BHP (ASX:BHP) and Woodside (ASX:WPL) shares on watch amid petroleum merger update

BHP and Woodside's merger has taken a big step forward…

| More on:
Two miners wearing hard harts shake hands over a business deal, representing the news announced today that Worley has won a contract from Santos

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

sdf

The BHP Group Ltd (ASX: BHP) share price and the Woodside Petroleum Limited (ASX: WPL) share price will be on watch on Tuesday.

This follows the release of a joint announcement after the market close on Monday.

Why are BHP and Woodside shares on watch?

BHP and Woodside shares could be on the move today after they provided an update on their plans to create a global energy company. According to the release, the two parties have signed a binding share sale agreement (SSA) for the merger of BHP's oil and gas portfolio with Woodside.

This will see Woodside acquire the entire share capital of BHP Petroleum in exchange for new Woodside shares. The signing of the SSA follows the merger commitment deed announced on 17 August.

The release highlights that, on completion, the merger will create a global top 10 independent energy company by production and the largest energy company listed on the Australian share market.

Furthermore, the combined company will have a high margin oil portfolio, long life LNG assets, and the financial resilience to help supply the energy needed for global growth and development over the energy transition.

Management also estimates that the merger will unlock synergies of more than US$400 million pre tax. This will be from optimising corporate processes and systems, leveraging combined capabilities. and improving capital efficiency on future growth projects and exploration.

BHP's CEO, Mike Henry, believes the company's petroleum business and Woodside are better together and expects it to create value for BHP shareholders.

He said: "Merging our petroleum business with Woodside creates a large, more resilient company, better able to navigate the energy transition and grow value while doing so. Through the merger we will provide value and choice for BHP shareholders, and unlock synergies in how these assets are managed."

What's next?

Completion of the merger is targeted for the second quarter of the 2022 calendar year. Prior to completion, BHP and Woodside will carry on their respective businesses in the normal course. However, they will put in place appropriate plans to enable a smooth transition of ownership. The effective date of the merger will be backdated to 1 July 2021.

Upon completion, Woodside will issue new shares to BHP shareholders which are expected to comprise approximately 48% of all Woodside shares (on a post-issue basis) as consideration for the acquisition of BHP Petroleum.

However, while BHP has agreed to exclusivity arrangements with Woodside, these arrangements do not restrict BHP from considering superior proposals for BHP Petroleum. Though, a termination fee of US$160 million is payable in certain circumstances if the merger does not complete.

Scarborough given the go-ahead

Finally, BHP also released an announcement relating to the development of the Scarborough upstream project located in the North Carnarvon Basin, Western Australia.

According to the release, BHP has approved US$1.5 billion in capital expenditure for phase 1 of the development.  Final investment decisions have also been made by Woodside and the Scarborough Joint Venture.

Mr Henry commented: "Scarborough will be amongst the lowest carbon incremental sources of LNG to world markets. Scarborough will provide a reliable source of LNG for global customers and secure gas supply for the domestic market, as well as ongoing employment in Western Australia. Scarborough will provide important cash flows and value for shareholders of the enlarged Woodside."

Motley Fool contributor James Mickleboro 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 Share Market News

A photo of a young couple who are purchasing fruits and vegetables at a market shop.
Opinions

Here are 2 of the ASX's most hated shares. Which should I consider buying?

Could today's dogs be tomorrow's stars?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Market News

5 things to watch on the ASX 200 on Tuesday

A good session is expected for Aussie investors today.

Read more »

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors managed to ease out a gain from the markets today.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Broker Notes

Bell Potter names the best ASX shares to buy

Let's see which shares the broker is bullish on this month.

Read more »

Lion holding and screaming into a yellow loudspeaker on a blue background, symbolising an announcement from Liontown.
Share Market News

What does Macquarie think Liontown Resources shares are worth?

Is the broker bullish or bearish or something in between? Let's find out.

Read more »

Business man at desk looking out window with his arms behind his head at a view of the city and stock trends overlay.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

I young woman takes a bite out of a burrito n the street outside a Mexican fast-food establishment.
Broker Notes

How much upside does Macquarie see for Collins Foods shares?

The company is scheduled to report on 24 June.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Paladin Energy, Santos, Tourism Holdings, and Woodside shares are racing higher

These shares are starting the week with a bang. But why?

Read more »