Wednesday, January 19

BHP closes in on oil and gas exit as climate scrutiny intensifies


BHP Group is in talks about a possible merger of its oil and gas unit with Woodside Petroleum to accelerate the withdrawal from fossil fuels amid mounting pressure to curb emissions.

Options being discussed include a distribution of Woodside shares to BHP holders to allow the Australian energy company to add operations spanning Australia to the Gulf of Mexico, the companies said in separate statements. The BHP unit could be valued at more than $ 15 billion, a person familiar with the details said last month.

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The oil division “just doesn’t fit into BHP’s portfolio or future strategy anymore,” said Saul Kavonic, an analyst at Credit Suisse Group AG. Having missed opportunities to sell thermal coal assets at higher prices, “BHP should know that it is better to get out of oil sooner rather than later,” he said.

BHP, which generates most of its profits from iron ore and copper, is overhauling its portfolio as energy super majors grapple with global pressure from investors and governments on climate action, in some cases by reducing core production and adding renewable energy assets. CEO Mike Henry has already outlined plans to target the world’s largest miner on materials related to renewable energy and electrification.

Woodside was down 4.5% in Sydney trading on Monday and was down 4.4% at 3:39 pm local time. BHP fell 0.9%.

“BHP confirms that we have initiated a strategic review of our oil business to reassess its position and long-term strategic fit,” the company said. While talks with Woodside “are currently progressing, no agreement has been reached on such a transaction,” he said.

Although BHP has said it expects oil and gas demand to remain strong for at least another decade, and recently announced $ 800 million of investments in growth options, the company is wary of getting stuck with assets that will be harder to get out of. as the world. try to curb the consumption of fossil fuels.

The talks with Woodside come a week after the environmental campaign group Market Forces submitted a proposal on behalf of some 100 small investors calling on BHP to cut oil, gas and coal production in line with international targets to cut greenhouse gas emissions. A deal that would have investors take over Woodside shares risks undermining BHP’s climate commitment, according to activist Will van de Pol.

“We know that investors have clearly signed until the goal of net zero by 2050, ”he said. “They are understanding more and more what that means, and it does not mean any expansion of the oil and gas sector. So for investors to pool with stocks in a company that is trying to expand its oil and gas production, I don’t think it’s going to sit that well. ”

Sale of assets

Production at BHP’s oil and gas unit, which includes operations in the Bass Strait and the Northwest Shelf of Australia, the Gulf of Mexico in the US and in Trinidad and Tobago, declined 6% for the year Until June 30th. BHP is a partner in projects with companies including BP Plc, Exxon Mobil Corp. and Woodside.

BHP sold most of its shale unit to BP in 2018 for around $ 10.5 billion, and is advancing plans to exit its final thermal coal mine and some metallurgical coal operations. Those divestitures would leave the company with just a handful of fossil fuel assets, a collection of mines in Queensland that supply steel mills with coal.

Last month, Bloomberg News reported that BHP was considering plans to ditch oil and gas. Woodside and BHP are in advanced talks about a deal worth about A $ 20 billion ($ 14.7 billion), the Australian Financial Review reported on Sunday, citing people familiar with the matter.

Melbourne-based BHP is scheduled to report annual results on Tuesday.

© 2021 Bloomberg


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