BHP’s Geraldine Slattery arrival sparks Woodside deal talk
BHP’s global petroleum chief Geraldine Slattery has landed in Perth, raising speculation of a tie-up with Woodside Petroleum.
BHP’s global petroleum chief Geraldine Slattery has landed in Perth ahead of the mining giant’s Tuesday annual results release, intensifying speculation a deal is near on the sale of BHP’s petroleum division assets to Woodside Petroleum.
Ms Slattery is understood to be in the final stages of a two-week period of isolation in the West Australian capital, with the petroleum boss absent from BHP’s Houston office since late July, sources told The Weekend Australian.
US property records indicate Ms Slattery may have her Houston home on the market amid chatter in Texas she has packed up her belongings ahead of a move.
While both BHP and Woodside have remained tight lipped on whether they are in talks, rumours of a potential tie-up have been circulating in the oil and gas sector since early this year when Woodside made the unusual decision to allow former boss Peter Coleman to leave ahead of schedule, without announcing a permanent replacement in its top job.
Ms Slattery has also been identified as the next leader of Woodside itself, replacing Meg O’Neill as interim chief, with a deal between the two companies potentially sealing that appointment in addition to the asset swap.
Woodside wants to sanction Scarborough by the end of 2021 but BHP, which owns 27 per cent of the project, still has to agree commercial terms for any deal.
But separate sources say Ms Slattery’s presence in Perth may not be related to a deal for BHP’s petroleum assets, with the petroleum boss possibly also in Australia for talks over sanctioning the jointly-owned Scarborough project.
Also arguing against a mega-deal is the restructuring program of Woodside interim chief executive Meg O’Neill, who has drafted in global consulting firm BCG to advise on a broader reshaping of the company including a slimming down of the business functions at its Perth headquarters, sources said.
BCG’s official role is to conduct a transformation of Woodside’s business as the company moves ahead with a plan to slash a third of business costs over the next three years under Ms O’Neill.
The restructure is said to be considering establishing three “pillars” at Woodside: its existing oil and gas business, a new energy division focused on hydrogen and ammonia, and a separate technology division.
Woodside cut at least 80 jobs in late July while several hundred more roles are expected to go before the end of the year.
Woodside declined to comment while BCG was unavailable for comment.
BHP reports its annual results after Tuesday’s market close, while Woodside’s half-year accounts will drop the following morning on Wednesday prior to the start of share trading.
Sources say the federal government’s tougher stance on forcing operators of older oil and gas fields to retain ultimate responsibility for clean-up costs may have smoothed discussions over the fate of BHP’s Bass Strait assets.
Bass Strait is believed to have a major sticking point for Woodside in earlier discussions around a move on BHP’s petroleum assets, sources say, given the multi-billion dollar closure costs of Bass Strait platforms would weigh far more heavily on its balance sheet than that of BHP.
However, one option said to be under consideration is for BHP to retain the clean-up liability for a higher upfront deal premium, easing any concerns it may weigh too heavily on Woodside’s balance sheet.
Structuring a deal in that way would also fit in with the potential national introduction of a trailing liability scheme by the federal government, which involves the seller of offshore fields remaining liable for decommissioning costs even once a deal has proceeded.
It is not the first time a rumoured tie-up between the two has promised to reshape the Australian oil and gas sector.
BHP, along with Shell, made a failed bid for Woodside in 1985, and BHP is said to have considered a second tilt in 2010.
Senior sources say a number of other preliminary approaches were later made by Woodside -- and activist hedge fund Elliott Management ran a full-throated campaign for the demerger of BHP’s petroleum assets in 2017. But the approaches went nowhere as former BHP boss Andrew Mackenzie was not keen on a deal.
His successor, Mike Henry, is believed to be more receptive to a sale of BHP petroleum assets, despite having repeatedly expressed his belief the division was an key area of medium term growth since taking BHP’s top job in late 2019.
But Mr Henry is under far more pressure to exit BHP’s fossil fuel positions than his predecessor, and is running a business more focussed on generating free cash flow from BHP’s existing assets -- a difficult ask in petroleum, which requires heavy capital reinvestment to maintain production flow -- and making new capital investment in his “future facing commodities”, including potash, copper and nickel.
A deal for BHP’s entire petroleum business is valued at $US18bn ($24.5bn) by JPMorgan. In addition to its Australian assets, BHP also owns oil and gas fields in the Gulf of Mexico, Trinidad and Tobago and Algeria.
A deal could see Woodside pay for the BHP assets with its own scrip that could then be partially distributed to BHP shareholders, with BHP seen as likely to retain a 15 to 20 per cent stake in the West Australian gas producer.
Analysts have valued BHP’s petroleum division at $US15bn to $US18bn, suggesting Woodside would need to double the number of shares it has on issue to close a deal.