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Woodside Petroleum 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.

On a proforma basis, the combined business will consist of:

• High quality conventional asset base producing around 200 MMboe (FY21 net production)
• Diversified production mix of 46% LNG, 29% oil and condensate and 25% domestic gas and liquids (FY21 net production)
• Wide geographic reach with production from Western Australia, east coast Australia, US Gulf of Mexico, and Trinidad and Tobago with approximately 94% of production (FY21 net production) from OECD nations
• 2P reserves of over 2 billion boe comprising 59% gas, and 41% liquids

Merger mechanics

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.