The Woodside Petroleum Limited (ASX: WPL) share price is in the red on Tuesday. This follows a scathing review by one of its key shareholders of Woodside's potential takeover of BHP Group Ltd (ASX: BHP)'s petroleum business.
At the time of writing, shares in the ASX-listed oil and gas producer are trading almost 2% lower at $20.77.
Both Woodside and BHP confirmed the media speculation yesterday, announcing that the two companies have been in discussions. The confirmation was met with selling, as the Woodside share price descended on Monday to finish 4.5% lower.
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Deal provides no appeal to this shareholder
As we reported yesterday, BHP is keen to offload its pressured petroleum business, and Woodside is appearing to be a potential suitor.
While any such deal would provide a welcomed exit from a business shrouded in growing controversy for BHP, one respected portfolio manager is failing to see the positives for Woodside.
Allan Gray portfolio manager, Simon Mawhinney has already been in discussions with Woodside chair Richard Goyder to voice concerns of shareholder value destruction from the potential $20 billion deal. As reported by The Australian Financial Review, he said:
There's almost nothing that this deal offers that looks compelling to us… and the only thing we don't know is [the] price. It would be crucial that Woodside pay cents in the dollar for this – anything but would just be financially illiterate.
The unease exhibited by Mawhinney is likely shared by other market participants, explaining the falls in the Woodside share price this week.
However, other investors and analysts seem somewhat positive about the diversification potentially offered by any deal. For example, JP Morgan energy analyst Mark Busuttil believes the integration of BHP's business would increase Woodside's scale and simplify ownership of the North West Shelf venture and Scarborough project.
However, Mawhinney considers there to be major negatives. These include a mature asset base, declining production, and heightened exposure to ESG risks.
Woodside share price in view
The Woodside Petroleum share price has performed fairly poorly in the past 12 months compared to other ASX-listed oil and gas peers. Shares in the exchange's largest listed energy company have moved around 3% higher during the past year. Meanwhile, Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) have added around 8% and 24% respectively.
At the current share price, Woodside holds a market capitalisation of around $21.4 billion.
