BHP confirms talks with Woodside
BHP confirmed it has commenced talks over the potential merger of its petroleum division with Woodside as the company looks to mark its exit from the oil and gas industry.
The FTSE 100 company said Woodside is one of many options on the table as it reviews its approach towards its petroleum business.
“While discussions between the parties are currently progressing, no agreement has been reached on any such transaction,” said BHP. “A further announcement will be made as and when appropriate.”
Woodside has a market value of $15bn, while analysts have estimated that BHP’s oil and gas unit is worth in the region of $13bn.
BHP’s decision to analyse its operations comes as major miners are coming under pressure to eliminate, or at least reduce, their exposure to fossil fuels.
However, “Mr Henry and the board have a tricky balancing act if they are to strike the right balance between shareholder satisfaction and shareholder value,” says AJ Bell Investment Director Russ Mould.
Management may also be taking the view that now is a good time to sell, after a rebound in the oil price from 2020’s lows, as the global economy and travel begin to regain some sort of traction.
“The board will also want to avoid the risk that they are left with ‘stranded’ assets, should long-term demand for oil and gas tail off more quickly than anticipated, and take further hits to the valuation of those assets on its balance sheet,” said Mould.
BHP has already sold its shale oil and gas fields in the USA to BP for $10.5 billion and committed to withdrawing from the production of thermal coal.
“BHP has six main product areas. They are iron ore, copper, petroleum, coal (both metallurgical and energy), nickel and potash but on the basis of the company’s mix of adjusted operating profit from the first half iron ore and copper are the materials that really count,” says Mould.
By exiting the oil business BHP could free up funds to increase its exposure in areas like battery metals and copper where demand from the ‘green’ economy is likely to be particularly robust.
Some investors may nevertheless be worried that BHP is selling at a bad time, owing to the uncertain economic outlook, forecasts in some quarters of $100-a-barrel oil in 2022, and the substantial number of oil and gas assets that are potentially up for sale. There is therefore the danger that BHP destroys shareholder value by selling too cheaply, especially if oil and gas fields prove to have a longer lifespan that many expect or hope.
The BHP share price is down by 1.83% during the morning session on Monday.
