Woodside Petroleum in talks with BHP Group to buy its hydrocarbon business

BHP Group Ltd (LON: BHP) said on Monday it is in talks to merge its hydrocarbon business with Australia’s Woodside Petroleum (ASX: WPL). The news comes shortly after the world’s biggest miner also offloaded some of its coal assets as part of its broader push to exit fossil fuels.  

While discussions between the parties are currently progressing, no agreement has been reached on any such transaction, BHP said in a statement this morning.

Details of the potential agreement

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If an agreement is reached, cutting its oil and gas assets will mean a 5% hit to underlying earnings for BHP, while Woodside is expected to see its annual underlying earnings climb by roughly 100% to about $8 billion.

BHP shareholders will also end up with shares of Australia’s top independent gas producer if the two companies strike a deal. The merger is valued at $13 billion to $15 billion.

The announcement comes about two weeks after Woodside Petroleum raised the cost estimate for its Scarborough project by 5.0%. At the time of writing, the Australian firm is valued at about $15 billion.

Woodside is considering a sizable share sale

Another benefit that Woodside is likely to derive out of a deal with BHP is a significant increase in its annual output to 200 million barrels of oil equivalent, which is roughly double the output that competitors Oil Search Ltd and Santos Ltd are likely to produce after their announced merger.

BHP and Woodside shares were down about 3% and 5%, respectively, on Monday morning. The Perth-headquartered company is also considering a sizable share sale, upon completion of which, BHP shareholders are estimated to have a 53% ownership stake in the combined group.

Last month, BHP reported record iron ore production. The $182 billion company currently has a price to earnings ratio of 27.49.