BHP Exits Petroleum Business in Merger With Woodside

The megadeal will make Woodside a Top 10 independent global oil and gas producer with annual volumes of approximately 200 million BOE.

One medium-term resource growth opportunity for the new Woodside is the Mad Dog Phase 2 project in the US Gulf of Mexico, slated to come online in 2022.
Credit: BHP.

BHP Group has agreed to sell its petroleum business to rival Woodside Petroleum in an all-stock deal that values the unit at $13 billion. The combination of these Australian-based operators will create a Top 10 independent oil and gas producer worth approximately $28 billion with a geographically diverse asset base and focused growth areas both in their native country and the Americas.

The deal, structured as a nonpremium merger, will see the expanded Woodside owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.

“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,” said Woodside chief executive and managing director Meg O’Neill. “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.”

BHP's petroleum business made up only 5% of its annual earnings. Following the merger, BHP will remain one of the top global resource and mining companies.

The combined petroleum assets include a high margin oil portfolio as well as long-life liquefied natural gas (LNG) assets. Annual production from the combined base should come in at approximately 200 million BOE net. The new Woodside’s production mix includes 46% LNG, 29% oil and condensate, and 25% domestic gas and liquids, with key assets located in Western Australia, the east coast of Australia, the US Gulf of Mexico, and Trinidad and Tobago. Estimated proven and probable reserves of the combined company is over 2 billion BOE, comprising 59% gas and 41% liquids.

“We will have more optionality in where we invest and can prioritize the highest return opportunities,” O’Neill told analysts. “The proposed transaction derisks and supports Scarborough FID (final investment decision) later this year and enables more flexible capital allocation.”

Beyond the large Scarborough LNG project, the combined company has several projects on track to fuel medium-term growth, including Atlantis Phase 3, Mad Dog Phase 2, Shenzi North—all in deepwater Gulf of Mexico—as well as the Sangomar Phase 1 development in Senegal.

The companies report that they believe the merger will generate annual savings of more than $400 million from 2023, the year after the deal is expected to close, currently targeted for the second quarter of 2022.

The transaction is subject to confirmatory due diligence, negotiation, execution of full-form transaction documents, and satisfaction of conditions precedent including shareholder, regulatory, and other approvals.