© Reuters. FILE PHOTO: The logo of Woodside Petroleum, Australia's leading independent oil and gas company, adorns a billboard displayed at an investor briefing in Sydney, Australia on May 23, 2018. REUTERS / David Gray / file photo
From Sonali Paul
MELBOURNE (Reuters) – BHP Group has agreed to sell its petroleum business to Woodside (OTC 🙂 Petroleum in a merger to create a top 10 independent oil and gas producer valued at A $ 38.5 billion ($ 28 billion). USD) with growth capabilities in Australia and America.
BHP's exit from petroleum, which accounted for only 5% of its annual profits, is accelerating its exit from fossil fuels under pressure from environmentally conscious investors. However, Mike Henry, CEO of BHP, said the company remains committed to metallurgical coal in steel making.
BHP shareholders will be paid in Woodside shares, giving BHP investors a 48% stake in the merged group.
This effectively estimates BHP's petroleum division at about A $ 18.5 billion ($ 13 billion) as of Tuesday's close of trading, which is roughly in the middle of analyst ratings of between $ 10 billion and $ 17 billion.
For Woodside, the deal is transformative, doubling its production, expanding its footprint in liquefied gas, removing the main barrier to its $ 12 billion gas project in Scarborough, and offering it near-term growth options in the Gulf of Mexico.
BHP's assets, including aging assets on Bass Strait, Australia, where the petroleum business originated, will generate cash that will help Woodside fund the Scarborough project and Gulf of Mexico developments.
"Woodside's combination with BHP's oil and gas business results in a stronger balance sheet, increased cash flow and sustained financial strength to fund planned developments in the near future and new energy sources in the future," said Meg O'Neill , Chief Executive of Woodside, in a statement.
"We will have more freedom of choice where we invest and can prioritize the highest return opportunities," she told analysts.
The merger quota did not include a premium on BHP's assets, she said.
The deal was announced at the same time that Woodside named O & # 39; Neill as CEO after serving as Deputy CEO. Some analysts had speculated that BHP's petroleum chief Geraldine Slattery would get the job.
"The proposed transaction reduces risk and supports Scarborough FID (final investment decision) later this year and allows for more flexible capital allocation," said O & # 39; Neill.
The companies said the merger would generate annual savings of more than $ 400 million from 2023, the year after the deal is expected to close.
Woodside plans to put the stock offering to the vote in the second quarter of 2022.
A major Woodside investor, Allan Gray Australia, has raised concerns about a deal, especially if it is a massive stock issue.
"It's very unlikely that shareholders would jump on this idea. We certainly wouldn't," Simon Mawhinney, chief investment officer of Allan Gray Australia, told Reuters last week.
O & # 39; Neill downplayed concerns that many BHP investors who don't want fossil fuels or an Australian stock could sell Woodside stock, saying there was already overlap between investors in the company and that it would have a secondary listing in London and New York consider helpful in keeping "high quality" investors on board. Analysts have raised concerns about the short-term retirement liabilities Woodside will inherit with BHP's stake in the Bass Strait oil and gas fields. Analysts have estimated that cost to be at least $ 2 billion, but O & # 39; Neill wouldn't provide any numbers.
"We feel good about the way we assessed the decommissioning requirement in determining the merger relationship," she said.
($ 1 = 1.3732 Australian dollars)