BHP forges deal to sell its oil and gas assets to Woodside

Mining giant BHP has made a ‘binding agreement’ to merge its petroleum business with Woodside in a deal that will create one of the largest independent energy companies in the world.

Under the terms of the arrangement, BHP will sell all its oil and gas assets, which stretch from the Gulf of Mexico to Algeria and Western Australia, in return for a 48 per cent stake in Woodside.

The deal is expected to save $400million in annual costs, create one of the 10 biggest global energy firms by production and the largest energy firm on the Australian Stock Exchange.

It is part of BHP’s move away from fossil fuels following growing pressure from investors and environmental groups that have lambasted the firm for being one of the most significant corporate contributors to greenhouse gas emissions.

By 2030, the company aims to slash emissions from its operations by a third on 2020 levels before becoming net-zero by mid-century, which comes alongside plans to increase its exposure to less carbon-intensive minerals.

When it originally announced its intention to offload its petroleum business in August, it also revealed it had approved the first stage of a potash mining project in Saskatchewan, Canada. 

It has also pledged to improve the carbon footprint of its steelmaking operations, and during the COP26 climate conference in Glasgow, it agreed to sell its stake in a joint venture that owns two Queensland coking coal mines for $1.35billion.  

Three years ago, the dual-listed business also sold its American shale oil and gas assets to BP for $10.5billion after a drop in shale prices in 2014 and 2015 severely impacted its profits.

Mike Henry, the chief executive of BHP, said the arrangement 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.’

Despite the intended shift away from fossil fuels, BHP and Woodside announced today that they had approved the opening phase of a controversial gas project in Western Australia’s North Carnarvon Basin.

The pair expect the $16billion Scarborough Gas Field to supply eight megatonnes of liquefied natural gas annually and 180 terajoules of domestic gas each day.

It claims the scheme would have the smallest carbon emissions of any liquefied natural gas (LNG) development originating in Australia with only about 0.5 tonnes of CO2 per tonne of LNG.

However, a report by the Conservation Council of Western Australia (CCWA) and think tank The Australia Institute has estimated that the project would emit carbon emissions equivalent to nearly 15 coal-fired power stations.

‘Anybody who cares about our environment and the future of our planet will be disappointed and rightly angry that Woodside and BHP are insistent on pursuing this climate-destroying development,’ Maggie Wood, the CCWA’s executive director, remarked today.  

Russ Mould, the investment director at AJ Bell, said: ‘Woodside’s decision to greenlight a new LNG terminal in Australia suggests it doesn’t see hydrocarbon demand disappearing overnight.

‘BHP should now look more appealing from an ESG perspective with the metals it digs out of the ground fundamental to building the electric vehicle and renewables infrastructure required for the world to wean itself off oil, gas and coal.

‘However, there will still be pressures to reduce the carbon footprint of its mining operations, and this is likely to be an area of focus in terms of investment as BHP moves into its brave new future.’ 

Shares in BHP Group plc ended trading 3.1 per cent higher at 1,942.8p on Monday.