BHP planning Bass Strait oil and gas exit
BHP plans to join ExxonMobil in selling its Bass Strait oil and gas assets in a potential $3.5bn deal.
BHP plans to join ExxonMobil in selling its Bass Strait oil and gas assets off the Victorian coast in a potential $US2.5bn ($3.5bn) deal and will consider quitting its North West Shelf LNG stake once a tolling deal has been set up by the West Australian joint venture.
The resources giant will quit “later life assets including an intended exit from Bass Strait” as it seeks to refresh its petroleum division against a broader backdrop of tough oil market conditions following a crash in demand from COVID-19.
The move, flagged by The Australian in July, means one of Australia’s most prolific oil and gas basins faces its biggest shake-up in decades as BHP moves ahead with a sales process for its non-operating 50 per cent stake. BHP boss Mike Henry told analysts he expected it would take two years to conclude a deal.
Exxon appeared to have a head start after putting its Bass Strait assets on the block in September 2019. But its progress has been slow so far with the pandemic hobbling progress.
That prompted speculation BHP could even beat Exxon to a deal, with Credit Suisse arguing its non-operated stake would appeal to a different and larger pool of buyers. Beach Energy is seen as one potential acquirer.
A sale of the ageing Bass Strait fields faces a number of hurdles, however, with abandonment costs a major issue, along with a growing number of other gas assets competing for buyers’ interests. Although the Bass Strait remains eastern Australia’s biggest gas player, its share of the market has fallen by about a third in the last few years sparking a costly hunt for new resources and potential LNG imports to meet market demand.
“Interest for the BHP stake would probably depend on who, if anyone, buys the operated Exxon stake and there are challenges in selling that including the current environment, decommissioning liabilities, ACCC constraints and need for operating experience,” EnergyQuest chief executive Graeme Bethune told The Australian.
Tensions over abandonment liabilities in the Timor Sea may also weigh on any transaction after NOGA fell into liquidation, Credit Suisse noted.
“Abandonment costs and heightened regulatory scrutiny over any buyers ability to meet them in wake of the NOGA debacle could drastically limit the pool of buyers for Bass Strait interests,” Credit Suisse analyst Saul Kavonic said.
BHP also said it would consider offloading its 16.6 per cent stake in the Woodside Petroleum-operated NW Shelf plant in WA after Chevron kickstarted a reshuffle of the project in June by putting its share up for sale.
The terminal is facing the depletion of its gas reserves in the next few years, forcing the facility to move to a new tolling model where it will process gas from third parties for the first time. That shift is seen as less appealing to some oil and gas majors with infrastructure investors potentially a better fit for steady, long-dated returns from the facility.
Mr Henry said it would consider a sale in time, but noted there was further immediate value to be gained from the plant.
“If I look at North West Shelf, in the fullness of time that will become a tolling operation, or essentially a tolling-like operation, and may not be something we want in the portfolio,” Mr Henry told analysts after BHP’s annual results on Tuesday.
“But for now there’s still further value to be unlocked for North West Shelf through securing the gas that will fill the tollage. So that’s something where in the course of time we probably won’t be the natural owner for it, but it’s not something we wanted to spin off at this point in time.”
Woodside is seen as the most likely buyer of Chevron’s stake with a sales flyer now out in the market in the expectation a deal may be concluded in early 2021.
The sprawling NW Shelf complex is Australia’s largest LNG plant, located 1260km north of Perth, and includes five LNG export processing trains and two domestic gas facilities. Woodside runs the facility in a joint venture with BHP, BP, Chevron, Shell and Mitsubishi with Mitsui.
