Woodside Energy Group Ltd (ASX: WDS) shares have gone backwards since the company announced a new US$900 million (approximately AU$1.4 billion) acquisition agreement on Monday.
Shares in the S&P/ASX 200 Index (ASX: XJO) oil and gas stock closed down 2.1% on Monday and dropped another 3.74% yesterday to end the day trading for $27.53 a share.
Yesterday's fall came despite Woodside reporting a 2% quarter on quarter increase in revenue, which came out to $3.03 billion for the three months ending 30 June.
So it appears Woodside shares are catching some headwinds as investors weigh the costs and benefits of its agreement to acquire Tellurian Inc. (NYSE: TELL), a United States-based company, including Tellurian's US Gulf Coast Driftwood LNG development opportunity.
Woodside CEO Meg O'Neill clearly believes the acquisition will benefit shareholders. At least over the longer-term.
"The acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to be a global LNG powerhouse," she said.
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Elevated execution risks could drag on Woodside shares
Woodside shares may be selling down this week as investors eye the range of multi-billion-dollar projects in the company's medium-term pipeline, including Scarborough in Australia and Trion in the Gulf of Mexico.
Commenting on Woodside's credit profile following the company's latest acquisition announcement, Saranga Ranasinghe, vice president of Moody's Ratings said, "Woodside's capital spending and execution risk remain elevated."
Ranasinghe continued:
The company is developing multiple projects, with guidance for investment expenditure of around US$5.0 billion to US$5.5 billion in 2024, with expectations for investment spend to remain elevated for the next several years given the company's large pipeline of potential growth projects. The development of Driftwood LNG will add to investment expenditure and further increase execution risk.
However, given the strength of Woodside's credit metrics and balance sheet, we do not expect elevated capital requirements to materially weaken the company's credit profile.
Citi analyst James Byrne, however, believes investors could pressure Woodside shares amid the Tellurian acquisition. Bryne retained his neutral rating and $28.00 price target for the ASX 200 energy share but started a "short-term negative trading view".
According to Byrne (quoted by The Australian):
This is because we don't think the market will give Woodside the benefit of the doubt in their trading capabilities earning an acceptably high return on the capital outlay for Driftwood versus the alternative uses of capital, particularly shareholder returns.
Over the short term, Byrne also notes that LNG contract prices have been coming down, and Woodside won't be able to sell down Driftwood until after the Tellurian acquisition is complete.
"If this persists over the timeframe to complete the Tellurian acquisition then it may be harder to sell down from 100% working interest, leaving Woodside with more equity than they might like," he said.
