Woodside Petroleum Ltd|  Operating and Financial Review 23
+Our investment criteria target investment decisions which
deliver returns on capital exceeding our cost of capital.
+The economic criteria we use are set independently
of project decisions.
+We apply a suite of target metrics that are aimed
at delivering superior shareholder returns from our
investment decisions.
+We test the robustness of our investments against a range
of low-outcome and low-carbon scenarios.
+We set higher target metrics for investments with
increased complexity and risk, and seek to preserve any
upside potential.
+A typical metric required for investment is a target
ungeared internal rate of return between 12% and 15%.
Capital allocation
Woodside’s capital allocation framework provides flexibility to
optimise returns and risk in a range of macroeconomic scenarios.
Our priorities are:
+Debt service, to ensure that we continue to have access to
premium debt markets at a competitive cost to support our
growth activities. We seek to manage average debt maturity
on our debt portfolio. Our gearing target is between 15% and
35%, which has been revised from between 10% and 30% to
reflect the impact of the leasing accounting standard AASB 16.
We continue to target maintaining an investment-grade
credit rating.
+Investment expenditure, to sustain and grow our business.
Woodside seeks to build its portfolio through the
disciplined allocation of capital to exploration, acquisition
and development opportunities that complement existing
positions and capabilities. Our developments will seek to
prioritise lower capital intensity, faster to market, capital-
ecient opportunities that utilise existing infrastructure
where possible. Through Horizon I, we are investing in LNG
projects that will be required to meet a projected LNG supply
shortfall in Horizon II.
+Shareholder distributions, in accordance with our Dividend
Policy which specifies that we will pay a minimum of
50% of underlying net profit after tax in dividends. We target
an 80% dividend payout ratio subject to market conditions
and investment requirements. Our strong shareholder
distributions will be funded from our high margin base
business and committed growth.
+Returning surplus cash to shareholders by increasing the
dividend payout ratio, special dividends or stock buy-backs
is an option retained and considered by Woodside.
Outstanding base business
Our outstanding base business is underpinned by world-
class LNG and FPSO reliability, cost discipline and strong
safety and environmental performance. We will continue to
maximise value by developing and deploying industry-leading
technology across our portfolio of assets.
Sustainable energy
Woodside is focused on providing sustainable energy
solutions that deliver enduring value to shareholders, partners,
communities and governments. We continue to promote LNG
as a lower-emissions fuel and have committed to developing
LNG as a transport fuel. As global energy demand grows we
will be ready to meet it, building our growth across the next
decade and beyond.