Australian hydrocarbon producer Woodside (ASX.WDS) reported an 8% decline in underlying 2025 net profit after tax to USD $2.6 billion or USD $1.39 per share. Operating cash flow increased 85% to USD $3.7 billion. The company declared a USD $0.59 final dividend, up 11%, on a steady 80% payout. Shares were up 2%.

Why it matters: Underlying NPAT was 9% ahead of our expectations, driven chiefly by impressively low operating costs, down 3%. We increase our 2026 earnings per share forecast by 50% to USD 1.00. However, this mostly reflects lower depreciation—Woodside guiding for USD $4.2 billion-USD $4.7 billion, down 13% at the midpoint.

  • All other guidance remains as prior, including volumes of 172 million-186 million barrels of oil equivalent, or mmboe. We sit at the high end, a 6% decline on 2025, with major second-quarter maintenance for Pluto LNG affecting.
  • Development project progress is largely within cost and schedule guidance, though with Scarborough/Pluto T2 slightly later. We expect group production to increase by 9% to around 215 mmboe per year by 2027, when Scarborough/Pluto T2 reaches full production.

The bottom line: Our $42 fair value estimate for no-moat Woodside stands. At just over $27.50, we think the market remains overly bearish. The energy transition casts a pall over hydrocarbon demand. But significant investment is required in most demand scenarios to backfill natural decline.

  • We expect oil demand to remain resilient with strong demand from heavy transport and petrochemical segments, and a potential supply gap in support of pricing. Economic expansion in emerging Asian markets is expected to support healthy LNG demand growth.

Between the lines: We forecast a five-year EBITDA CAGR of negative 2% to USD 8.5 billion by 2030. This includes the production increase, but with a 5% assumed decline in the Brent crude price to a midcycle USD $65 per barrel from 2027, and 12% decline in LNG price to USD $9.20 per mmBtu.

Creditable cost control on record production for Woodside

As Australia’s premier oil player, Woodside Petroleum’s operations encompass liquid natural gas, natural gas, condensate and crude oil. However, LNG interests in the North West Shelf Joint Venture, or NWS/JV, and Pluto offshore Western Australia are the mainstay, and the low-cost advantage of these assets form the foundation for Woodside. Future LNG development, particularly relating to the Pluto project, encompasses a material percentage of this company’s hydrocarbon production volumes.

Woodside is unique among Australian energy companies in that it has successfully managed the development of LNG projects for more than 40 years—unparalleled domestic experience at a complicated and expensive task. Adding to Woodside’s competitive advantages are the long-term 20-year off-take agreements with the who’s who of Asia’s blue chip energy utilities, such as Tokyo Electric, Kansai Electric, Chubu Electric, and Osaka Gas. These help ensure sufficient project financing during development and bring stability to Woodside’s cash flows once projects are complete. Woodside also enjoys first-mover advantages. The NWS/JV has invested more than $27 billion since the 1980s, building infrastructure at a fraction of the cost of today’s developments. With substantial growth aspirations, Woodside still has considerable expenditure ahead of it, but the existing infrastructure footprint is regardless a huge head start, from both an expenditure and a regulatory-approval perspective.

Woodside’s development pipeline is deep, enabling it to leverage the tried and trusted project-delivery platform as a template for other world-class gas accumulations off the north-west coast of Australia. Woodside is well suited to the development challenge. With extensive experience, it remains a stand-out energy investment at the right price. Gas is the fastest growing primary energy market behind coal, and the seaborne-traded LNG portion of that gas market grows faster still. China is building import terminals, and demand is picking up, helping to keep LNG pricing toward oil parity on an energy-equivalent basis.

Bulls say

  • Woodside is a beneficiary of continued increase in demand for energy. Behind coal, gas has been the fastest-growing primary energy segment globally. Woodside is favorably located on Asia’s doorstep.
  • Woodside’s cash flow base is comparatively diversified, with LNG making it less susceptible to the vagaries of pure oil producers. Gas is a primary component of Asian base-load power generation.
  • Gas has around half the carbon intensity of coal, and it stands to gain market share in the generation segment and elsewhere if carbon taxes are instituted, as some predict.

Bears say

  • The global economy is cooling off and demand for energy will follow suit, particularly if Chinese growth rates taper.
  • Technological advances in the nonconventional US shale gas industry have the potential to swing the demand-supply balance increasingly in favor of the customer.
  • LNG developments are hugely expensive, and the balance sheet is at risk until such projects are successfully commissioned.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.