BHP set to simplify its structure, will unbundle oil and gas assets

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MINING giant BHP strengthened on the JSE yesterday as the market applauded the proposed simplification of its corporate structure and the unbundling of its petroleum assets to Australia’s oil and gas company Woodside, creating one of the biggest energy producers in the world.

BHP, which yesterday approved $5.7 billion (about R84.2bn) in capital expenditure for its potash project in Canada, was proposing to adopt a single company structure under BHP Limited, with a primary listing on the Australian Securities Exchange (ASX).

Chief executive Mike Henry said that under a unified corporate structure, BHP Ltd’s shares would be listed on the Australian and London stock exchanges and the JSE, with an American Depositary Receipt programme on the New York Stock Exchange. “Now is the time to simplify the BHP corporate structure. Unification will make BHP more efficient and agile, better positioning the company for continued performance and growth,” Henry said.

BHP – which has oil and gas assets in the Gulf of Mexico, Australia, Algeria, Trinidad and Tobago – has been under pressure to reduce its greenhouse gas emissions. The merger with Woodside would result in most of BHP’s gas and oil assets owned by Woodside. Woodside would issue shares to BHP shareholders.

Woodside said that with the combination of two high-quality asset portfolios, the proposed merger would create the largest energy company listed on the ASX, with a global top 10 position in the liquefied natural gas (LNG) industry by production.

Commenting on the merger, Woodside chief executive Meg O’Neill said the combined company would have a high-margin oil portfolio, longlife LNG assets, and the financial resilience to help supply the energy needed for global development during the energy transition. “Merging Woodside with BHP’s oil and gas business delivers a stronger balance sheet, increased cash flow, and enduring financial strength to fund planned developments in the near term and new energy sources into the future,” O’Neill said.

The merger was expected to be completed in the second quarter of the 2022 calendar year, with an effective date of July 1, 2021.

Henry said the amalgamation of its petroleum assets with Woodside would create an organisation with the scale, capability and expertise to meet the global demand for key oil and gas resources during the energy transition. “Bringing the BHP and Woodside assets together will provide a choice for BHP shareholders, unlock synergies in how these assets are managed, and allow capital to be deployed to the highest quality opportunities,” Henry said.

Sanlam Private Wealth analyst Christiaan Bothma said the merger marked an end to BHP’s long journey with oil. “We believe that this was largely as a result of increased environment, social and governance pressure from shareholders,” said Bothma. He said from a JSE and London Stock Exchange (LSE) perspective, BHP also announced its intention to collapse the “two-company” structure into one.

“This provides a benefit to JSE and LSE shareholders, due to tax credits held by Australian investors.

“The Australian-listed entity traded at an average premium of 14 percent over the LSE-listed entity since 2013 and 21 percent as of yesterday’s close – this is probably the biggest reason for the move in the share price today,” said Bothma.

BHP released its results for the year to the end of June yesterday, and declared a record final dividend of $2 a share after riding the wave of higher iron ore prices during the period.

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