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BHP And Woodside’s $29 Billion Petroleum Merger Cause Of Worry For Investors

BHP And Woodside’s $29 Billion Petroleum Merger Cause Of Worry For Investors
Questions were raised by investors of BHP Group and Woodside Petroleum about the value of the proposed $29 billion merger of the Perth-based oil and gas group Woodside with the petroleum arm of BHP resulting in share prices of both the companies being pulled down.
BHP shares dropped by 6 per cent which was linked to the decision of the company to end its dual listing in the United Kingdom, where its shares have traditionally traded at a large discount. There was also a drop of 4 per cent in the stocks of Woodside which was because of concerns of investors about the expansion plans of the company.
"Woodside is one of the worst-performing companies within the energy sector globally post-COVID; the company doesn't yet have a strong mandate to enter a deal of such questionable value and this could further drag on Woodside's shares," said Jamie Hannah, deputy head of investments at Van Eck Australia, a shareholder in both companies.
BHP has agreed to merge its petroleum business with Woodside in a nil-premium merger in exchange for new Woodside shares which will go to BHP shareholders that would result in the investors of the former owning 48 per cent of the expanded group.
If the deal is completed, Woodside would become a top 10 global independent oil and gas producer as it would gain access to oil assets in the Gulf of Mexico, gas reserves in Trinidad and Tobago and a little older assets in Australia's Bass Strait while it would also double its stake in North West Shelf LNG.
The proposed deal however raised questions about the logical prudence of the strategic sense of the expansion within the oil industry and acquiring aging gas that come with large decommissioning costs.
There could also be an overhang of stock, said worried investors of Woodside, with BHP shareholders who want to get out of fossil fuel stocks could seek to dump all of their shares.
While investors of Woodside were quite knowledgeable about the Australian oil and gas assets of BHP, there was not enough awareness and knowledge about the value of the company’s Gulf of Mexico oil stakes - Mad Dog, Atlantis and Shenzi, said the company’s Woodside's new chief executive, Meg O'Neill.
​ "Those are just first-class top-tier assets that will be very cash accretive to the merged company," O'Neill told reporters.
The BHP assets are available to Woodside at relatively cheap rates, said analysts and two BHP investors.
"I'd much rather have just hung on to them and harvested the capital because demonstrably the returns from the growth parts of those projects are much higher than Jansen," a Sydney-based fund manager was quoted in a Reuters report as saying while referring to the $5.7 billion Jansen potash project that was approved by the BHP earlier in the week.
A higher valuation multiple for the company no longer holding oil and gas assets would effectively offset the loss to BHP of giving the discount on its petroleum assets, said Tribeca Investment Partners CEO Ben Cleary, a BHP shareholder.
"Long term the deal makes sense. I think BHP looks more attractive for a wider audience," said Matt Haupt, portfolio manager at Wilson Asset Management, a BHP shareholder.

Christopher J. Mitchell

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