REG - Woodside Energy Grp. - Woodside to acquire OCI's Clean Ammonia Project

Woodside EnergyAnnouncement

05/08/2024 07:45

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RNS Number : 1403Z  Woodside Energy Group Ltd  05 August 2024

Woodside Energy Group Ltd

ACN 004 898 962

Mia Yellagonga

11 Mount Street

Perth WA 6000

Australia

T +61 8 9348 4000

www.woodside.com

 

ASX: WDS

NYSE: WDS

LSE: WDS

 

Announcement

 

Monday, 5 August 2024

 

WOODSIDE TO ACQUIRE OCI'S CLEAN AMMONIA PROJECT

 

§ World's first ammonia plant paired with auto thermal reforming with 95%+
CO(2) capture

§ Provides early-mover advantage in growing lower carbon ammonia market 1 

§ Exceeds capital allocation target of 10% internal rate of return 2 

§ Free cash flow accretive from 2026 and earnings per share accretive from
2027

§ Capacity to abate 3.2 Mtpa CO(2)-e at full development; over 60% of
Woodside's Scope 3 abatement target 3 

 

Woodside has entered into a binding agreement to acquire 100% of OCI Clean
Ammonia Holding B.V., and its lower carbon ammonia project in Beaumont, Texas
(Project) for an all-cash consideration of approximately $2,350 million. The
Project is under construction and targets production of first ammonia from
2025 and lower carbon ammonia from 2026. The consideration is inclusive of
capital expenditure through completion of the first phase (Phase 1).

 

Woodside CEO Meg O'Neill said the acquisition supports Woodside's strategy to
thrive through the energy transition.

 

"This transaction positions Woodside in the growing lower carbon ammonia
market. The potential applications for lower carbon ammonia are in power
generation, marine fuels and as an industrial feedstock, as it displaces
higher-emitting fuels.

 

"Global ammonia demand is forecast to double by 2050, with lower carbon
ammonia making up nearly two-thirds of total demand. 4 

 

"This Project exceeds our capital allocation framework targets for new energy
projects. Both phases are expected to achieve an internal rate of return above
10 percent and payback of less than 10 years.

 

"This acquisition is a material step towards delivering our Scope 3 investment
and abatement targets. Phase 1 has the capacity to abate 1.6 Mtpa of CO(2)-e
and with the addition of Phase 2 the Project has the capacity to abate 3.2
Mtpa CO(2)-e, or over 60 percent of our Scope 3 abatement target."

OCI Clean Ammonia Project

 

The Project is located on the US Gulf Coast (Beaumont, Texas) and can serve
customers domestically and internationally. Phase 1 has a design capacity of
1.1 Mtpa and is under construction. First ammonia production, derived from
natural gas, is targeted for 2025. Lower carbon ammonia production, derived
from natural gas paired with carbon sequestration, is targeted for 2026
following commencement of CCS operations.  5 

 

Agreements for the feedstock and CCS capacity are in place. The nitrogen and
lower carbon hydrogen feedstock will be sourced primarily from Linde. The
Linde feedstock facility is currently under construction, targeting completion
in early 2026. Ahead of completion, early supply of feedstock for the Project
will come from multiple suppliers, including Linde, from available capacity in
the Gulf Coast.

 

The CCS services will be provided to Linde by ExxonMobil and are expected to
be available in 2026.

 

The Project will target conventional ammonia customers at start-up and will
target lower carbon ammonia customers in Europe and Asia when CCS is
operational.

 

The facility is designed to accommodate a second 1.1 Mtpa production train
(Phase 2). Phase 2 remains pre-final investment decision (FID). Woodside will
target FID-readiness for Phase 2 in 2026 with an expected gross capital
expenditure range of $1.2 - 1.4 billion.

 

The Project's competitive advantages include:

 

·      World's first ammonia plant paired with auto thermal reforming
with 95%+ CO(2) capture. This results in an emissions intensity of 0.8
tCO(2)-e/t NH(3) relative to an unabated ammonia emissions intensity of 2.3
tCO(2)-e/t NH(3); 6 

·      Early-mover advantage in the growing lower carbon ammonia market;

·      Utilises proven ammonia synthesis design incorporating learnings
from OCI's other operational sites;

·      Advantaged location on the US Gulf Coast with access to multiple
sources of feedstock and a deepwater port for international export;

·      Capital efficient business model leveraging third-party
feedstocks for hydrogen paired with CCS, and nitrogen;

·      Gross equity Scope 1 and 2 emissions of less than 0.1 Mtpa
CO(2)-e, with potential to further lower emissions with renewable power;

·      Advantaged transaction terms that reduce project cost and
schedule risk; and

·      Scalability for a second train in Phase 2, with economics that
benefit from common infrastructure installed during Phase 1.

