Woodside in talks to buy BHP oil and gas assets: sources

Karratha Gas Plant, North West Shelf Project. Picture: Woodside

Speculation is mounting that Woodside Petroleum is in talks with BHP about acquiring oil assets.

It comes after BHP hired Goldman Sachs in 2019 to consider options for its Australian oil portfolio, as revealed by DataRoom at the time.

Some sources in the market believe that the talks between Woodside and BHP are focused on the group’s Australian oil assets.

However, others believe they relate to the international portfolio as a whole, which analysts expect to be worth about $US15bn.

This would imply a price of about 5 times earnings before interest, tax, depreciation and amortisation which is Woodside is currently trading on.

Woodside declined to comment on the speculation, but a spokesman said the company remained focused on the execution of its Sangomar project in Senegal and achieving its targeted final investment decision on the Scarborough and Pluto Train 2 developments in Western Australias.

It comes after Santos this week made known details of its $22bn merger plan with Oil Search, one that Oil Search has rejected.

Woodside made a takeover play for Oil Search three years ago that was rebuffed, and some have wondered whether it could once again revisit its former target now that rival Santos is trying to close in.

Yet the understanding now is that its focus is thought to be on BHP’s interests.

There have been unofficial reports that BHP has been preparing its oil and gas business – at least its one in Australia - for sale for some time.

Its oil and gas joint venture in the Gippsland Basin was earlier estimated to be worth at least $US2 billion, but some believe that its value today could be $1bn at best with large remediation costs associated with the project.

However, while BHP is understood to have tested interest in the assets before, the thinking is that the costs do not make the asset attractive for a number of potential acquirers.

Some estimate that BHP’s Australian portfolio of oil and gas interests is worth about $US2bn.

In Australia, BHP owns a 16.67 per cent interest in the North West Shelf project; 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 largely owning the rest; and oil interests with Santos.

Its stake in the Western Australia-based Scarborough gas project is estimated to be worth about $US400m and its Macedon and Pyrenees domestic gas projects in Western Australia up to $US1bn.

The valuation has shifted with the oil price now at about $US66 per barrel, rallying from pandemic-induced lows last year.

BHP’s international interests, including assets in the Gulf of Mexico, are considered far more valuable.

Woodside has been positioning itself for more growth through its 73.5 per cent interest in its Scarborough gas project.

In 2018, 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.

It comes at a time that Woodside is yet to appoint a chief executive, with interim boss Meg O’Neill currently at the helm.

Should Woodside buy BHP’s global oil business, analysts say one possibility is Ms Slattery could take on the top job.

They say should a deal happen, one likelihood is that payment could be through scrip rather than cash.

Consolidation is happening in the oil and gas sector as some top institutional investors shy away from the industry due to concerns about the impact of oil and gas on the environment and the view is that businesses need to consolidate to gain economies of scale for major project investment.

As earlier reported by The Australian, Woodside is undertaking a company-wide review which could lead to a restructuring and job cuts.