The Woodside Energy Group Ltd (ASX: WDS) share price is down 4% after announcing a major ammonia acquisition.
Woodside is best known for being an oil and gas resource business.
US$2.35 billion ammonia acquisition
Woodside is buying 100% of OCI Clean Ammonia Holding and its lower carbon ammonia project in Beaumont, Texas for US$2.35 billion.
This project is under construction and is targeting production of the first ammonia from 2025 and lower carbon ammonia from 2026. The consideration is inclusive of capital expenditure through to completion of the first phase of the project.
Woodside said it’s the world’s first ammonia plant paired with auto thermal refinding with “95%+ CO2 capture”. The company said this deal provides early-mover advantage in the growing lower carbon ammonia market.
The ASX energy share believes the investment will exceed its capital allocation target of a 10% internal rate of return (IRR).
Woodside believes this acquisition will add to free cash flow from 2026 and profit/earnings per share (EPS) from 2027.
The company said this project has the “capacity to abate 3.2mtpa CO2-e at full development; over 60% of Woodside’s scope 3 abatement target.”
Management commentary
The Woodside CEO Meg O’Neil said the acquisitions supports Woodside’s goal of thriving 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.
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.
Final thoughts on the Woodside share price
The Woodside share price is down another 4% today, and it’s down 9% since Thursday.
Environmental concerns aside, I think this much-lower Woodside share price (down 34% in a year) could be appealing, particularly if it’s expanding further into lower carbon energy. The large dividend yield is an appealing bonus.
However, it’s not one of main ASX dividend shares I’d buy for my portfolio first during this market sell-off.
