Why should investors keep Woodside Petroleum on their radar?

Highlights 

  • Speculations are rife that Woodside Petroleum is at an advanced stage of talks to purchase the world’s biggest miner BHP Group’s (ASX:BHP) petroleum division for approximately AU$20 billion.
  • Reportedly, in this deal, Woodside is likely to offer shares to BHP for the overall petroleum business, that would later be transferred on to BHP’s shareholders, to make sure that there is no change of control.
  • Woodside will release its half-year report 2021 and the associated investor briefing on Wednesday, 18 August 2021.

Come 18 August and the shareholders of Woodside Petroleum (ASX:WPL) are likely to hear a major announcement from the company.

Strategic talks progress between BHP and WPL

With burgeoning pressure over companies to limit their fossil fuel footprint, mergers and acquisitions have become quite common in the oil and gas sector. Few days after Sydney-based Oil Search Limited (ASX:OSH) decided to merge with its rival Santos (ASX:STO), speculations are rife over Woodside Petroleum’s possible acquisition of BHP Group Limited’s (ASX:BHP) petroleum division for approximately AU$20 billion.

Responding to the speculations, Woodside in its latest update confirmed holding discussions with BHP about a potential merger of the latter’s petroleum business via the distribution of WPL shares to BHP’s shareholders. As per reports, this acquisition would make Woodside a leading player in Australia’s gas sector.

Related Article: From Westpac to Woodside Petroleum:  Why these five ASX stocks were in focus today

BHP Group’s potential exit from petroleum business will mark a crucial turning point for the company, which has come under increased pressure to cut its fossil fuel footprint. At present, BHP makes a large portion of its revenue and earnings from the sale of iron ore and copper.

Why is the BHP deal beneficial for Woodside?

Woodside is facing stiff competition from the proposed merger between Santos and Oil Search.

As per media reports, a deal would provide Woodside with additional near-term free cash flow from the BHP-operated Bass Strait, and the company would want to enhance its position in the Northwest Shelf project.

Related Article: Woodside’s (ASX:WPL) sales revenue jumps 15% in Q2 2021

The Scarborough development

Earlier this month, Australia’s oil and gas production giant, had announced its estimate on the updated cost of Scarborough project as US$12.0 billion (100% project, nominal), comprising US$5.7 billion for the offshore component and US$6.3 billion for the onshore component. This cost estimate was approximately 5% higher than the previous cost estimate announced in November 2019.

Most of the cost increase was the result of the increased pricing from primary contractors

The company also revealed the internal rate of return (IRR) of the integrated Scarborough and Pluto Train 2 development was expected to be more than 12%. The project is targeted to deliver the first cargo in 2026 into a market with anticipated robust demand for LNG.

Woodside Acting CEO Meg O’Neill reiterated that the Scarborough development is a life-changing project that will provide persistent shareholder value. Meg O’Neill also said that Woodside’s contracting strategy for Scarborough reduces cost risk, with approximately 90% of total project contractor spend structured as lump-sum and fixed rate agreements.

What does the second quarter report say about Woodside Petroleum?

On 15 July 2021, Woodside Petroleum announced its second quarter report for the period ended 30 June 2021.

According to the announcement, woodside petroleum achieved sales revenue of US$1,285 million, up 15% from Q1 2021, while at the same time its sales volume increased 9% from Q1 2021. Meanwhile, on the same day, the Australian share market jumped to a fresh all-time high, with the ASX up 0.54% at AU$7682.9.

Woodside will release its half-year report 2021 and the associated investor briefing on Wednesday, 18 August 2021.

Bottom Line

The share price of Woodside has been on the move in the last three months, with the shares closing at AU$21.180 today, down 4.552% from the previous close. In light of the reports about WPL’s potential acquisition of BHP’s petroleum assets, Woodside investors are waiting eagerly both for the company’s half-year results and any major announcement regarding a merger or acquisition.

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