BHP the biggest mining company in the world is currently undergoing a process to sell its oil business to Woodside Petroleum, in exchange for shares; companies confirmed this Monday.
Firstly, BHP has also started a strategic review of its oil and gas business, which includes assets in Australia, the Gulf of Mexico, Trinidad and Tobago; and Algeria. Analysts calculate the value I of the business at $10 or $15 billion.
Secondly, the news broke this Monday, after a number of media reports about a possible deal ahead of BHP’s annual results on Tuesday; and Woodside’s half-year results on Wednesday. However, BHP said in a statement. “While discussions between the parties are currently progressing, no agreement has been reached on any such transaction.”
On the other hand, Woodside said in a statement. “Woodside is engaged in discussions with BHP; regarding a potential merger involving BHP’s entire petroleum business through a distribution of Woodside shares to BHP shareholders.”
Thirdly, according to Reuters, the acquisition would double Woodside’s annual underlying earnings to around $8 billion. While for BHP, a petroleum exit would strip out just 5% of its underlying earnings.
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BHP – Woodside transaction has an ESG component that concerns investors
Moreover, BHP’s assets would double Woodside’s annual output to 200 million barrels of oil equivalent. Which would be nearly twice the combined volume produced by rivals Santos Ltd; and Oil Search Ltd, which are set to merge; according to Reuters.
In addition, Credit Suisse analyst Saul Kavonic said in a note. “A Think Big Woodside, merged with BHP Petroleum, would present a globally significant LNG weighted company; with a diversity of low-risk geographic exposure and growth options.”
Furthermore, the transaction would give Woodside a free path for its biggest growth project; the $12 billion Scarborough/Pluto Train 2 development; which BHP has stalled amid protracted talks over a gas processing fee.
However, not everyone agrees that the transaction is a good one; in fact, upon the news Woodside’s shares fell more than 4%, underperforming its closest rivals; while BHP’s shares slipped 0.2%. Analysts consider that BHP investors ending with Woodside’s shares will try to sell them; on concerns about holding a pure fossil fuel investment.
Finally, James Hood, an analyst at Regal Funds Management, said. “They’re not all going to dump the stock; but there’s certainly an ESG overlay on top of it. That’s probably why the stock Woodside is weak today.”
