By Alice Uribe and David Winning
SYDNEY--BHP Group Ltd. advanced plans to combine its oil-and-gas business with Woodside Petroleum Ltd., which on Monday approved a multibillion-dollar project in Australia that supports the role of natural gas in the global energy transition.
BHP said it has signed a binding share sale agreement for the merger of its oil-and-gas business with Woodside, progressing a transaction that was first announced on Aug. 17. BHP shareholders will own 48% of the expanded Woodside, with forecast savings from the deal unchanged at more than US$400 million.
Analysts have interpreted BHP's willingness to offload its oil-and-gas business as a shift toward greater sustainability. By focusing on metals and minerals, BHP could find it easier to cut net carbon emissions from its operations to zero by 2050. That would help the company to appeal to investors that are increasingly focused on environmental, social and governance issues.
Beginning last year, several large European oil companies, including BP PLC and Royal Dutch Shell PLC, made public commitments to eliminate emissions and have begun selling fossil fuel assets that emit more carbon, as well as investing more in renewable energy. Following one of the most expensive proxy fights ever, an activist hedge fund elected three new members to Exxon Mobil Corp.'s board and has pressed it for a bolder path to reducing emissions.
However, it is a difficult pivot for companies to make, as the production of fossil fuels can be highly profitable. It will also take years before vehicles and other infrastructure that require fossil fuels are replaced, which BHP acknowledged when announcing the deal with Woodside in August.
On Monday, BHP said it had previously considered distributing stock in a newly-listed entity that would have housed its energy assets. "However, while a demerger would result in a strong and financially viable standalone entity, the board determined that the merger was the best alternative for shareholders," BHP said in a regulatory filing.
Part of its rationale was that an expanded Woodside would have a strong growth profile, illustrated by the US$12 billion Scarborough and Pluto Train 2 liquefied natural gas developments in Australia.
In a separate statement, Woodside said it had made final investment decisions to proceed with Scarborough and Pluto Train 2, which involves developing natural-gas reserves more than 200 miles offshore Western Australia for processing at an expanded Pluto LNG export facility on the coast. Woodside said LNG shipments from the project to customers in Asia are targeted from 2026.
Woodside said the project would have an internal rate of return of more than 13.5%, and be one of the lowest carbon intensity sources of LNG delivered to customers in north Asia. BHP, which owns 26.5% of Scarborough, has approved US$1.5 billion in capital expenditure for the development.
"The Scarborough reservoir contains only around 0.1% carbon dioxide, and Scarborough gas processed through the efficient and expanded Pluto LNG facility supports the decarbonization goals of our customers in Asia," Woodside Chief Executive Meg O'Neill said.
Earlier this month, Woodside said it had agreed to sell a 49% stake in the Pluto Train 2 project to Global Infrastructure Partners, reducing its share of construction costs.
Write to Alice Uribe at email@example.com and David Winning at firstname.lastname@example.org
(END) Dow Jones Newswires
November 22, 2021 03:38 ET (08:38 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.