BHP edges towards oil and gas exit with Woodside merger talks


BHP Group PLC updates

BHP has begun talks over a potential merger of its petroleum division with Australia’s Woodside in a move that would mark the world’s biggest mining group’s exit from the oil and gas industry.

London- and Sydney-listed BHP said on Monday that a merger with Woodside was one of a number of options being considered as part of a strategic review of its petroleum business. It added that any agreement to combine its oil and gas assets in Australia, North America and Africa with Woodside could result in a distribution of the Perth-based energy group’s shares to BHP shareholders.

“While discussions between the parties are currently progressing, no agreement has been reached on any such transaction,” said BHP. “A further announcement will be made as and when appropriate.”

Analysts at Bernstein have estimated that BHP’s oil and gas unit could be worth $13bn. Woodside has a market value of $15bn.

BHP’s decision to review its petroleum business comes as big mining companies face pressure to reduce their exposure to fossil fuels and align with the goals of the Paris climate agreement.

A divestment of the oil business would be the most significant corporate change at BHP since 2014 when it demerged a group of unwanted assets to form a new company called South32.

Ageing fields and the sale of BHP’s lossmaking US shale business in 2018 have caused petroleum production to fall from 235m barrels in 2013 to about 103m in the 12 months to June, or 280,000 barrels a day.

BHP has also put its last remaining thermal coal mine up for sale as it looks to focus on greener commodities under chief executive Mike Henry. About 12 per cent of the company’s revenues are generated by fossil fuels.

Credit Suisse projected that BHP would opt to sell its entire fossil fuel business, including its petroleum division, following its strategic review.

“Petroleum no longer fits within BHP’s portfolio or future-facing strategy. After waiting too long to divest thermal coal, and now having to resort to selling for cents on the dollar, BHP should know it’s better to exit petroleum sooner rather than later,” said Saul Kavonic, an analyst at the Swiss bank.

If Woodside merged with BHP’s petroleum business, it would be a significant global player in liquefied natural gas, said Kavonic.

Jefferies said BHP’s disposal of its petroleum business would be positive from an environmental, social and governance perspective and accelerate its shift towards commodities such as copper, nickel and potash.

“We would expect the company to shift to an M&A strategy to increase its exposure to battery materials, especially nickel, and other commodities that have structural demand growth, especially copper,” the investment bank said in a note.

BHP, which is due to announce annual results on Tuesday, is also set to approve spending of between $5.3bn and $5.7bn to bring a giant Canadian potash mine into production. Henry will present the results from London.

The Australian Financial Review, which first reported the merger talks, said Geraldine Slattery, BHP’s global head of petroleum, flew to Perth over the weekend for talks with Woodside’s acting chief executive Meg O’Neill.

For Woodside, which is listed in Sydney, a deal would deliver a portfolio of cash generating assets in Australia and the Gulf of Mexico. It could also help pave the way for approval of its $16bn Scarborough project, in which BHP owns a stake.

Shares in Woodside fell 4.4 per cent to a 10-month low following reports of the talks. Traders said there were concerns that holders of BHP’s London-listed shares would be forced to sell any Woodside stock they received in a merger because of their investment mandates. BHP’s Sydney-traded shares slipped 0.8 per cent.

“Woodside would be firmly in control of the Scarborough development but will continue to look for new partners to optimise future capital outlays,” Wood Mackenzie research director Andrew Harwood said. 

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