Brent to Average $73 Over 2H 2021, ING's Patterson Says
BHP Group is in talks over a potential merger of its oil and gas unit with Woodside Petroleum Ltd. to accelerate a retreat from fossil fuels amid increasing pressure to curb emissions.
Options being discussed include a distribution of Woodside shares to BHP holders to allow the Australian energy firm to add operations spanning Australia to the Gulf of Mexico, the companies said in separate statements. BHP’s unit could be valued at more than US$15 billion, a person familiar with the details said last month.
The petroleum division “simply no longer fits within BHP’s portfolio or future-facing strategy,” said Saul Kavonic, an analyst at Credit Suisse Group AG. Having missed opportunities to sell thermal coal assets at higher prices, “BHP should know it’s better to exit petroleum sooner rather than later,” he said.
BHP, which generates the bulk of profits from iron ore and copper, is reviewing its portfolio as energy supermajors grapple with global pressure from investors and governments over climate action, in some cases by shrinking core production and adding renewable energy assets. Chief Executive Officer Mike Henry has already signaled plans to focus the world’s biggest miner on materials tied to renewable energy and electrification.
Woodside declined as much as 4.5 per cent in Sydney trading Monday and was 4.4 per cent lower as of 3:39 p.m. local time. BHP fell 0.9 per cent.
“BHP confirms that we have initiated a strategic review of our petroleum business to re-assess its position and long-term strategic fit,” the company said. While talks with Woodside “are currently progressing, no agreement has been reached on any such transaction,” it said.
Though BHP has said it expects oil and gas demand to remain strong for at least another decade, and recently announced US$800 million of investments in growth options, the company is wary of becoming stuck with assets that’ll become more difficult to exit as the world attempts to curb consumption of fossil fuels.
The talks with Woodside come a week after environmental campaign group Market Forces tabled a proposal on behalf of about 100 small investors that calls on BHP to wind down oil, gas and coal production in line with international targets to cut greenhouse gas emissions. A deal that would see investors take on Woodside shares risks undercutting BHP’s climate pledge, according to campaigner Will van de Pol.
“We know that investors have clearly signed up to the goal of net zero by 2050,” he said. “They’re increasingly understanding what that means, and it means no expansion of the oil & gas sector. So for investors to be lumped with shares in a company that is trying to expand its oil and gas production, I don’t think it’s going to sit that well.”
Output in BHP’s oil and gas unit, which includes operations in Australia’s Bass Strait and North West Shelf, the U.S. Gulf of Mexico and in Trinidad and Tobago, declined 6 per cent in the year to June 30. BHP is a partner in the projects with firms including BP Plc, Exxon Mobil Corp. and Woodside.
BHP sold the majority of its shale unit to BP in 2018 for about US$10.5 billion, and is advancing plans to exit its final thermal coal mine and some metallurgical coal operations. Those divestments would leave the company with only a handful of fossil fuels assets, a collection of mines in Queensland that supply coal to steelmakers.
Last month, Bloomberg News reported BHP was considering plans to quit oil and gas. Woodside and BHP are in advanced talks over a deal worth about A$20 billion (US$14.7 billion), the Australian Financial Review reported on Sunday, citing people familiar with the matter.
Melbourne-based BHP is scheduled to report annual results Tuesday.