Shares of the ASX-listed Woodside Energy Group (AU:WDS) fell 5.14% today after the company announced an agreement to acquire a clean ammonia project from OCI Global. The acquisition includes OCI Clean Ammonia Holding B.V. and its lower carbon ammonia project in Beaumont, Texas, for $2.35 billion in cash. This acquisition will enhance the company’s green energy portfolio as part of its ongoing energy transition journey.
Woodside Energy is an oil and gas exploration company, with a diversified portfolio of quality assets in Australia, Mexico, Trinidad, and Tobago.
More on Woodside-OCI Acquisition
The clean ammonia project is currently under construction and aims to start its production in 2025. It will produce lower-carbon ammonia from 2026. Additionally, the project is expected to be free cash flow accretive from 2026 and earnings per share accretive from 2027.
The $2.35 billion consideration includes capital expenditures required to complete the first phase. Woodside also stated that both phases of the project are expected to deliver an internal rate of return above 10% and a payback period of under 10 years.
Expanding Global Ammonia Market
Woodside Energy CEO Meg O’Neill highlighted that global ammonia demand is expected to double by 2050, with lower-carbon ammonia comprising almost two-thirds of the overall demand. Further, demand is expected to rise as more companies move to cleaner energy sources to respond to climate change.
The acquisition is expected to establish Woodside’s position in this growing market and provide it with an early-mover advantage.
Goldman Sachs’ Response to the Deal
Analysts at Goldman Sachs (GS) remain cautiously optimistic about the deal. Although Goldman praised the company’s efforts to invest in new energy projects, it highlighted the growing capital expenditure and its impacts on the returns.
The investment bank added that the deal is poorly timed in the current cycle and that the company could have waited for another good asset.
What Is the Target Price for WDS?
WDS stock received a Moderate Buy rating on TipRanks, backed by six Buys, five Holds, and one Sell recommendation. The Woodside share target price is AU$32.34, implying a change of 28.6% from the current price level.
Year-to-date, WDS stock has lost 20.13% in trading.
