Woodside (ASX:WPL) confirms BHP oil and gas merger

Investors contemplate whether Woodside has bitten off more than it can chew…

| More on:
Two Santos oil workers with hard hats shake hands in the foreground of oil equipment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors don't seem too enthusiastic about the Woodside Petroleum Limited (ASX: WPL) share price on Wednesday. Shares in the Australian oil and gas giant are trading 1.3% lower to $20.46 following the release of its FY21 results and merger confirmation.

Weighing on the Woodside share price

There had been plenty of speculation, but yesterday Woodside confirmed the rumours of a merger with the petroleum division of BHP Group Ltd (ASX: BHP). Adding to the information for investors to process today, Woodside also reported its FY21 results.

Indeed, today likely marks one of the most significant days in Woodside's 67-year history. As such, the market is grappling with how the future might look for a ~$35 billion oil and gas, megalodon of a company.

The deal is an all-stock merger, creating a top 10 independent energy company by production in the process. According to Woodside, once complete the merged company will have a high margin oil portfolio. This is in addition to long-life LNG assets and the financial wherewithal to meet global energy needs. Despite this, the Woodside share price is in the negative today.

In a move that has been carefully orchestrated by Meg O'Neill, Woodside shareholders have a few things to be happy about. The previously appointed acting, now permanent, Chief Executive Officer O'Neill drove home a deal that is expected to deliver cost synergies north of US$400 million per annum. This will be through leveraging combined capabilities and capital efficiency.

Furthermore, in an industry that environmentalists have nominated for the chopping block, the merger might give Woodside a bit more longevity. A prime example is the company's Scarborough project, which contains almost no carbon dioxide. Post-merger, Woodside and BHP's joint venture in the project will fall under the one umbrella — unlocking further progress.

Results make for a difficult read

While the merger is one variable in the mix, Woodside's FY21 half-year results add another to the share price equation. The result itself seemed relatively positive, although the market might have expected more.

According to Commsec, consensus estimates were for US$489 million — or approximately AUD$673 million. However, the actual net profit after tax came in at US$354 million. In contrast, the company reported a $4 billion loss in the prior corresponding period.

There's certainly plenty for Woodside shareholders to consider, and perhaps the share price reflects that today. One final tidbit of information — the Woodside share price has gained 0.8% over the past 12 months.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares

Hand holding out coal in front of a coal mine.
Energy Shares

Up 29% since April, why is this ASX 200 coal stock tumbling today?

The ASX 200 coal miner forecasts better days ahead for global coal markets.

Read more »

Worker inspecting oil and gas pipeline.
Energy Shares

Are Santos shares higher on quarterly update?

Let’s find out how the share price is moving following today’s announcement.

Read more »

Man with rocket wings which have flames coming out of them.
Energy Shares

Macquarie forecasts 61% upside for this ASX All Ords energy stock

Here's why the broker is so positive on the stock.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

Why this ASX uranium stock could rocket 100%+

Let's see why this speculative stock is being tipped to double in value by Bell Potter.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Energy Shares

Macquarie tips 23% upside for this ASX All Ords mining stock

Let's see why the broker thinks this stock could be a top buy.

Read more »

a group of three electricity workers stand smiling wearing hard hats and high visibility vests in front of an array of high voltage power equipment.
Energy Shares

Macquarie raises price target on Origin Energy shares

The broker just raised it's price target. Here's why.

Read more »

A smiling woman holds a Facebook like sign above her head.
Energy Shares

Bell Potter says this ASX 200 uranium stock is a top buy

Let's find out why the broker is feeling bullish on this stock.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Boss Energy shares have surged 93% since April. Here's what Macquarie expects now

Boss Energy shares remain a favourite for ASX short sellers. Are they in a for a payday or headed for…

Read more »