After much speculation,
-Petroleum merger not dependent on approval of the
-The deal should allow
-
As
Citi had been forming the view that BHP and oil were not well suited, recently speculating that Woodside could take over the Australian petroleum assets. The broker believes, while fast paybacks are possible for brownfield oil expansions such as Mad Dog 2 and Atlantis 3, this is more difficult for greenfield developments such as Trion and T&T North.
The offloading of the petroleum assets will be undertaken via an all-scrip merger with
While the ratio is better than Macquarie feared it does erode some of the upside for Woodside, and has been agreed regardless of movements in commodity and share prices. Yet, the deal could face push-back from some shareholders as the merger ratio does not appear to fully factor in standalone asset valuations.
Woodside aims to execute a sale agreement by October with shareholder approvals in early 2022. The company was not willing to disclose its view about end-of-life remediation liabilities being taken on from BHP Petroleum and this is a critical variable, Macquarie estimating liabilities could be in the
The main risk is that shareholders may reject this merger and, while the ratio of ownership appears reasonable,
BHP has lifted medium-term petroleum guidance to 109mmboe. Macquarie notes the petroleum business will not take any cash or debt when merged and, therefore, not create additional financial burden for the BHP balance sheet. The company has put its net debt target under review and expects the transaction will unlock pre-tax synergies of at least
Dual Listing
Costs incurred will be
The structure is expected to allow strategic flexibility and BHP requires 75% of
Further, whether franking credits related to petroleum can be maintained within BHP is yet to be confirmed by the
Macquarie believes the unified structure will allow BHP to conduct M&A activities with a greater degree of flexibility. The broker points out the company has made only cash acquisitions since the establishment of the dual-listed structure.
What's In It For Woodside?
Oil that is. The announcement de-risks
This should allow Woodside to self-fund its growth and sustaining capital expenditure, providing stable distributions. On the other hand, if the transaction were to fail, gearing could rise in 2022 to 39% and likely require additional capital.
As a result,
Macquarie agrees the deal removes the need for equity to fund
Woodside has granted BHP a put option over its 26.5% stake in
Just because the company is moving out of petroleum does not mean automatic pursuit of M&A given current asset valuations, Morgan Stanley points out. BHP will grow via its investment in Jansen potash, which has now made final approval.
Macquarie notes, interestingly, construction time has been extended at Jansen by one year to six years, which is an indicator of challenging weather conditions in this part of
Macquarie also notes nickel continues to screen as the most attractive commodity in BHP's decarbonisation scenario and there is an intention to expand exposure to this commodity. Around 85% of nickel production is sold into the battery market.
Removing petroleum is one move in a series which Morgans expects will inevitably involve some larger acquisitions in future-facing metals such as nickel, copper, iron ore and high-quality metallurgical coal or potash.
The broker understands why management would not want to announce an open cheque book regarding M&A but interprets the commentary to mean there is plenty of capacity on the balance sheet for BHP to strike at the time of its choosing.
There is no clear rationale for a re-rating of BHP, Citi asserts, as BHP Mining will trade at a modest premium to global mining peers post this deal. The broker acknowledges net debt would reduce to around
FNArena's database has one Buy (Macquarie) and four Hold ratings for
For
FNArena is proud about its track record and past achievements: Ten Years On
All material published by
© 2021 Acquisdata Pty Ltd., source