Woodside Petroleum to merge with BHP’s oil and gas business

Australia-based Woodside Petroleum and BHP Group have agreed to merge their respective oil and gas operations by an all-stock merger with an aim to establish a global top 10 energy company in terms of production.

The parties have signed a merger commitment deed in this regard and are expected to sign a sales and purchase agreement (SPA) in October 2021.

The combined oil and gas company, which will operate as Woodside Petroleum, will have a market capitalisation of around AUD 41 billion ($29.81 billion).

Woodside Petroleum will issue new shares to BHP shareholders in a ratio that will result in the former’s shareholders owning 52% in the enlarged firm, while the remaining 48% will be held by existing BHP shareholders.

Mike Henry — BHP CEO said: “The merger of our petroleum assets with Woodside will create an organisation with the scale, capability and expertise to meet global demand for key oil and gas resources the world will need over the energy transition.

“Bringing the BHP and Woodside assets together will provide choice for BHP shareholders, unlock synergies in how these assets are managed and allow capital to be deployed to the highest quality opportunities.

“The merger will also enable the skills, talent and technology of both organisations to build a resilient future as the world’s needs evolve.”

Woodside Petroleum to merge with BHP’s oil and gas business. Photo courtesy of BHP.

The deal is subject to confirmatory due diligence, negotiation and signing of full form transaction documents, and meeting of preceding conditions such as shareholder, regulatory, and other relevant approvals. It is expected to close in Q2 2022.

The enlarged Australian oil and gas company will have a conventional asset base producing nearly 200 MMboe in FY21. The production will be diversified, comprising 46% of LNG, 29% of oil and condensate, and the remaining 25% being domestic gas and liquids.

Post-merger, the enlarged Woodside Petroleum will have a broad geographic footprint with production from Western Australia, Australian east coast, US Gulf of Mexico, and Trinidad and Tobago with nearly 94% of production in FY21 to come from Organisation for Economic Co-operation and Development (OECD) nations.

Its 2P reserves will be more than two billion boe, of which 59% will be gas, and 41% will be liquids.

BHP and Woodside Petroleum have also developed a plan to target final investment decision (FID) for the Scarborough gas project in Australia by the end of this year, prior to the expected completion date for the merger.

Under the plan, BHP has agreed to divest its 26.5% stake in the Scarborough joint venture to Woodside Petroleum. It has also agreed to sell its 50% stake in the Thebe and Jupiter joint ventures to the latter if the Scarborough joint venture takes an FID by 15 December 2021.

The option can be exercised by BHP in the second half of 2022 and if exercised, the company has to be paid $1 billion by Woodside Petroleum. An additional amount of $100 million is payable based on a future FID for a Thebe development.

Meg O’Neill — Woodside Petroleum CEO and Managing Director said: “Merging Woodside with BHP’s oil and gas business delivers a stronger balance sheet, increased cash flow and enduring financial strength to fund planned developments in the near term and new energy sources into the future.

“The proven capabilities of both Woodside and BHP will deliver long-term value for shareholders through our geographically diverse and balanced portfolio of tier 1 operating assets and low-cost and low-carbon growth opportunities.

“The proposed transaction de-risks and supports Scarborough FID later this year and enables more flexible capital allocation. We will continue reducing carbon emissions from the combined portfolio towards Woodside’s ambition to be net zero by 2050.”

In another development, BHP has approved the stage 1 of the Jansen potash project in Canada with an investment of $5.7 billion.