AsianOil: Woodside, BHP Petroleum announce merger

Australia’s largest independent Woodside Petroleum has announced its planned merger with BHP Petroleum, the upstream arm of leading Australian miner BHP.
Woodside said on August 17 that the two companies had entered into a merger commitment to combine their respective oil and gas portfolios via an all-scrip deal. Woodside noted the combined company would be one of the world’s 10 largest independent producers.
Woodside intends to issue new shares to BHP shareholders, with the developer’s existing shareholders set to hold 52% of the expanded company while existing BHP shareholders will hold the remainder.
The deal remains subject to due diligence, negotiation and execution of full form transaction documents as well as all shareholder and regulatory. The merger announcement came a day after BHP confirmed local reports that it was in talks with Woodside over a potential deal.
Woodside cited a number of factors as making the proposed merger attractive for both sides, including more than $400mn per year in estimated synergies on a pre-tax basis as well as greater financial resilience.
The company said: “With the combination of two high-quality asset portfolios, the proposed merger would create the largest energy company listed on the ASX, with a global top 10 position in the LNG industry by production.”
Woodside added that the merged unit would enjoy a strong growth profile with a plan to reach a final investment decision on the Scarborough liquefied natural gas (LNG) expansion project in 2021.
Woodside operates the Scarborough joint venture, which will supply gas from four fields holding an estimated 13 trillion cubic feet (368bn cubic metres) of 2C dry gas to an expanded Pluto LNG facility, in partnership with BHP Petroleum.
Woodside CEO and managing director Meg O’Neill said: “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.”
O’Neill, who had been serving as acting CEO since Peter Coleman retired in June, was appointed to permanently to the position on the day of the merger announcement.

Bigger equals better?
The combined business will boost around 200mn barrels of net oil and gas production in financial year 2020-2021, with 46% of that being LNG, 29% coming from oil and condensate and a further 25% coming from domestic gas and liquids. The unit will have more than 2bn boe in 2P reserves, with 59% of that figure being gas and 41% being liquids.
While no price has been fixed for the deal, local reports suggest the deal could be would in the region of AUD20bn ($14.59bn). While the two companies have been upbeat about the deal, not everybody has been impressed.
Allan Gray Australia, Woodside’s fourth-largest investor, told the Sydney Morning Herald (SMH) that the deal appeared to be a “bitter pill to swallow”.
Allan Gray chief investment officer Simon Mawhinney said: “There are a few issues, all of which culminate in our view that this is crazy from the perspective of Woodside shareholders. I shudder at the thought of what will come next.”
Credit Suisse oil and gas analyst Saul Kavonic told the SMH, meanwhile, that alongside the question of price the means through which Woodside funded the deal was also important.
“A cash deal could leave Woodside still dependent on sell-downs or an equity raise. A scrip deal would leave Woodside with a very strong balance sheet to fund growth without sell-downs, but could leave a stock overhang as some BHP investors may not have a long-term mandate to hold Woodside shares,” he said