Bigger profits risk bigger target: The Woodside share price conundrum

The Woodside Energy Group Ltd (ASX: WDS) share price has been an exceptional performer over the past 12 months.

Rebounding from COVID-19 — an existential threat to producers at the time — shares in the oil and gas giant have soared 46% compared to where they were a year ago, as shown below. A mixture of recovering demand and supply shortfall due to the Russia-Ukraine crisis breathed new life into energy prices.

Bolstered by the high prices, Woodside has relished in the chance to mint extraordinary profits. Specifically, the company bagged $3.31 billion in earnings in FY22 at an income margin of around 32%. In the lead-up to 2020, Woodside typically achieved profits in the ballpark of $1 billion.

The latest data shows Australia went toe-to-toe on LNG exports with the United States and Qatar in 2022. But could the success for Woodside be a double-edged sword?

LNG demand puts Australia centre stage

Australian LNG export estimates for last year show exactly why the Woodside share price was on fire in 2022. According to data from EnergyQuest, an Australian energy advisory firm, Aussie LNG exports increased 86% to a record 81.4 million tonnes.

The country’s total exports were estimated to be worth $92.8 billion, placing Australia near the United States and Qatar. Based on Woodside’s 2022 production guidance and last realised price, around $7.5 billion of that was possibly from Woodside alone.

For investors, the shifting away from Russian oil and gas has been a major windfall. However, the sky-high prices have also drawn the attention of government intervention.

Could the Woodside share price be at risk?

The Federal government passed legislation last month to introduce a cap on the price of gas sold in the domestic market. A temporary cap on wholesale gas is now in place at $12 per gigajoule in an attempt to quell household and manufacturing cost pressures.

Shareholders seemed to have shrugged off the price cap for now. However, the cries for a ‘windfall profits’ tax have already commenced.

This is the conundrum that the Woodside share price faces amid burgeoning profits. Already, the United Kingdom has instituted such a levy — taking a 35% slice of oil and gas profits, increasing from the previous 25%.

Though, the looming fear of potentially running into a gas shortfall as early as 2024 might keep the government at bay.

The post Bigger profits risk bigger target: The Woodside share price conundrum appeared first on The Motley Fool Australia.

(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}

setButtonColorDefaults(“#43B02A”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43B02A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

• The 3 best performing ASX 200 dividend shares of 2022
• Why Audio Pixels, Bowen Coking Coal, Pantoro, and Woodside shares are dropping
• What could gas caps mean for the Woodside share price?
• Why are ASX 200 energy shares falling today?
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://ift.tt/EoH7lrj