PERTH (miningweekly.com) – Mining major BHP and oil and gas producer Woodside Energy have taken a final investment decision (FID) on the $12-billion Scarborough and Pluto Train 2 developments, and have formally inked a binding share sale agreement that will see Woodside acquire the entire share capital of BHP Petroleum International.
The merger was first announced in August, and will create a global top 10 independent energy company by production and the largest energy company listed on the ASX.
The combined company will have a high margin oil portfolio, long-life liquefied natural gas (LNG) assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition.
The merged company will have a diversified production mix of 46% LNG, 29% oil and condensate and 25% domestic gas and liquids, as well as a wide geographic reach with production from Western Australia, east coast Australia, US Gulf of Mexico, and Trinidad and Tobago with approximately 94% of production from OECD nations. Furthermore, the enlarged Woodside will have 2P reserves of over two-billion boe comprising 59% gas and 41% liquids.
BHP CEO Mike Henry said BHP’s petroleum business and Woodside were better together and would create value for BHP shareholders.
“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,” he said.
“Through the merger, we will provide value and choice for BHP shareholders, and unlock synergies in how these assets are managed.”
On completion of the merger, Woodside will issue new shares expected to comprise approximately 48% of all Woodside shares, on a post-issue basis, as consideration for the acquisition of BHP Petroleum. The merger ratio is based on the number of Woodside shares at the effective date.
The new Woodside shares will be distributed to BHP shareholders as an in-specie fully franked dividend.
Woodside CEO Meg O’Neill said the merger would deliver enduring value for Woodside shareholders and BHP shareholders that receive Woodside shares under the merger.
“Woodside and BHP’s respective oil and gas portfolios and experienced teams are better together. The combination will deliver the increased scale, diversity and resilience to better navigate the energy transition.
“We will have the balance sheet, cash flow and financial strength to help fund planned developments in the near-term, invest in future energy opportunities and return value to our shareholders through the cycle.
“Our emissions reduction targets will apply to the combined portfolio, supporting our aspiration to be net-zero by 2050 and our strategy to supply lower-carbon energy to our customers across the globe,” she said.
Completion of the merger is targeted for the second quarter of 2022. Prior to completion of the merger, the two companies will carry on their respective businesses in the normal course and will put in place appropriate plans to enable a smooth transition of ownership.
The effective date of the merger will be July 1, 2021.
Meanwhile, the two companies on Monday also took an FID on the $12-billion development of the Scarborough and Pluto Train 2 developments, which will include new domestic gas facilities and modifications to Pluto Train 1.
Scarborough gas processed through Pluto Train 2 is expected to be one of the lowest carbon intensity sources of LNG delivered to customers in north Asia, with first LNG cargo targeted for 2026.
O’Neill said approving the development of the world-class Scarborough gas resource is a landmark achievement for Woodside.
“Today’s decisions set Woodside on a transformative path. Scarborough will be a significant contributor to Woodside’s cash flows, the funding of future developments and new energy products, and shareholder returns.
“This capital-efficient development leverages Woodside’s existing infrastructure and our proven expertise in project execution. The contracting model, development concept and execution strategy have been designed to reduce cost risk and protect shareholder value.
“The Scarborough reservoir contains only around 0.1% carbon dioxide, and Scarborough gas processed through the efficient and expanded Pluto LNG facility supports the decarbonisation goals of our customers in Asia.
“The FID is underpinned by quality customer support with approximately 60% of Scarborough capacity contracted, including domestic gas for the proposed Perdaman urea project.
“Developing Scarborough delivers value for Woodside shareholders and significant long-term benefits locally and nationally, including thousands of jobs, taxation revenue and the supply of gas to export and domestic markets for decades to come,” she said.
The Scarborough and Pluto Train 2 joint ventures have executed a fully termed processing and services agreement (PSA) for the processing of Scarborough gas through the Pluto LNG facilities. The PSA provides for the Scarborough Joint Venture to access LNG and domestic gas processing services at a rate of up to eight-million tonnes per annum of LNG and up to 225 terajoules per day of domestic gas for an initial period of 20 years, with options to extend.
The PSA is subject to certain conditions precedent including relevant regulatory approvals, and the execution of the Domestic Gas Commitment Agreement and associated infrastructure and development agreements with the Government of Western Australia.
Western Australian Premier Mark McGowan has welcomed the final investment decision, saying the project could create mor ethan 3 200 jobs in the region.
"Today's announcement from Woodside and BHP that they have reached a positive final investment decision for the Scarborough and Pluto Train 2 projects is a boon for the state. My government is committed to supporting projects that create more jobs for Western Australians,” McGowan said.
"In the coming days, we will execute agreements with the Scarborough and Pluto Train 2 JV that will provide energy certainty for the state and support thousands of local jobs, as well as providing a transition fuel source for our major trading partners."
The Scarborough field is located approximately 375 km off the coast of Western Australia and is estimated to contain 11.1-trillion cubic feet (100%) of dry gas. Development of Scarborough will include the installation of a floating production unit with eight wells drilled in the initial phase and thirteen wells drilled over the life of the Scarborough field. The gas will be transported to Pluto LNG through a new trunkline of approximately 430 km.
Expansion of Pluto LNG will include the construction of Pluto Train 2, associated domestic gas processing facilities, supporting infrastructure and modifications to Pluto Train 1 to allow it to process Scarborough gas. Bechtel has been selected as the EPC contractor for Pluto Train 2 and integration into existing Pluto LNG facilities.
Woodside recently struck a deal with infrastructure investor Global Infrastructure Partners (GIP) to sell a 49% stake in the Pluto Train 2 Joint Venture (JV).
In addition to its 49% share of capital expenditure, the JV arrangements require GIP to fund $835-million in additional construction expenditure, with Woodside’s share of capital spend to reduce accordingly.