LONDON, UK: Woodside Petroleum Ltd and BHP Group have entered into a merger commitment deed to combine their respective oil and gas portfolios by an all‑stock merger 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. The Transaction is subject to confirmatory due diligence, negotiation and execution of full form transaction documents, and satisfaction of conditions precedent including shareholder, regulatory and other approvals.
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.
Attractive strategic and financial rationale
The combination of Woodside and BHP’s oil and gas business is expected to deliver substantial value creation for both sets of shareholders from across a range of areas, including:
- Greater scale and diversity of geographies, products and end markets through an attractive and long-life conventional portfolio
- Resilient, high margin operating cash flows to fund shareholder returns and business evolution to support the energy transition
- Strong growth profile with a plan to achieve targeted Scarborough FID in the 2021 calendar year and capacity to phase the most competitive, high-return options within the portfolio
- Proven management and technical capability from both companies
- Shared values and focus on sustainable operations, carbon management and ESG leadership
- Estimated synergies of more than US$400 million (100 per cent basis, pre-tax) per annum from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration
- Greater financial resilience, relative to Woodside’s and BHP’s standalone petroleum businesses.
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.
“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 of our petroleum assets with Woodside 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.”
This transaction delivers 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.
Significant operating cash flow will support continued strong returns to shareholders over time. Woodside will maintain its focus on disciplined growth investment and continued dividends. It is expected that Australian shareholders will benefit from the distribution of Woodside’s significant franking credit balance.
Strong growth profile with a plan to achieve targeted Scarborough FID in 2021 and capacity to phase high-return options
The transaction will deliver expanded growth optionality for shareholders with the flexibility to phase and selectively progress near and longer term high-return options.
Woodside and BHP have developed a plan to targeted final investment decision (FID) for Scarborough (Australia) 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.
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.
Both the Woodside and BHP boards of directors confirm their support for the Transaction. 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.
Woodside’s financial advisers are Gresham Advisory Partners Limited and Morgan Stanley Australia Limited, and its legal advisers are King & Wood Mallesons and Vinson & Elkins LLP.
BHP’s financial advisers are J.P. Morgan, Barclays and Goldman Sachs and its lead legal adviser is Herbert Smith Freehills.
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