Woodside Petroleum faces lower than feared $US3.9bn clean-up cost for BHP deal

BHP’s $US3.9bn remediation figure for its oil and gas fields, within market expectations, eases concerns Woodside Petroleum may face a bigger strain on its balance sheet.

Woodside boss Meg O’Neill will take on nearly $US4bn of decommissioning costs if the BHP Petroleum merger deal proceeds Picture: Woodside via NCA NewsWire

BHP has confirmed it holds $US3.9bn ($5.3bn) of remediation costs for its oil and gas fields, easing concerns that Woodside Petroleum might face a bigger strain on its balance sheet from hefty rehabilitation provisions if the merger deal proceeds.

The $US3.9bn figure was disclosed in BHP’s annual report on Tuesday alongside $US11.9bn in property, plant and equipment costs and was in line with the figure circulating in the market once the $40bn merger proposal landed.

Woodside had declined to disclose the burden on its balance sheet when the deal was announced in August but chief executive Meg O’Neill said at the time it would take “everything that BHP is responsible for today”.

The rehabilitation number is less than feared and likely lower than $US1bn for Woodside on a net present value basis, Credit Suisse said, once petroleum resource rent tax rebate and corporate tax offsets are applied.

The figure came in “below what we feared it could be”, Credit Suisse analyst Saul Kavonic said.

“We do see risk that the final number could end up higher and that tax rebate policy could change in the future, but for the time being we expect equity markets to take the reported number at face value. There is also the opportunity to reduce costs and defer provisions via tie-ins and conversion to carbon capture and storage and offshore wind hubs in the future,” Mr Kavonic said.

An oil platform in Bass Strait. Picture: ExxonMobil

The clean-up cost of BHP’s older assets was seen as one of the challenging aspects of the merger deal, particularly the ageing Bass Strait oil and gas fields operated by ExxonMobil, given the multibillion dollar closure costs would weigh far more heavily on Woodside’s balance sheet than that of BHP.

Exxon already faces a crackdown from the national environmental regulator over its Bass Strait oil and gas fields offshore Victoria after being ordered to seal 180 wells and dismantle 10 platforms by 2027, underlining mounting concern over $50bn industry-wide clean-up bill.

New trailing liability rules for decommissioning of old assets allow the government to hold the previous owners of the oil or gas projects to account for decommissioning work.

Some $52bn of decommissioning work on Australia’s offshore oil and gas infrastructure needs to be completed with over half to be started within the next 10 years, a study commissioned by National Energy Resources Australia found in March.

BHP chief executive Mike Henry said the Woodside deal would hand the miner’s shareholders greater control over their exposure to commodities.

“We expect shareholders to benefit from significant synergies arising from the intended merger, and they will have greater choice in how to shape the relative commodity exposures in their own portfolios,” Mr Henry said in its annual report.

Separately, Woodside completed drilling its first oil well in Senegal with results exceeding expectations according to its joint venture partner Petrosen. India’s ONGC has been linked with buying a 20-40 per cent stake in the field from Woodside as it looks to trim its 82 per cent stake.

Woodside rose 6.4 per cent to $20.85 with BHP up 0.5 per cent to $41.70.

Originally published as Woodside Petroleum faces lower than feared $US3.9bn clean-up cost for BHP deal