BHP set to demerger $20bn petroleum unit before Woodside bid

BHP was working on a straight demerger for its $20bn petroleum unit before Woodside expressed interest. Picture: AFP

BHP was working on a straight demerger for its $20 billion petroleum unit since last year before Woodside expressed interest in a possible acquisition of the business in recent months.

The world’s largest mining company opted in 2020 to press on with a demerger of its global petroleum unit, say sources, and was committed to separating it in one line, rather than embarking on a sale of various parts of the portfolio to different parties.

It is understood that there were no global groups interested in taking all of the assets together. International industry players were only interested in its non-Australian operations, with the Gulf of Mexico oil producing assets the most attractive, but they would not pay cash.

But that all changed in recent months when BHP was approached by Woodside.

It is understood that Woodside, which reported its results on Wednesday, had started to move on a plan to buy BHP’s global portfolio of oil and gas assets following the resignation of chief executive Peter Coleman in April.

Mr Coleman departed the company in June and Meg O’Neill has been in the role of acting chief executive since his resignation in April, negotiating along with Woodside chairman Richard Goyder with BHP’s chair Ken MacKenzie and chief executive Mike Henry.

Both BHP and Woodside know each other well, given both jointly own the Scarborough gas and North West Shelf projects in Western Australia and constantly hold discussions, but still carried out due diligence on each other.

Plans for a transaction got serious in April because the oil price had recovered and a commitment over the Scarborough development was made.

Apparently, the identity of the new Woodside boss was only known at the final hour, but Ms O’Neill has impressed institutional investors with her operational expertise and changes she has already made at the company in terms of a cultural shake-up and was announced as the new chief executive on Tuesday.

A scrip transaction was thought to be the only way a deal could happen, given that Woodside would be doubling in size by buying the unit and had large funding requirements for its existing projects.

Woodside has said cash flow from BHP’s lucrative Gulf of Mexico assets could help to fund the Scarborough project, but it may still embark on a sale of the upstream part of the project if the price is right.

They will also continue with the sales process for its Pluto Train 2 processing facility for the Scarborough gas field.

BHP currently has no net debt so was not in need of the cash.

Gresham had been working for Woodside in the earlier sensitive stages and Morgan Stanley later became involved in the transaction.

JPMorgan a played a significant part, while Goldman Sachs had been earlier working on solutions for BHP’s oil and gas assets in Australia.

Barclays, also on the deal, assisted BHP with the sale of its US shale gas assets for $US10.5bn to BP in 2018.

The transaction, which puts a valuation of about $18.5bn on the BHP portfolio based on Woodside’s closing price on Tuesday, is seen as beneficial to both businesses.

It simplifies BHP to become a group that concentrates on mining commodities including iron ore, metallurgical coal, copper and nickel as investor pressure builds to produce commodities that are more environmentally sustainable.

Meanwhile, Citi, UBS and Goldman Sachs have been advising BHP on collapsing its dual listing arrangement in what has been long awaited.

The Woodside deal comes at a time of major consolidation in the energy sector, with Santos proposing a $20bn merger with Oil Search, and will complete in the first quarter of the 2022 financial year.

Should both deals complete, Woodside would remain Australia’s largest energy company.