Shares in mining group BHP (BHP) added 1.2% to £19.07 after the company signed a binding agreement to merge its oil and gas assets with Australian firm Woodside, following through on a promise it made back in August to engineer a deal by the year-end.
The agreement will create a global top 10 independent energy company by production and will the largest listed energy company on the Australian stock exchange by market value.
BETTER TOGETHER
The combined company will house a portfolio of high-margin oil assets and long-duration LNG (liquid natural gas) assets and will have a strong balance sheet to fund future growth and shareholder returns.
BHP said it ‘carefully considered’ the possibility of spinning off its energy assets into a separate company, but the benefits of the merger with Woodside were too good to pass up.
The two firms estimate they could achieve synergies of more than $400 million per year from improving capital efficiency on exploration and from having one combined corporate structure.
On completion of the merger, which is expected to be in the second quarter of next year, Woodside will issue new shares to BHP shareholders as a dividend. Investors can then decide whether to keep the shares or sell them and take the cash.
EXPERT VIEW
Ratings firm Morningstar observed: ‘Analysts have interpreted BHP's willingness to offload its oil-and-gas business as a shift toward greater sustainability.’
‘By focusing on metals and minerals, BHP could find it easier to cut net carbon emissions from its operations to zero by 2050. That would help the company to appeal to investors that are increasingly focused on environmental, social and governance issues.’
AJ Bell investment director Russ Mould commented: ‘BHP is serious about the threat posed by mounting environmental pressures and today’s deal to merge its oil and gas assets with Woodside enables it to be clear of assets at the sharp end of the so-called energy transition.’
‘This deal allows BHP investors to remain exposed to the petroleum industry should they wish - with shares in the new combined entity distributed to shareholders - but equally if they want pure mining exposure they can sell up and move on’, added Mould.
Disclaimer: The author owns shares in AJ Bell, the owner and publisher of Shares magazine, referenced in this article.
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