The Woodside Petroleum Limited (ASX: WPL) share price will be on watch today. Investors are eagerly awaiting a verdict on whether the oil and gas giant will acquire the BHP Group Ltd (ASX: BHP) petroleum business.
Set to report tomorrow, both ASX-listed companies will likely be prompted to spill the beans on the outcome of negotiations. This follows weeks of circulating rumours that Woodside is the frontrunner in nearing a deal.
One company's trash is another's treasure
The mounting ESG pressure from shareholders has had BHP on the lookout for a potential candidate to offload its oil and gas assets for a while now. Reports indicate that Woodside is ahead as the likely contender.
According to The Australian Financial Review, Woodside is in advanced talks with BHP for a possible deal that would value the company's petroleum division around $20 billion. This comes at a time when ASX-listed competitors Santos and Oil Search push forward with a proposed merger.
No doubt, Woodside's management feels the pressure to ward off potential competition from a consolidating industry. An acquisition of BHP's assets would see the addition of oil fields in the Gulf of Mexico and Australia's Bass Strait.
While BHP's petroleum assets have weighed on the company, analysts believe they could have a positive impact on ASX-listed Woodside. For example, it could bolster its scale and growth ambitions.
Speaking on the matter, Credit Suisse energy analysts Saul Kavonic said:
A Think Big Woodside, merged with BHP Petroleum, would present a globally significant LNG-weighted company, with a diversity of low-risk geographic exposure and growth options, including derisked Scarborough, Atlantic LNG options in Trinidad and the US, and various Gulf of Mexico growth options.
Woodside ASX share dilution
Another consideration to weigh on ASX investors' minds is the possible dilution of Woodside shares. If a deal were to come off, the $20 billion valuation would rival the existing market capitalisation of the oil and gas company at $21.38 billion. In such a case, an all-scrip deal would almost double the number of Woodside shares on issue.
The past 12 months have seen the Woodside share price climb 8.5% on the ASX.
