BHP runs ruler over Gippsland gas joint venture

The BHP Longford gas plant in Gippsland. Picture: Stuart McEvoy.

BHP is understood to have tapped investment bank Goldman Sachs to assess options for its oil and gas joint venture in the Gippsland Basin, estimated to be worth at least $US2 billion.

The appointment offers further credibility to the view that BHP is a seller, or is at least seriously assessing a divestment of the asset.

However, any sale, say sources, would only be likely to occur once its joint venture partner Exxon has concluded the sales of its share of the assets, which is expected to start around August or September through JPMorgan.

Goldman Sachs has been close to BHP for some time. During 2015 it advised on the demerger of South32 and some in the market believe that the mandate for the North American bank could in fact extend to examining the interest BHP holds across its Australian portfolio.

In September last year, when partner Exxon confirmed that it was selling out of the project, many predicted that the $106bn BHP would also stage an exit.

The Australian reported last week that BHP had paid for a major survey aimed at boosting its gas supplies in the Bass Strait, fuelling expectations it could look to bolster the value of the ageing assets and follow partner ExxonMobil in pursuing a sale.

There has also been much discussion about its commitment to its Australian interests more broadly in oil and gas, as DataRoom reported in November.

Last year, BHP petroleum boss Geraldine Slattery met with market participants and described the company’s Australian oil and gas investments as mature assets, saying the company was reviewing all options and that they remained a key focus.

BHP also said it had a very disciplined capital allocation framework in relation to the assets.

In Australia, BHP owns a 16.67 per cent interest in the North West Shelf project, which some last year estimated could have been worth between $6bn and $8bn; a 50 per cent interest in the Gippsland Basin oil and gas development in Bass Strait with Exxon; a 25 per cent interest in the Scarborough project off the coast of Western Australia, with Woodside Petroleum owning the rest; and smaller oil interests with Santos.

Collectively, estimates last year suggested the entire portfolio could be worth about $10bn, although the oil price is currently far from its 2019 levels, which could suggest that the assets would now be far less.

Global sell-off

Exxon is selling its stake in the Gippsland project at a time when other global oil and gas majors are expected to further divest assets in the local market as they search for cash and battle major challenges amid the current low oil price environment.

Chevron is offloading its 16.6 per cent interest in the North West Shelf LNG plant through UBS and some believe other owners including Shell and BP could follow.

Woodside Petroleum last year was trying to sell its Scarborough interest through Morgan Stanley, although the process is believed to be currently on the ice and BHP had pre-emptive rights to amass a further 10 per cent in Scarborough.

On the Exxon sale from the Gippsland project, the big challenge for any buyer will be large remediation costs associated with the project.

The Bass Strait fields have provided up to 40 per cent of east coast gas production but are now in decline.

Already, Macquarie Group-related interests – likely to be through the Quadrant Energy venture it has held with Brookfield – are said to have appetite for the asset, but questions remain as to what other parties could come forward amid an industry downturn.

Other interested parties are expected to be Japanese trading houses and Asian buyers, although global exploration and production companies may sidestep the offering because it would not be considered of large enough scale.

Previously tipped as interested in the past have been Beach Energy, Santos, AGL Energy and Mitsui.

The Australian reported last week that Exxon’s stake had attracted serious interest from buyers, but a number were reluctant to take over the US major’s role in operating the ­project.