Woodside, BHP Confirm Talks

Australia could soon be home to two independent LNG-engaged heavyweights as Woodside confirmed talks with BHP to acquire its entire gas and oil portfolio. Oil Search backed a takeover bid by Santos earlier this month. Woodside would strengthen its position among the 20 largest gas and oil companies both in terms of production and market capitalization and bolster its LNG profile with larger stakes in its North West Shelf and the Scarborough-to-Pluto Train 2 projects (see table below). Australian mining and petroleum conglomerate BHP has interests in those two Woodside-operated LNG projects, North West Shelf (16.67%), and Scarborough (26.5%). Woodside said that a deal would be financed through the distribution of Woodside shares to BHP shareholders. More details about the potential transaction are expected to be shared by BHP and Woodside during earnings calls this week. Boost Woodside will more than double its oil and gas production if it acquires BHP’s entire oil and gas portfolio. BHP produced 129 million barrels of oil equivalent between June 2020 and June 2021 while Woodside produced 122 million boe over the same period. The BHP portfolio includes stakes in deepwater oil fields in the US Gulf of Mexico, Australia’s Bass Straits joint venture, and a project in Trinidad and Tobago. BHP petroleum assets are estimated to be worth US$11 billion-$17 billion, depending on analyst assumptions. Woodside would be larger in value than Santos which is expected to have a market capitalization of A$21 billion (US$15 billion) after the possible takeover of Oil Search (LNGI Aug.2'21). “A merger would create a new international ‘super independent’ built for scale and resilience, with a long-term focus on LNG, but exposure in the medium term to high-margin, deepwater oil,” said Wood Mackenzie Research Director Andrew Harwood. Energy Transition It will be interesting to see how Woodside shareholders react to the talks with BHP as some 19% of them supported a resolution in April asking the Australian independent to make plans to wind up its gas and oil operations over “a time frame consistent with the Paris goals” (LNGI Apr.15'21). Woodside is already one of Australia’s 10 largest CO2 emitters. The company’s operational emissions reached 9.2 million tons CO2e in 2020. BHP’s assets would add 770,000 tons of carbon dioxide equivalent per year to Woodside’s operational greenhouse gas emissions profile. “There’s no doubt that they would now need to consider how they manage GHG emissions from an expanded LNG portfolio, the addition of significant Gulf of Mexico oil assets, and inheriting the decommissioning obligation from the Bass Strait JV share that BHP owns,” says Rystad Energy analyst Jimmy Zeng. Succession Confirmation of talks with BHP is also raising questions on who will succeed Woodside's former CEO Peter Coleman, who retired earlier this year (LNGI Apr.22'21). BHP’s Head of Petroleum Geraldine Slattery has been seen as a contender for the top job, according to reports. However, many observers have been thinking that time was playing in favor of Woodside acting CEO Meg O'Neill. About-face A deal with Woodside would be an about-face for BHP, which repeatedly said over the recent months that it had no intention to exit the oil and gas industry. “We see the industry as being attractive for at least a decade and likely beyond,” BHP CEO Mike Henry said in February. It would also go against a resolution recently submitted by activist group Market Forces urging BHP to retain its coal mining and petroleum operations and to close them down over time (LNGI Aug.13'21). Marc Roussot, Singapore BHP Main Assets Name Location Stake Shenzi (operator) US Gulf of Mexico 44.00% Neptune (operator) US Gulf of Mexico 35.00 Atlantis US Gulf of Mexico 44.00 Mad Dog US Gulf of Mexico 23.90 Gippsland Basin joint venture Australia 50.00 North West Shelf Australia 16.67 Scarborough Australia 26.50 Ruby (operator) Trinidad and Tobago 68.46% Source: BHP, Woodside