Woodside taps Gresham to buy BHP’s $20bn petroleum unit

Woodside Petroleum’s interim CEO, Meg O'Neill. Picture: Jane Dempster

Woodside Petroleum is understood to have tapped advisory firm Gresham for its planned deal to buy BHP’s $20 billion petroleum business.

It comes as Woodside confirmed reports in DataRoom last month that it was in talks to buy the BHP unit.

Speculation a deal was in train was fuelled when BHP’s petroleum boss Geraldine Slattery sold her Houston home, as reported by DataRoom on August 2.

Last week, it was understood that Ms Slattery had been in quarantine in Perth and there is now speculation she will be named as the new chief executive of the merged venture.

BHP is understood to be working with Goldman Sachs on the transaction.

Sources told DataRoom on Monday that while Woodside and BHP would provide an outline of the transaction while reporting their results this week, it was not “fully baked”.

This was despite the pair agreeing to a deal in principle.

It is understood that the transaction is subject to the finalisation of documents and due diligence.

Woodside also confirmed reports in DataRoom last month that the transaction involved payment for the division with Woodside scrip to BHP.

“Woodside is engaged in discussions with BHP regarding a potential merger involving BHP’s entire petroleum business through a distribution of Woodside shares to BHP shareholders, Woodside said in a statement to the market on Monday.

“These discussions are ongoing.”

Woodside shares were trading down 61c to $21.59 in late morning trade and BHP was up $1.04 to $53.85.

Simon Mawhinney, managing director of Allan Gray Australia, which holds Woodside shares, said he did not support of an acquisition of BHP’s petroleum unit by Woodside unless the price was extraordinarily low.

“BHP’s petroleum business has a very mature asset base. Its production is in decline and it is very oil-centric,” he said, adding that it also had rehabilitation risks.

Woodside’s portfolio, on the other hand, he said, came with a long-life asset base with significant growth prospects.

As reported by DataRoom last month, speculation started growing that a deal was close after BHP shifted the announcement of its results to the close of market on August 17, and Woodside moved its results announcement to August 18, from August 17.

The thinking among market participants at the time was that this was too much of a coincidence and it was an additional signal that something was afoot.

Sources say Woodside has been actively working on the proposal – one that has been pitched to the $21bn Australian energy producer by investment bankers over the past year, and as earlier tipped by this column.

This followed renewed suggestions in Bloomberg last month that BHP has been looking to divest its global petroleum division.

Woodside and BHP are already joint venture partners on Australian assets, including the Scarborough gas field off Western Australia and the North West Shelf project.

BHP also owns valuable petroleum assets in other parts of the world, including in the Gulf of Mexico, and collectively analysts estimate the entire portfolio is worth about $US15bn ($20.4bn).

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

With Santos, BHP also owns interests in the Macedon and Pyrenees domestic gas projects in WA, which could be worth up to $US1bn.

The least attractive part of its portfolio is its oil and gas joint venture in the Gippsland Basin, which has large remediation costs associated with the project.

Goldman Sachs has been working with BHP over solutions for the miner’s Australian oil and gas assets since 2019.

Market experts believe there would be few buyers for BHP’s petroleum business, other than Woodside, which would find the offering attractive at a time when industry groups need to build scale.

In a period of industry consolidation to create industry giants that can better fund project development, Santos is also attempting a $22bn mega merger with Oil Search.