PERTH (miningweekly.com) – Diversified miner BHP and oil and gas producer Woodside has struck a merger agreement to combine their respective oil and gas portfolios through a stock merger.

It is proposed that BHP’s oil and gas business merge with Woodside, and Woodside issue new shares to be distributed to BHP shareholders. The expanded Woodside will be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.

The proposed merger would create the largest energy company listed on the ASX, with a global top 10 position in the liquefied natural gas (LNG) industry by production, with the merged entity having delivered some 200-million barrels of oil equivalent in the 2021 financial year.

The combined company would 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, the two companies said in a joint statement.

The merged company would have a diversified production mix of 46% LNG, 29% oil and condensate and 25% domestic gas and liquids, as well as a wide geographic reach with production from Western Australia, east coast Australia, US Gulf of Mexico, and Trinidad and Tobago with approximately 94% of production from Organisation for Economic Cooperation and Development nations. Furthermore, the enlarged Woodside would have 2P reserves of over two-billion boe comprising 59% gas and 41% liquids.

“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,” said BHP CEO Mike Henry, who also announced a $5.7-billion investment in the Jansen potash project on Tuesday.

“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.”

The merged company would offer greater scale and diversity of geographies, products and end markets through an attractive and long-life conventional portfolio, as well as resilient, high margin operating cash flows to fund shareholder returns and business evolution to support the energy transition, the companies said.

The enhanced Woodside would also offer a strong growth profile with a plan to achieve targeted Scarborough final investment decision (FID) in the 2021 calendar year and capacity to phase the most competitive, high-return options within the portfolio.

Furthermore, synergies of an estimated $400-million could be achieved annually from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration

“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’s newly appointed CEO 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.

“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.”

The two companies have developed a plan to target FID for Scarborough 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% interest in the Scarborough joint venture (JV) to Woodside and its 50% interest in the Thebe and Jupiter JVs to Woodside if the Scarborough JV takes an FID by December 15.

The option is exercisable by BHP in the second half of the 2022 calendar year and if exercised, consideration of $1-billion is payable to BHP with adjustment from an effective date of July 1. An additional $100-million is payable contingent upon a future FID for a Thebe development.

The Atlantis Phase 3, Mad Dog Phase 2, Shenzi North, and Sangomar Field Development Phase 1 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, Trion, Calypso and Browse projects, which the companies said offered significant potential growth coupled with multiple exploration opportunities and partnerships.

Following the merger, Woodside will remain listed on the ASX with listings on additional exchanges being considered.

Both the Woodside and BHP boards have confirm their support for the transaction, and the merger is expected to be completed in the second quarter of the 2022 calendar year with an effective date of July 1.

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

Meanwhile, Woodside on Tuesday confirmed the appointment of O’Neill as company CEO, succeeding Peter Coleman, who retired from the company in June this year.

Woodside chairperson Richard Goyder said that O’Neill’s appointment was the outcome of an extensive international recruitment process that included an exceptional field of internal and external candidates.

“O’Neill is an outstanding executive with 27 years’ experience working in the global oil and gas industry, with a proven track record of delivery across the oil and gas value chain, making her the ideal person to lead Woodside as we significantly expand the business in a cost efficient and sustainable way.

“Her focus on project delivery, cost reduction and carbon reduction will benefit both Scarborough and Sangomar through development, execution and operations.

“Since joining Woodside in 2018, O’Neill has been instrumental in delivering operational efficiencies across our producing assets, leading the Scarborough and Sangomar developments and as acting CEO, leading the business towards a targeted final investment decision for Scarborough this year.

“The board‘s priorities in selecting a new CEO were identifying someone who will maintain the momentum in the business to deliver our current projects, lead through a transformational phase of growth and guide Woodside’s activities in response to the energy transition.

“Equally critical was the demonstrated ability to develop the organisation’s capability and culture to suit a fast-changing and competitive external environment,” Goyder said.