Woodside, BHP merger to create global top 10 LNG company by production

Australia's Woodside Petroleum and global natural resources company BHP are to merge their oil and gas portfolios to create a global top 10 independent energy company by production, they said Aug. 17.

The proposed all-stock merger would create the largest energy company listed on the Australian stock exchange, with a global top 10 position in the liquefied natural gas 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," Woodside's newly minted CEO, Meg O'Neil, said during an investor briefing.

On completion of the transaction -- expected in the second quarter of 2022, BHP's oil and gas business will merge with Woodside, which will issue new shares to BHP shareholders. The expanded Woodside will be 52% owned by existing Woodside shareholders and 48% by existing BHP shareholders.

The transaction will deliver significant benefits for both Woodside and BHP shareholders by creating a long-life conventional portfolio of scale and diversity of geography, product and end markets, the companies said.

On a proforma basis, the combined business will command a high quality conventional asset base producing around 200 million barrels of oil equivalent (as per financial year 2021 net production), 10.6 million mt of LNG output at a portfolio unit production cost of $8/boe, Woodside said.

The combined portfolio will comprise a production mix of 46% LNG, 29% oil and condensate and 25% domestic gas and liquids (FY21 net production) that spans Australia, the US Gulf of Mexico, and Trinidad and Tobago with 94% from OECD nations.

Oil and gas plays

In the US Gulf of Mexico, BHP owns a stake in the BP-operated Mad Dog phase two oil project, which is on track for first oil in 2022 and had sanctioned the Shenzi North tie-back development aimed at starting production in 2024. Mad Dog and Shenzi ranked among the largest producing fields in the US Gulf.

Off Senegal, Woodside has embarked on the Sangomar oil and gas development that is projected to come online in 2023.

The combined entity will also boast 2P (proven and probable) reserves of over 2 billion boe comprising 59% gas, and 41% liquids, the companies said.

They include the resources earmarked for the Scarborough field development that will support the addition of a second train of 5 million my/year capacity at the Pluto LNG complex in Western Australia.

Gas in the field contains just 0.1% CO2, the lowest in carbon intensity among LNG developments in Australia, according to the presentation.

"The proposed transaction de-risks and supports Scarborough FID later this year and enables more flexible capital allocation," O'Neill said.

Woodside and BHP as project partners have developed a plan to targeted final investment decision for Scarborough (Australia) by the end of 2021, prior to the proposed completion date for the merger.

"Apart from Scarborough, Woodside does not have a lot of viable growth options and petroleum isn't really a core part of BHP's portfolio nowadays. An incidental benefit for Woodside is also getting Scarborough sanctioned," said Graeme Bethune, CEO at Australian energy consultancy EnergyQuest.

When asked about the combined oil and gas capabilities of BHP and Woodside, he said they would be good but Woodside will have to manage a much more diverse international portfolio than it has now, particularly in the Gulf of Mexico and Trinidad and Tobago.

One of the issues is that the Australian assets are pretty mature, Bethune said.

Sustainable business, ESG

O'Neill said Woodside expected to stick to its emission targets and the proposed transaction will not increase actual global emission.

Woodside has pledged previously to reduce net emissions by 15% and 30% by 2025 and 2030, respectively, on the pathway to its ambition of net-zero by 2050.

Progress will be reported on both an operated and non-operated equity emissions basis. In support of the goals of the Paris Climate Agreement, and to contribute to the energy transition, the combined business will focus on building and maintaining a high return and carbon-resilient portfolio, which includes natural gas and new energy technologies.

The combined business is expected to generate significant cash flow this decade to support the development of new energy products and low carbon solutions including hydrogen, ammonia and carbon capture and storage.