Analysts: BHP merger with Woodside will boost firm’s energy transition plans
BHP’s merger with Woodside is a “positive move” that “helps the group transition away from the oil and gas industry”, argues Matt Britzman, equity analyst at Hargreaves Lansdown.
Britzman believes sceptical and divesting investors concerned over environmental issues could now re-appraise the mining specialists.
He said: ” Investors who have avoided oil and gas assets can consider investment once again – although sizeable coal exposure may still prove too much of a hurdle.”
His comments follow today’s announcement that BHP and Australian oil giant Woodside have finalised a AUS$40bn tie-up.
Woodside will buy all of BHP’s oil assets in exchange for a 48 per cent share in the company.
The merger will create a global top 10 independent energy company by production, and the largest energy company listed on the Australian stock exchange.
The agreement was driven by the two firms creating synergies of more than $400m.
It will benefit from both significant cost savings which make the business more efficient, while also operating on a greater scale.
The merger complements BHPs energy transition plans, with the company looking to adapt to more sustainable practices.
Its petroleum business now only accounts for around 6.5 per cent of its revenues, and last month it sold its stake in BHP Mitsui Coala, a metallurgical coal joint venture in Queensland, to Stanmore Resources for up to $1.35 billion.
Briztman considers the fundamentals of the merged business to be highly appealing to investors.
He said: “The core business remains intact, and that should remain the basis of any investment case. The group has low cost, high margin assets that make its mines profitable in most market conditions. And with net debt much reduced and huge free cash flows, shareholder returns can remain generous if the group chooses.”
Mike Henry, chief executive of BHP, said: “Merging our petroleum business with Woodside creates a large, more resilient company, better able to navigate the energy transition and grow value while doing so.”
“Through the merger we will provide value and choice for BHP shareholders, and unlock synergies in how these assets are managed.”
The company’s shares up 0.87 per cent on the FTSE 100 following the merger.