Woodside, BHP enter deal to combine oil and gas portfolios

Aug. 23, 2021

Woodside Petroleum Ltd. and BHP Group have entered a merger commitment deed to combine their respective oil and gas portfolios by an all-stock merger to create the largest energy company listed on the ASX, with a global top 10 position in the LNG industry by production, the companies said in a joint statement Aug. 17.

On completion, BHP’s oil and gas business would merge with Woodside, and Woodside would issue new shares to be distributed to BHP shareholders. The expanded Woodside would be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders. Woodside will remain listed on the ASX with listings on additional exchanges being considered.

On a proforma basis, the combined business will consist of conventional asset base producing around 200 MMboe (FY21 net production); a production mix of 46% LNG, 29% oil and condensate, and 25% domestic gas and liquids (FY21 net production); production from Western Australia, east coast Australia, US Gulf of Mexico, and Trinidad and Tobago, with about 94% of production (FY21 net production) from OECD nations; 2P reserves of over 2 billion boe comprising 59% gas and 41% liquids.

The companies have developed a plan to targeted final investment decision (FID) for Scarborough (Australia) by end 2021, prior to the proposed merger completion date. As part of this plan, Woodside and BHP have agreed an option for BHP to sell its 26.5% interest in the Scarborough JV to Woodside and its 50% interest in the Thebe and Jupiter JVs to Woodside if the Scarborough JV takes FID by Dec. 15, 2021. The option is exercisable by BHP in second-half 2022 and if exercised, consideration of $1 billion is payable to BHP with adjustment from an effective date of July 1, 2021. An additional $100 million is payable contingent upon a future FID for a Thebe development.

Atlantis Phase 3 (US), Mad Dog Phase 2 (US), Shenzi North (US), and Sangomar field development Phase 1 (Senegal) projects remain on budget and on track.

Longer term embedded options include the Wildling (US), Trion (Mexico), Calypso (Trinidad and Tobago), and Browse (Australia) projects.

Meg O’Neill, who had been serving as Woodside acting chief executive officer, has been appointed chief executive officer and managing director, effective immediately. It is expected that the Woodside board will appoint a current BHP director as a Woodside director on deal completion.

The merger would build on Woodside’s existing targets to reduce net emissions by 15% and 30% by 2025 and 2030 respectively, on the pathway to its ambition of net zero by 2050, applying these to the combined portfolio, the companies said. The combine will focus on building and maintaining a high return and carbon-resilient portfolio which includes natural gas and new energy technologies, the companies said.

Generated cash flow this decade is expected to support development of new energy products and low carbon solutions including hydrogen, ammonia, and carbon capture and storage (CCS), according to the statement.

Estimated synergies from the combine are expected to exceed $400 million/year (100% basis, pre-tax) from optimizing corporate processes and systems, leveraging combined capabilities, and improving capital efficiency on future growth projects and exploration, the companies said.

On a proforma basis (12 months to June 30, 2021), the combined business is expected to have revenue of more than $8 billion and EBITDA of $4.7 billion and operating cash flows of more than $3 billion.

The merger is expected to close in second-quarter 2022 with an effective date of July 1, 2021, subject to confirmatory due diligence, negotiation and execution of full form transaction documents (targeted for October), and satisfaction of conditions including shareholder, regulatory, and other approvals.