 

Returns

 

Phase 1 is expected to exceed Woodside's capital allocation target of a 10%
internal rate of return (IRR) for new energy projects, including acquisition
and construction costs. It is also expected to achieve payback in less than 10
years. Phase 2 is expected to achieve improved returns leveraging common
infrastructure.

 

The Project returns benefit from:

 

·      Lower cost - the Project was an early mover and secured
attractive feedstock supply and CCS services;

·      High-confidence project cost - advantaged transaction terms
reduce the project cost and schedule risk;

·      Property tax abatements - the Project has secured local tax
abatement agreements;

·      Regulatory incentives - the Project is positioned to deliver to
markets in Europe and Asia which are incentivised to source lower carbon
ammonia; and

·      Scalability - a future Phase 2 development that benefits from
common infrastructure installed in Phase 1.

 

Forecast IRR and payback period are a look forward from July 2024 and assume
Woodside equity of 100% and include the acquisition price. Lower carbon
ammonia price assumes an uplift to Woodside's internal unabated ammonia cost
assumption. In 2025 the uplift is $0/t increasing to ~$120/t in 2034 (real
terms 2024) aligned with the phase-in of the EU carbon border adjustment
mechanism (CBAM). Payback period is calculated from undiscounted cash flows
from ready for start up (RFSU).

 

Ammonia market

 

Lower carbon ammonia demand is forecast to grow through the energy transition.
The current ammonia market is nearly 200 Mtpa, of which approximately 80% is
used for fertiliser applications with the remainder used for various
industrial applications. Lower carbon ammonia demand will be driven by the
decarbonisation of traditional end-use sectors and emerging applications in
marine fuels, power generation and as a hydrogen carrier. 7 

 

Europe and Asia are forecast to be the largest demand centres for lower carbon
hydrogen and ammonia driven by supportive policies. The EU CBAM imposes a levy
on imports of carbon intensive goods based on carbon intensity. This results
in a carbon tax saving for lower carbon ammonia relative to unabated ammonia.
In Japan and South Korea, demand is expected to be driven by supportive
'contract for difference' subsidy schemes, which aim to cover the difference
between the prices of lower carbon fuels and conventional fossil fuels. The
Project's designed carbon intensity is expected to qualify for these schemes.

 

Transaction details

 

Under the transaction, Woodside will acquire 100% of the equity of OCI Clean
Ammonia Holding B.V., which indirectly wholly owns the Project, from OCI N.V.
(together with its affiliates: "OCI").

 

The Project is subject to cost, schedule and performance guarantees from OCI.
This means that OCI will manage the construction of the Project through
provisional acceptance, will fund Project costs through Project completion and
has agreed to liquidated damages for certain delays, reducing cost and
schedule risk.

The transaction includes the transfer of experienced personnel with start-up,
operational, maintenance and technical capabilities for the operation of the
asset.

 

The transaction is targeted to complete in the second half of the 2024 and is
subject to OCI N.V.'s shareholder vote and satisfaction of customary
conditions precedent.

 

About Woodside

 

Woodside is a global energy company, providing reliable and affordable energy
to help people lead better lives. Woodside led the development of the LNG
industry in Australia. With a focused portfolio, Woodside is recognised for
its world-class capabilities as an integrated upstream supplier of energy.
Woodside's proven track record and distinctive capabilities are underpinned by
70 years of experience.

 

 

About OCI N.V.

 

OCI N.V. operates as a producer and distributor of natural gas-based
fertilisers and industrial chemicals. OCI N.V. produces nitrogen fertilisers,
methanol, and other natural gas based chemical products, serving agricultural
and industrial clients globally.

 

Teleconference

 

A conference call providing an overview of the transaction with a question and
answer session will be hosted by Woodside CEO and Managing Director Meg
O'Neill on Monday, 5 August 2024 at

17:30 AEST/15:30 AWST/02:30 CDT.

 

We recommend participants pre-register five to 10 minutes prior to the event
with one of the following links:

·      https://webcast.openbriefing.com/wds-ic-2024/
(https://webcast.openbriefing.com/wds-ic-2024/) to listen to a live stream of
the question and answer session

·      https://s1.c-conf.com/diamondpass/10041112-hfg789.html
(https://s1.c-conf.com/diamondpass/10041112-hfg789.html) to participate in the
question and answer session. Following pre-registration, participants will
receive the teleconference details and a unique access passcode.

