Fitch Ratings has affirmed
The affirmation reflects Woodside's solid credit profile as the largest oil and gas producer in
Woodside has ample rating headroom, with low financial leverage and strong financial flexibility compared with its planned high capex for its growth projects over the next two to three years. Its credit profile is constrained by its smaller scale than Fitch-rated peers in the 'A' rating category and a lack of diversification given its pure upstream earnings.
Key Rating Drivers
Improved Scale, Diversification Post-Merger: Woodside, a leading Australian liquefied natural gas (LNG) producer, expanded reserves and production volume, and improved its geographical and product diversification after the merger with BHP's petroleum assets in
LNG Remains Largest Production Contributor: Earnings from LNG are more stable than crude oil as offtake for Woodside's LNG is mostly contracted for the long term with prices linked to crude prices. After the merger, LNG remains the largest contributor to production volume, but it will reduce to 40%-45% (from 80% previously) with more crude oil in its production until a new LNG project completes in 2026. The lower contribution from LNG is partly offset by greater exposure to Australian domestic gas, typically sold under term contracts, which will make up about 15% of total output (2021: 3%).
High Oil & Gas Prices: Fitch projects Woodside's EBITDA to more than double by 2023 from
Cash Flow Supports Capex Commitments: Woodside's strong cash flow from operations is sufficient to fund the majority of its committed capex (based on current equity interest in its projects) following positive final investment decisions (FID) on Scarborough and Pluto Train 2, while maintaining its dividend payout target of at least 50% of net profit after tax for the next two to three years.
Commitments for key projects are substantial with Woodside's guiding
Sufficient Rating Headroom: Fitch assesses that Woodside has large rating headroom and strong levers to manage its capex commitments over the next two to three years, based on its strong balance sheet and flexibility to dispose of project equity stakes to reduce capex if required. Fitch expects Woodside's free cash flow to remain positive until 2023, after which it will turn negative as oil and gas prices normalise while investments remain high.
Scale, Business Diversification Limit Profile: Woodside's operating scale is smaller in terms of reserves and daily production compared with Fitch-rated oil and gas peers in the 'A' rating category. Woodside also does not have downstream integration or business diversification, unlike certain higher rated peers.
Potential Investments Not Factored In: Woodside has substantial proved and probable reserves, but Fitch has not factored in any growth projects that have not received positive FID into the rating case as the timing of development is uncertain and Woodside's equity interests in these projects may change upon FID.
Derivation Summary
Woodside's rating at the same level as
Compared to
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Oil prices of
Production to reach 190mmboe by 2023 and average at 200mmboe a year between 2024 and 2025.
Dividend pay-out ratio of 55%-70% of net profit between 2023 and 2025.
Capex of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action is unlikely as companies rated by Fitch in the 'A' rating category are generally larger and more diversified, including in downstream operations, than Woodside.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Net debt/EBITDA or FFO net leverage sustained above 2.0x (2021: 0.6x and 0.7x, respectively)
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Substantial Liquidity: Woodside is supported by a strong liquidity buffer of
Issuer Profile
Woodside is
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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