slowdowns and recession risk the economy continues to demand energy. 

The second thing that is an important signal is the importance of energy security and we're seeing this in Europe, and we're seeing this in Asia. We're seeing a lot of Asian buyers actually sign up for long-term LNG deals as they're thinking about protecting their energy needs, not just today but 20 years into the future.

Meg O'Neill: Look, we're happy with prices where they are. It's an industry where we've had a couple of significant downturns, 2020 was a really difficult year for the sector. So a few strong years actually help us to return value to shareholders and be able to make these very significant investments that will keep us resilient for the future.

Meg O'Neill: Well, let me start by saying that we've been engaged in enterprise bargaining for several months now. I think the discussions are going pretty well, and are pretty constructive. We're spending a lot of time really listening and wanting to understand exactly what are the issues that are most important to our workforce. [There is] a long list of claims, so we're trying to figure out what's most important and over the course of the negotiations I think we've addressed some of the areas that were of greatest concern. 

Now the teams are meeting again today, and the employees have voted for protected action. So that's a right that they have under the Australian labour framework. What that looks like, there's a range of possible outcomes. And it ranges from things that are frustrating - work slowdowns, for example, to potentially more significant work stoppages. Look, we've got plans in place to be able to work through those and navigate the challenges.