 

An investor presentation follows this announcement and will be referred to
during the conference call. It will also be made available on the Woodside
website (www.woodside.com (http://www.woodside.com) ) and has today been
submitted to the FCA National Storage Mechanism and will shortly be available
for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://aus01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fdata.fca.org.uk%2F%23%2Fnsm%2Fnationalstoragemechanism&data=05%7C02%7Clucy.bowman%40woodside.com%7C03e6340eeff546bff71608dca583e2d1%7Ca3299bbaade64965b011bada8d1d9558%7C0%7C0%7C638567233541541946%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=3G%2BZ7ofQVPEz3BsNzMvBInTqdRvBtNEH6Z58JMtXiLY%3D&reserved=0)
.

A copy of the transcript of the conference call will also be submitted to the
National Storage Mechanism and will be available for inspection at the web
address set out above following the conclusion of the conference call.

 Contacts:

 INVESTORS                                                 MEDIA

 Marcela Louzada                                           Christine Forster (Australia)

 M: +61 456 994 243                                        M: +61 484 112 469

 E: investor@woodside.com (mailto:investor@woodside.com)   E: christine.forster@woodside.com (mailto:Christine.forster@woodside.com)

                                                           Rob Young (United States)

                                                           M: +1 281 790 2805

                                                           E: robert.young@woodside.com (mailto:robert.young@woodside.com)

 

This announcement was approved and authorised for release by Woodside's
Disclosure Committee.

 

Definitions

Woodside uses "lower carbon" to describe the characteristic of having lower
levels of associated potential greenhouse gas (GHG) emissions when compared to
historical and/or current conventions or analogues, for example relating to an
otherwise similar resource, process, production facility, product or service,
or activity.

Announcement contains inside information

This announcement contains inside information. Marcela Louzada, Vice President
Investor Relations, is responsible for release of this announcement.

 

No offer or solicitation

 

This announcement is not intended to and does not constitute, form part of, or
contain an offer or invitation to sell to Woodside shareholders (or any other
person), or a solicitation of an offer from Woodside shareholders (or any
other person), or a solicitation of any vote or approval from Woodside
shareholders (or any other person) in any jurisdiction.

Forward-looking statements

 

This announcement contains forward-looking statements with respect to
Woodside's business and operations, market conditions, results of operations
and financial condition, including, for example, but not limited to,
statements regarding Woodside's proposed acquisition of OCI Clean Ammonia
Holding B.V., the development, completion and execution of Woodside's
projects, expectations regarding future capital expenditures, future results
of projects, operating activities, new energy products, expectations and plans
for renewables production capacity and investments in, and development of,
renewables projects, expectations and guidance with respect to production,
investment expenditure, and expectations regarding the achievement of
Woodside's net equity Scope 1 and 2 greenhouse gas emissions targets and Scope
3 investment and abatement targets. All statements, other than statements of
historical or present facts, are forward-looking statements and generally may
be identified by the use of forward-looking words such as 'pathway',
'guidance', 'foresee', 'likely', 'potential', 'anticipate', 'believe', 'aim',
'estimate', 'expect', 'intend', 'may', 'target', 'plan', 'strategy',
'forecast', 'outlook', 'project', 'schedule', 'will', 'should', 'seek' and
other similar words or expressions. Similarly, statements that describe the
objectives, plans, goals or expectations of Woodside are forward-looking
statements.

Forward-looking statements in this announcement are not guidance, forecasts,
guarantees or predictions of future events or performance, but are in the
nature of future expectations that are based on management's current
expectations and assumptions. Those statements and any assumptions on which
they are based are subject to change without notice and are subject to
inherent known and unknown risks, uncertainties, assumptions and other
factors, many of which are beyond the control of Woodside, its related bodies
corporate and their respective beneficiaries. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, the occurrence, or failure or
certain events to occur, the potential that the expected benefits and
opportunities of the acquisition, if completed, may not be realised or may
take longer to realise than expected; challenges inherent in the development
of ammonia facilities, fluctuations in commodity prices, actual demand for
Woodside products, currency fluctuations, geotechnical factors, drilling and
production results, gas commercialisation, development progress, operating
results, engineering estimates, reserve and resource estimates, loss of
market, industry competition, environmental risks, climate related risks,
physical risks, legislative, fiscal and regulatory developments, changes in
accounting standards, economic and financial markets conditions in various
countries and regions, political risks, project delay or advancement,
regulatory approvals, the impact of armed conflict and political instability
(such as the ongoing conflicts in Ukraine or the Middle East) on economic
activity and ammonia, hydrogen and oil and gas supply and demand, cost
estimates, and the effect of future regulatory or legislative actions on
Woodside or the industries in which it operates, including potential changes
to tax laws, and the impact of general economic conditions, inflationary
conditions, prevailing exchange rates and interest rates and conditions in
financial markets.

