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Woodside-BHP $14.7bn merger deal would create a ‘super independent’

Andrew Harwood, Asia Pacific research director at Wood Mackenzie.
Andrew Harwood, Asia Pacific research director at Wood Mackenzie.

Woodside today confirmed it is in discussions with BHP over a potential merger involving BHP’s entire petroleum business. This merger “would create a new international super independent built for scale and resilience, with a long-term focus on LNG but exposure in the medium term to high-margin, deepwater oil,” said Andrew Harwood, Asia Pacific research director at Wood Mackenzie.

Woodside is in advanced talks to buy BHP Group’s petroleum division for about A$20 billion ($14.7 billion), the Australian Financial Review (AFR) reported on Sunday, citing people familiar with the matter. In response to the media speculation, both BHP and Woodside confirmed the discussions, but gave no further details today.

“BHP’s oil operations in the Gulf of Mexico (GoM) complements Woodside’s deepwater capabilities and add a new core focus area to Woodside’s existing portfolio. BHP has recently sanctioned US$800 million of new investment at the Shenzi hub in the GoM and is progressing the Trion project in Mexico,” Harwood said in a note.

“Strong cash flow from BHP’s GoM assets over the next decade will provide steady shareholder returns while supporting planned investment across the wider business in LNG growth and new energy opportunities,” he said.

“Woodside would also strengthen its position in its key North West Shelf LNG and Scarborough assets. Woodside would be firmly in control of the Scarborough development but will continue to look for new partners to optimise future capital outlays,” added Harwood.

Woodside and its partner BHP Group are targeting final investment approval for the 8 million tonne per year (t/y) Scarborough liquefied natural gas (LNG) development later this year. First LNG exports are planned for 2026. The Scarborough development offshore Western Australia will feed an expansion of Woodside’s Pluto LNG facility, with the combined project previously estimated to cost $11.4 billion.

Woodside in advanced talks to buy BHP oil unit for $14.7 billion

“An exit from its petroleum business has been long rumoured for BHP, and as it faces rising pressure from the energy transition, it would seem that the mining conglomerate has determined now to be the optimum moment to achieve maximum value. The terms of any merger announcement will be closely examined to see exactly what value has been achieved,” said Harwood.

“Following hot on the heels of Santos’ proposed merger with Oil Search, a Woodside-BHP combination is further evidence of oil and gas operators seeking solace from longer term uncertainty through scale, and doubling down on long-term, cash-generative, resilient resource themes,” he added.

“For the wider Australia E&P sector, a second merger proposal will give Australia another homegrown heavyweight that can compete on the international scene. The inevitable optimisation of enlarged portfolios will also provide opportunities for other players looking to squeeze value from assets deemed surplus to requirements by these newer and bigger entities,” said Harwood.

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