WPL@$30, page-4223

What I like about WPL as an owner, I dislike as a consumer and a member of my community.

Put simply:
-I suspect rising prices are coming for hydrocarbons
-Demand seems likely to remain uncomfortably high across the world (driving by developing markets)
-Supply has been limited (longer term this is beneficial for society as it will force changes in behaviour)

The key with these commodity businesses is:

1. Supply and Demand

2. Cost of Production

3. Duration of Production

4. Cost of Capital

5. Cost of Assets

Unfortunately as a consumer, all of these components are skewed in favour of existing commodity producers with long life assets.

The Supply side of the equation has been massively hindered since the USA went bezerk in their shale fields. They recklessly squandered capital, returns on capital were negative and the industry was effectively rendered un-fundable by capital markets. US Shale fields break-even is around the mid $60s mark. So unless the forward curve sits well above this, they can't access sufficient capital to replace depletion.
In addition, during the supposed good times for US shale, they plucked all the low-hanging fruit, at the same time as discouraging much new exploration work around the world. So US was the marginal contributor of additional supply that met additional demand coming online from developing economies.

The ESG movement has further exacerbated the supply side as effectively hydrocarbons have been rendered un-investable by many institutional stewards of capital.

Then along came COVID. And all of a sudden energy traded hands at the lowest inflation adjusted prices ever in the history of mankind.
So just when funding for new supply was drying up, it met with artificially low demand, resulting in massively depressed prices, further eliminating the prospects of any substantial new supply being sought.

Now let's look at demand.

Whilst i'd be only too happy with a world that could de-carbon itself, right now it's just not possible given robust demand for energy, and the existing options for generating and distributing such energy.

Demand might still be somewhat muted, but near-term the fundamental drivers of demand are robust. And they come from developed world consumption habits and lifestyles, combined with the increasing energy intensiveness that accompanies economic development in the developing world.

Even the renewable options we have are not carbon free. Rather, much of their carbon usage is merely front-loaded. And their energy outputs are muted, in terms of energy in (lifecycle of fabrication) vs energy out (lifecycle of wind/solar etc)
For the mining of lithium for batteries, cobalt and tellerium are extremely energy intensive, not to mention the fabrication of the end assets that are the energy generators (solar panels, wind etc).

With respect to Cost of Production

I content that much of the low hanging and cheap to extract hydrocarbons have been zapped.
Much like the world's water resources.
The last two hundred years of progress in quality of life for much of mankind has largely been a story of access to abundant and low-cost energy. That's how you get the flywheel of any economy going.

So extraction of hydrocarbons is now dearer and more difficult.

This then ties in with the Cost of Capital. Which has only risen, as this is intrinsically linked to ability to find new sources of energy and fund its production.

It's important to note that Cost of Production and Cost of Capital for hydrocarbons wouldn't matter so much if it were going to be simple to transition from hydrocarbons to renewables in a manner that satisfied societies enduring demand for abundant energy.
I just don't see it happening easily. But I'd actually be thrilled to see this turn out to be incorrect (and my investment in WPL be a poor one).

Then in the context of a business such as Woodside, if one thinks that hydrocarbons will prove enduring in terms of serving a societal need, then you want to evaluate:

Duration of Production (which is decent for WPL having good long-life assets that will provide decent operating leverage should prices remain elevated and continue to rise, as I suspect they may)

and Cost of Assets (largely paid for with funds retained or raise well above today's price)

In summary, I think WPL is pretty well placed for what I suspect is coming over the next decade. It's especially compelling at these current valuations in my mind.