A disappointing exit price for BHP’s oil and gas assets
BHP is accelerating its retreat from fossil fuels with a deal to sell its global oil and gas assets to Australian energy giant Woodside Petroleum. The companies announced an all-stock merger of BHP’s entire petroleum division spanning Australia, the Americas and North Africa with Perth-based Woodside.
Following the demerger of the suite of second tier assets into South32 (ASX:S32) in 2015, BHP have really got the decarbonisation bug by selling an estimated US$20.5 billion worth of their oil and gas assets to Woodside Petroleum (ASX:WPL) for the equivalent of US$13.5 billion, based on Tuesday’s WPL closing price of $20.73 per share.
|BHP’s Oil and Gas Assets||Location||Status||Valuation (US$)|
|North-West Shelf||WA||Production||2.3-4.3 (1).|
|Atlantis||Gulf of Mexico||Production||2.5|
|Shenzi||Gulf of Mexico||Production||1.8|
|Mad Dog||Gulf of Mexico||Production||1.1|
|Mad Dog 11||Gulf of Mexico||Development||2.4|
|Trinidad and Tobago||Trinidad and Tobago||Exploration and Development||1.2|
|Trion||Gulf of Mexico||Development||3.3|
|Total Oil and Gas Assets||22.1-24.1|
|Rehabilitation Costs (estimate)||2.6|
|Total, post rehabilitation||19.5-21.5|
(1). Range, based on the speed of production decline at the North-West Shelf.
Sure, an open market auction would have taken time and been messy. But the US$7 billion opportunity cost is likely to be justified by the BHP Board as only a few per cent of their market capitalisation (at yesterday’s A$51.33, BHP’s market capitalisation was A$244 billion or around 9.3 per cent of the Australian All Ordinaries Index), so not a big deal.
Also, the BHP shareholders will own 48 per cent of the BHP oil and gas assets/Woodside Petroleum merger (let us call this Woodside Mark 11), so they may enjoy some of the US$7 billion opportunity cost. The real winners of course will be the Woody’s shareholders who retain 52 per cent of Woodside Mark 11.
Paying close to a debt-free US$13.5 billion, together with a theoretical $400 million of synergistic benefits gives Woodside Mark 11 a more diversified production base (and a global top ten position as an independent energy producer), higher liquids mix, many more growth options and a much stronger (combined) balance sheet.
After peaking at $68.66 in May 2008, WPL has been a dog with fleas for the past thirteen years. With its share price down 70 per cent to $20.73, I’m sure the newly appointed CEO of Woodside Mark 11, Meg O’Neill, would be delighted with this transaction and the value being passed through to the long-suffering Woody’s shareholders.