Australian Woodside takes over BHP’s oil and gas business in $ 28 billion merger

  • Double outlet woodside
  • Woodside secures growth prospects and better oil-gas allocation
  • Woodside inherits billions of dismantling liabilities
  • Shareholders worried about excess inventory

MELBOURNE, Aug. 17 (Reuters) – BHP Group (BHP.AX) has agreed to sell its oil business to Woodside Petroleum in a merger to create one of the 10 largest independent oil and gas producers in worth 38.5 billion Australian dollars ($ 28 billion) with growth assets in Australia and the Americas.

BHP’s exit from oil, which represented only 5% of its annual revenue, is accelerating its exit from fossil fuels under pressure from environmentally conscious investors. BHP CEO Mike Henry, however, said the company remains committed to metallurgical coal used in steelmaking.

BHP shareholders will be paid in Woodside shares, giving BHP investors a 48% stake in the merged group.

This effectively values ​​BHP’s oil arm at around A $ 18.5 billion ($ 13 billion) as of Tuesday’s close, roughly in the middle of analysts’ valuations of between $ 10 billion and $ 17 billion.

For Woodside, the deal is transformational, doubling its production, expanding its footprint in liquefied natural gas, removing the main obstacle to its $ 12 billion Scarborough gas project and providing it with short-term growth options in the Gulf of Mexico.

BHP’s assets, including its aging assets in Australia’s Bass Strait, where its oil business originated, generate cash that will help Woodside fund the Scarborough project as well as developments in the Gulf of Mexico.

“Woodside’s merger with BHP’s oil and gas business provides a stronger balance sheet, increased cash flow and sustainable financial strength to fund planned near-term developments and new sources of energy in the future,” Woodside CEO Meg O’Neill said in a statement. .

“We will have more options in where we invest and can prioritize the highest return opportunities,” she told analysts.

The merger ratio involved no premium for BHP’s assets, she said.

The deal was announced at the same time Woodside was appointing O’Neill as chief executive, after a stint as interim CEO. Some analysts had speculated that Geraldine Slattery, head of oil at BHP, would get the job.

“The proposed transaction reduces risk and supports Scarborough FID (final investment decision) later this year and allows for more flexible capital allocation,” said O’Neill.

The companies said the merger would generate annual savings of more than $ 400 million starting in 2023, the year after the deal is expected to close.

Woodside plans to put the issue of shares to a vote in the second quarter of 2022.

A large Woodside investor, Allan Gray Australia, has raised concerns about a deal, especially if it involved a massive share issue.

“Shareholders are very unlikely to jump at this idea. We certainly wouldn’t,” Simon Mawhinney, Australian investment director Allan Gray, told Reuters last week.

O’Neill downplayed concerns that many BHP investors who don’t want fossil fuels or Australian stocks might get rid of Woodside shares, saying there is already an overlap between the company’s investors and that he would consider secondary listings in London and New York to help keep “high value” investors on board. Analysts have expressed concern about the short-term decommissioning obligations that Woodside will inherit with BHP’s stake in the Bass Strait oil and gas fields. Analysts put the costs at at least $ 2 billion, but O’Neill was unwilling to put a figure on it.

“We are satisfied with the way we have assessed the rollback requirement in establishing the merger ratio,” she said.

($ 1 = AU $ 1.3732)

Reporting by Sonali Paul; edited by David Evans

Our Standards: Thomson Reuters Trust Principles.

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