A more detailed summary of the key risks relating to Woodside and its business
can be found in the "Risk" section of Woodside's most recent Annual Report
released to the Australian Securities Exchange and the London Stock Exchange
and in Woodside's most recent Annual Report on Form 20-F filed with the United
States Securities and Exchange Commission (SEC) and available on the Woodside
website at https://www.woodside.com/investors/reports-investor-briefings
(https://www.woodside.com/investors/reports-investor-briefings) . You should
review and have regard to these risks when considering the information
contained in this announcement.

Investors are strongly cautioned not to place undue reliance on any
forward-looking statements. Actual results or performance may vary materially
from those expressed in, or implied by, any forward-looking statements. Except
as required by law, Woodside expressly disclaims any intention or obligation
to revise or update any forward-looking statements whether as a result of new
information, future events or otherwise. Woodside has not and does not intend
to independently verify third-party data contained in this announcement or
used in the estimates and assumptions necessary to the matters discussed in
this announcement.

 

 

Climate strategy and emissions data

All greenhouse gas emissions data in this announcement are estimates, due to
the inherent uncertainty and limitations in measuring or quantifying
greenhouse gas emissions, and our methodologies for measuring or quantifying
greenhouse gas emissions may evolve as best practices continue to develop and
data quality and quantity continue to improve.

Woodside "greenhouse gas" or "emissions" information reported are net equity
Scope 1 greenhouse gas emissions, Scope 2 greenhouse gas emissions, and/or
Scope 3 greenhouse gas emissions, unless otherwise stated.

For more information on Woodside's climate strategy and performance, including
further details regarding Woodside's targets, aspirations and goals and the
underlying methodology, judgements, assumptions and contingencies, refer to
Woodside's Climate Transition Action Plan 2023 and Progress Report (CTAP)
available on the Woodside website at
https://www.woodside.com/sustainability/climate-change
(https://www.woodside.com/sustainability/climate-change) .

The glossary and footnotes in the presentation titled "Woodside to acquire
OCI's Clean Ammonia Project" provide clarification regarding the use of terms
such as "lower carbon" and "lower carbon ammonia" in this announcement. A full
glossary of terms used in connection with Woodside's climate strategy is
contained in the CTAP.

Additionally, the developments of environmental and climate change-related
issues in this announcement are based on various frameworks and the interests
of various stakeholders that are subject to evolve independently of our will.
Moreover, our disclosures on such issues, including climate-related
disclosures, may include information that is not necessarily "material" under
US securities laws for SEC reporting purposes or under applicable securities
law.

Woodside's Scope 3 investment target is to invest $5 billion in new energy
products and lower carbon services by 2030. It includes pre-RFSU spend on new
energy products and lower carbon services that can help our customers
decarbonise by using these products and services. It is not used to fund
reductions of Woodside's net equity Scope 1 and 2 emissions which are managed
separately through asset decarbonisation plans.

Woodside's Scope 3 emissions abatement target is to take FID on new energy
products and lower carbon services by 2030, with total abatement capacity of 5
Mtpa CO(2)-e. It includes binding and non-binding opportunities in the
portfolio, subject to commercial arrangements, commercial feasibility,
regulatory and joint venture approvals, and third party activities (which may
or may not proceed). Individual investment decisions are subject to Woodside's
investment targets. Not guidance.

Scope 3 targets are subject to commercial arrangements, commercial
feasibility, regulatory and joint venture approvals, and third party
activities (which may or may not proceed). Individual investment decisions are
subject to Woodside's investment targets. Not guidance. It potentially
includes both organic and inorganic investment. For further information on
Woodside's Scope 3 targets refer to pages 7 and 34 of the CTAP.

 1  See disclaimer for information on "lower carbon ammonia".

 2  Refer to "Returns" section for assumptions.

 3  Phase 1 emissions abatement capacity of 1.6 Mtpa CO(2)-e conditional on
supply of carbon abated hydrogen and ExxonMobil's CCS facility becoming
operational. Woodside will market ammonia volumes into the global ammonia
market, which in 2023 represented ~200 Mtpa. Phase 2 subject to FID. Woodside
has made the assumption to estimate avoided emissions through displacement of
conventional marine fuel. Actual displaced emissions may differ based on
actual use case.

(#_ftnref4)

(#_ftnref5) 4 Source: Wood Mackenzie Global Ammonia Strategic Planning Outlook
2024, published 31 May 2024.

 5  The supply of carbon abated hydrogen is dependent on ExxonMobil's CCS
facility becoming operational.

 6  EU proposed standards calculation method for carbon intensity.

 7  Source: Wood Mackenzie Global Ammonia Strategic Planning Outlook 2024,
published 31 May 2024.

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