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BHP edges toward oil and gas exit with Woodside merger talks

BHP Group PLC updates

BHP has begun talks over a potential merger of its petroleum division with Australia’s Woodside in a move that would mark the world’s biggest mining group’s exit from the oil and gas industry.

London- and Sydney-listed BHP said on Monday that a merger with Woodside was one of a number of options being considered as part of a strategic review of its petroleum business. It added that any agreement to combine its oil and gas assets in Australia, North America and Africa with Woodside could result in a distribution of the Perth-based energy group’s shares to BHP shareholders.

“While discussions between the parties are currently progressing, no agreement has been reached on any such transaction. A further announcement will be made as and when appropriate,” said BHP.

Analysts at Bernstein have estimated that BHP’s oil and gas unit could be worth $13bn.

BHP’s decision to review its petroleum business comes as big mining companies face pressure to reduce their exposure to fossil fuels and align with the goals of the Paris climate agreement.

Having a petroleum unit means that BHP stands out among its pure play mining peers. But ageing fields and the sale of its lossmaking US shale business in 2018 have caused petroleum production to fall from 235m barrels in 2013 to about 103m in the 12 months to June, or 280,000 barrels per day.

Credit Suisse believed BHP would opt to sell its entire fossil fuel business, including its petroleum division, following its strategic review.

“Petroleum no longer fits within BHP’s portfolio or future-facing strategy. After waiting too long to divest thermal coal, and now having to resort to selling for cents on the dollar, BHP should know it’s better to exit petroleum sooner rather than later,” said Saul Kavonic, an analyst at the Swiss bank.

He added that BHP could likely find buyers for its Gulf of Mexico and Trinidad petroleum operations but Woodside was probably the only credible purchaser of its Australian assets. If Woodside merged with BHP’s petroleum business, it would be a significant global player in liquefied natural gas, said Kavonic.

The Australian Financial Review, which first reported the merger talks, said Geraldine Slattery, BHP’s global head of petroleum, flew to Perth over the weekend for talks with Woodside’s acting chief executive Meg O’Neill.

Woodside is an Australian Securities Exchange-listed oil and gas producer with a market capitalisation of A$20bn (US$14.7bn). It co-owns significant gas assets in Western Australia along with BHP and several other companies.

Shares in Woodside fell more than 4 per cent following reports of the talks. BHP’s Sydney-traded shares gained more than 1 per cent.

The negotiations between BHP and Woodside followed a merger agreement this month between Australia-listed oil and gas companies Oil Search and Santos, highlighting a trend towards consolidation in the sector.

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