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The BHP share price surged on the announcement
Just a day after it confirmed it was in talks over an exit from the oil and gas industry, mining giant BHP (LON:BHP) is in the news again as it confirms its plans to merge its oil assets with Woodside Petroleum.
The new group would be among the largest independent energy companies in the world and in the top 10 for liquified natural gas (LNG) production.
The entity’s yearly revenue and underlying earnings (EBITDA) will come in at $8bn and $4.7bn respectively.
The BHP share price is up by 6.16% on Tuesday following the announcement.
“The market is clearly excited about the move and while investors are set to get shares in the combined venture rather than an immediate cash payout, this will give them the option of selling the shares should they choose and realising value that way,” says AJ Bell investment director Russ Mould.
After expected completion of the merger in Q2 of 2022, Woodside will issue shares to BHP shareholders.
52% will be held by Woodside shareholders, while 48% will be held by BHP shareholders.
“The news comes alongside results which encompass a big capital return to shareholders and a plan to tidy up the company’s corporate structure with its main listing widely expected to be in Australia and the green light on a new potash project.”
BHP has a clear strategy now of focusing on future-proofed commodities which are part of the transition away from fossil fuels.
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.