BHP (ASX, LON, NYSE: BHP) is in talks over a potential merger of its oil division with Australia鈥檚 Woodside Petroleum (ASX: WPL) in a move that would cement the world鈥檚 top miner鈥檚 exit from the oil and gas industry听amid increasing pressure to curb emissions.听
The company听听that a merger with Woodside was one of a number of options being considered as part of a strategic review of its petroleum business. It added that any agreement to combine its oil and gas assets in听Australia, North America and听Africa听with Woodside could result in a distribution of the Perth-based energy group鈥檚 shares to BHP shareholders.听
Analysts, who听value the division at between $10 billion and $17 billion,听said that if BHP shareholders end up with Woodside shares, some would look to sell them on concerns about holding a pure fossil fuel investment.听
Potential merger with Woodside is one of a number of options being considered by BHP as part of a strategic review of its petroleum business
鈥淲hile discussions between the parties are currently progressing, no agreement has been reached on any such transaction,鈥� BHP said听. 鈥淎 further announcement will be made as and when appropriate.鈥澨�
The acknowledgment听follows听numerous media reports about a possible deal ahead of BHP鈥檚 annual results on Tuesday and Woodside鈥檚 half-year results on Wednesday.听
It also follows听environmental campaign group Market Forces鈥櫶齪roposal on behalf of about 100 small investors calling on BHP to reduce oil, gas and coal production in line with international targets.听
BHP has said it expects oil and gas demand to remain strong for at least another decade and听earlier this month听approved $802 million in development spending on oil projects in the US Gulf of Mexico.听Such decisions, made just听days before a听new report that issued dire warnings about human contribution to climate change,听have听fuelled听pressure from some investors.听
The company听is aware听of the听discontent听and the fact听it may听become听stuck with assets that would be more difficult to听shed听as the world attempts to curb consumption of fossil fuels.听听
鈥淧etroleum no longer fits within BHP鈥檚 portfolio or future-facing strategy. After waiting too long to divest thermal coal, and now having to resort to selling for cents on the dollar, BHP should know it鈥檚 better to exit petroleum sooner rather than later,鈥澨鼵redit Suisse analyst Saul听Kavonic听said in a note.听
鈥淎 Think Big Woodside, merged with BHP Petroleum, would present a globally significant LNG weighted company, with a diversity of听low-risk听geographic exposure and growth options,鈥澨齂avonic听added.听
Gradual decline听
BHP鈥檚 revision of its energy division听aims to听repeat a听2018 sale of its shale business to BP听for about听$10.5 billion. The company is also听advancing plans to听offload听its final thermal coal mine and some metallurgical coal operations听as part of its听commitment to reduce emissions. Those divestments would leave the company with only a handful of fossil fuels assets; a collection of mines in Queensland that supply coal to steelmakers.听
The company鈥檚 assets would double Woodside鈥檚 annual output to 200 million barrels of oil equivalent. That is almost double the combined volume produced by rivals Santos听(ASX: STO)听and Oil Search听(ASX: OSH), which are听in the听process听of听merging their businesses.听听
BHP has been in oil and gas since the 1960s. It produced 102.8 million barrels of oil equivalent in the year ending June 30.听
(With files from Reuters)