Independent expert recommends Woodside shareholders back BHP deal despite market volatility
Woodside will take on huge rehabilitation liabilities for the clean up of BHP’s old Bass Strait assets, but an independent expert has recommended the $US42bn merger as a good deal.
Woodside Petroleum’s $US42bn merger with BHP Petroleum is fair and reasonable to Woodside shareholders despite significant volatility in global oil and gas markets, an independent valuation of the deal has found.
Woodside hired KPMG to conduct an independent expert report on the proposed deal, in which BHP will take a 48 per cent stake in the combined entity and immediately distribute the Woodside shares to its own holders.
The report, released on Friday, valued the combined entity at $US37.24bn to $US42.3bn.
The report assigns a $US16.87bn to $US19.42bn valuation to Woodside’s existing business, and a $US19.06bn to $US20.44bn price tag on BHP Petroleum.
Synergies and costs savings expected to flow from the merger are worth $US2.36bn to $US3.6bn.
“Based on our assessment of the full underlying value of Woodside and BHP Petroleum as stand-alone entities, the aggregate 52 per cent interest that Woodside shareholders will hold in the merged group is broadly consistent with Woodside’s contribution to the merged group,” KPMG said.
But Woodside is also taking on significant long-term rehabilitation liabilities as part of the deal, particularly in regard to BHP’s share of the ageing Bass Strait fields. with KPMG putting a $US2.56bn price on the cost of cleaning up multiple sites, suggesting Woodside will need to spend more than $US100m a year over the next 20 years to complete the job.
And KPMG warned that Russia’s invasion of Ukraine, along with the global push for action on climate change, could make it more difficult for Woodside shareholders to make a call on the value of the transaction.
“We note that the proposed transaction is being undertaken at a time of significant geopolitical unrest. The recent invasion of Ukraine by Russia has resulted in a large number of Russia’s trading partners imposing targeted trade and financial system sanctions on Russia,” the report says.
“This has led to significant global uncertainty in relation to both immediate supply shortfalls and longer-term continuity and security of supply chains, which in turn has resulted a sharp and rapid increase in benchmark oil prices.”
KPMG also noted that uncertainty about the global rate of recovery from shocks caused by the coronavirus pandemic made it more difficult to predict the direction of oil prices in the medium term, as well as the global push for a reduction in carbon emissions and fossil fuel use.
“Each of these issues are evolving market dynamics, which clearly won’t be fully resolved in the short term, however, it is clear that oil and gas companies with strong cash flow generation supported by well-balanced asset portfolios and a robust financial position will be best placed to navigate the energy market transition,” KPMG said.
“In our view, the proposed transaction strengthens Woodside’s position in each of these areas.”
BHP shareholders will receive one Woodside share for each 5.534 BHP shares they hold, with BHP promising to distribute the shares as a “special dividend”, meaning $US10bn worth of franking credits would attach to the share issue.
Woodside and BHP said the deal remained on track to be completed by June 1, with Woodside shareholders to vote on the deal at the company’s May 19 annual shareholder meeting.
Woodside shares were down 14c to $32.76 at 1430 AEST, with BHP up 99c to $52.06.
