Australian hydrocarbon producer Woodside (ASX: WDS) reported a 4% decline in fourth-quarter 2025 production to 48.9 million barrels of oil equivalent. Key development projects’ progress: Scarborough/Pluto T2 LNG 94% complete, Trion oil at 50%, and Beaumont New Ammonia in production.

Why it matters: 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% by 2027, or to around 215 mmboe per year, when Scarborough/Pluto T2 reaches full production.

  • Our 2025 EPS is roughly steady at USD 1.28. Fourth-quarter production and pricing were close to expectations, bringing full-year production to a record 199mmboe, slightly above the high end of guidance. However, we reduce our 2026 EPS forecast by 46% to USD 0.65.
  • Woodside is guiding for a 7%-14% decline in 2026 production to 172-186mmboe, with major second-quarter maintenance for Pluto LNG. Further, we have pushed out the first meaningful production from Scarborough/Pluto T2 to the first quarter of 2027, and we’ve reduced expectations from NWS/JV.

The bottom line: Our fair value estimate for no-moat Woodside declines 7% to $42. Drivers include reduced near-term production, softened energy commodity futures since our last note, lowered midterm production at NWS/JV, and the slightly value-destructive sale of Angostura in Trinidad & Tobago.

  • At around $25, we still think the market overly bearish. The energy transition casts a pall over the outlook for hydrocarbon demand. But significant investment is required in most demand scenarios to backfill naturally declining supply. Progress on growth projects is also supportive.

Long view: We remain optimistic about the outlook for natural gas during the energy transition. Woodside retains a high-quality asset base, geographically advantaged to meet growing LNG demand in Asia. Scarborough/Pluto T2 represents strong long-term production, and Louisiana LNG will add volumes.

Production dip to follow a record as Pluto prepares for Scarborough gas

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 AUD 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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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.