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Divide and conquer? BHP-Woodside deal highlights miners’ split on climate change

Last week’s announcement that global mining titan BHP would be offloading its oil and gas assets to Perth-based energy company Woodside marks a fork in the road for resource companies.
Last week’s announcement that global mining titan BHP would be offloading its oil and gas assets to Perth-based energy company Woodside marks a fork in the road for resource companies. Under the terms of the deal, Woodside will acquire all of BHP’s oil and gas assets both in Australia and overseas, in the US, with BHP shareholders to own 48% of the merged business. The merger will create Australia’s largest energy company (even following the merger of Santos and Oil Search, announced earlier this month), and one of the 10 largest globally in terms of liquefied natural gas production. Woodside’s interim CEO Meg O’Neill – who will lead the post-merger business as its permanent chief executive – said the merger will improve the company’s cash flow and help fund its near-term projects.
“Merging Woodside with BHP’s oil and gas business delivers a stronger balance sheet, increased cash flow and enduring financial strength,” she said. 
“The proven capabilities of both Woodside and BHP will deliver long-term value for shareholders through our geographically diverse and balanced portfolio of tier 1 operating assets and low-cost and low-carbon growth opportunities.” BHP chief executive Mike Henry echoed Ms O’Neill’s sentiments.
“The merger of our petroleum assets with Woodside will create an organisation with the scale, capability and expertise to meet global demand for key oil and gas resources the world will need over the energy transition,” he said.
Even so, several analysts and commentators have noted the freshly-inked deal is yet another example of big resource companies’ differing positions on how to handle growing pressure to act on climate change.

Pure play or pull out

BHP’s decision to unload its oil and gas assets follows similar efforts to sell off thermal coal projects, including the sale of its Colombia-based Cerrejon coal mine to Glencore. University of Queensland School of Economics professor John Quiggin said these sales come as banks, insurers, super funds and other financial institutions increasingly opt to divest from the ‘carbon economy’ and reduce their exposure to fossil fuels. “The initial focus [of the divestment movement] has been on thermal coal, used in electricity generation. Coal mines and coal-fired power stations have been excluded almost entirely from global financial markets,” he wrote for The Conversation.
“In Australia, all the major banks and insurers, along with many superannuation funds, having now adopted policies to end their involvement with thermal coal. Now attention is turning to oil and gas.”
Companies involved in this carbon economy, Professor Quiggin said, have two options: join the divestment movement by pulling out of these assets or become a ‘pure play’ coal, oil and gas producer. These latter businesses, Professor Quiggin said, will likely be “profitable in the short run but increasingly excluded from investment portfolios and, ultimately, from normal financial transactions like banking and insurance.” The structure of this latest deal even shows some evidence of this. Australian Financial Review’s Chanticleer column noted the merger was achieved through an equity swap rather than cash sale, because “equity is the only currency that does not require the sign-off by the world’s banks and the endorsement of capital markets.” Professor Quiggin said Woodside appears to be going the ‘pure play’ route, and will continue to generate revenues until it’s hamstrung by increasingly tight climate regulations. BHP’s decision to focus on ‘future-facing’ commodities, such as the metals used in electric batteries, marks a different path.
“BHP, which was founded in 1885 and plans to be around for the long term, has seen the writing on the wall. It is getting out while it can,” Professor Quiggin said.
 
  Sources:

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