Woodside (ASX:WPL) confirms BHP oil and gas merger

Investors contemplate whether Woodside has bitten off more than it can chew…

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Investors don’t seem too enthusiastic about the Woodside Petroleum Limited (ASX: WPL) share price on Wednesday. Shares in the Australian oil and gas giant are trading 1.3% lower to $20.46 following the release of its FY21 results and merger confirmation.

Weighing on the Woodside share price

There had been plenty of speculation, but yesterday Woodside confirmed the rumours of a merger with the petroleum division of BHP Group Ltd (ASX: BHP). Adding to the information for investors to process today, Woodside also reported its FY21 results.

Indeed, today likely marks one of the most significant days in Woodside’s 67-year history. As such, the market is grappling with how the future might look for a ~$35 billion oil and gas, megalodon of a company.

The deal is an all-stock merger, creating a top 10 independent energy company by production in the process. According to Woodside, once complete the merged company will have a high margin oil portfolio. This is in addition to long-life LNG assets and the financial wherewithal to meet global energy needs. Despite this, the Woodside share price is in the negative today.

In a move that has been carefully orchestrated by Meg O’Neill, Woodside shareholders have a few things to be happy about. The previously appointed acting, now permanent, Chief Executive Officer O’Neill drove home a deal that is expected to deliver cost synergies north of US$400 million per annum. This will be through leveraging combined capabilities and capital efficiency.

Furthermore, in an industry that environmentalists have nominated for the chopping block, the merger might give Woodside a bit more longevity. A prime example is the company’s Scarborough project, which contains almost no carbon dioxide. Post-merger, Woodside and BHP’s joint venture in the project will fall under the one umbrella — unlocking further progress.

Results make for a difficult read

While the merger is one variable in the mix, Woodside’s FY21 half-year results add another to the share price equation. The result itself seemed relatively positive, although the market might have expected more.

According to Commsec, consensus estimates were for US$489 million — or approximately AUD$673 million. However, the actual net profit after tax came in at US$354 million. In contrast, the company reported a $4 billion loss in the prior corresponding period.

There’s certainly plenty for Woodside shareholders to consider, and perhaps the share price reflects that today. One final tidbit of information — the Woodside share price has gained 0.8% over the past 12 months.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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