Woodside Petroleum Ltd and BHP Group have entered into a merger commitment deed to combine their respective oil and gas portfolios to create a global top 10 independent energy company by production.
On completion of the transaction, 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 per cent by existing Woodside shareholders and 48 per cent by existing BHP shareholders.
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.
The combined company will have a high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition. The combined business will comprise:
- High-quality conventional asset base producing around 200 MMboe (FY21 net production);
- Diversified production mix of 46 per cent LNG, 29 per cent oil and condensate and 25 per cent domestic gas and liquids (FY21 net production);
- Wide geographic reach with production from Western Australia, east coast Australia, US Gulf of Mexico, and Trinidad and Tobago with approximately 94 per cent of production (FY21 net production) from OECD nations; and
- 2P reserves of over 2 billion boe comprising 59 per cent gas, and 41 per cent liquids.
Newly appointed Woodside CEO and Managing Director, Meg O’Neill, said merging Woodside with BHP’s oil and gas business delivers a stronger balance sheet, increased cash flow and enduring financial strength to fund planned developments in the near term and new energy sources into the future.
“The proven capabilities of both Woodside and BHP will deliver long-term value for shareholders through our geographically diverse and balanced portfolio of tier 1 operating assets and low-cost and low-carbon growth opportunities,” Ms 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.”
BHP CEO, Mike Henry, said the merger will create an organisation with the scale, capability and expertise to meet global demand for key oil and gas resources the world will need over the energy transition.
“Bringing the BHP and Woodside assets together will provide choice for BHP shareholders, unlock synergies in how these assets are managed and allow capital to be deployed to the highest quality opportunities. The merger will also enable the skills, talent and technology of both organisations to build a resilient future as the world’s needs evolve,” Mr Henry said.
Plans for the future
Woodside and BHP have developed a plan to targeted final investment decision (FID) for the Scarborough project by the end of the 2021 calendar year, prior to the proposed completion date for the merger.
As part of this plan, Woodside and BHP have agreed an option for BHP to sell its 26.5 per cent interest in the Scarborough Joint Venture to Woodside and its 50 per cent interest in the Thebe and Jupiter joint ventures to Woodside if the Scarborough Joint Venture takes a FID by 15 December 2021.
The option is exercisable by BHP in the second half of the 2022 calendar year and if exercised, consideration of US$1 billion is payable to BHP with adjustment from an effective date of 1 July 2021. An additional US$100 million is payable contingent upon a future FID for a Thebe development.
Woodside and BHP advise that the 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, and along with significant brownfield expansion options, provide opportunity for near- and medium-term growth.
Longer-term embedded options include the Wildling (US), Trion (Mexico), Calypso (Trinidad and Tobago) and Browse (Australia) projects. These options offer significant potential growth coupled with multiple exploration opportunities and partnerships.
Under the proposed transaction, Woodside, or a wholly-owned subsidiary of Woodside, will acquire 100 per cent of the issued share capital of BHP Petroleum International Pty Ltd in exchange for shares in Woodside which will deliver 48 per cent to BHP shareholders on completion.
Woodside shares will be immediately distributed to BHP shareholders. Woodside will remain listed on the ASX with listings on additional exchanges being considered.
The merger is expected to be completed in the second quarter of the 2022 calendar year with an effective date of 1 July 2021.
The transaction is subject to confirmatory due diligence, negotiation and execution of full form transaction documents which is targeted for October 2021, and satisfaction of conditions precedent including shareholder, regulatory and other approvals.
Under the merger commitment deed, each party has agreed to pursue a merger transaction and agreed to certain exclusivity arrangements and to each pay a reimbursement fee of approximately US$160 million in certain circumstances.