The BHP Group Ltd (ASX: BHP) share price and the Woodside Petroleum Limited (ASX: WPL) share price will be on watch on Tuesday.
This follows the release of a joint announcement after the market close on Monday.
Why are BHP and Woodside shares on watch?
BHP and Woodside shares could be on the move today after they provided an update on their plans to create a global energy company. According to the release, the two parties have signed a binding share sale agreement (SSA) for the merger of BHP's oil and gas portfolio with Woodside.
This will see Woodside acquire the entire share capital of BHP Petroleum in exchange for new Woodside shares. The signing of the SSA follows the merger commitment deed announced on 17 August.
The release highlights that, on completion, the merger will create a global top 10 independent energy company by production and the largest energy company listed on the Australian share market.
Furthermore, the combined company will have a high margin oil portfolio, long life LNG assets, and the financial resilience to help supply the energy needed for global growth and development over the energy transition.
Management also estimates that the merger will unlock synergies of more than US$400 million pre tax. This will be from optimising corporate processes and systems, leveraging combined capabilities. and improving capital efficiency on future growth projects and exploration.
BHP's CEO, Mike Henry, believes the company's petroleum business and Woodside are better together and expects it to create value for BHP shareholders.
He said: "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. Through the merger we will provide value and choice for BHP shareholders, and unlock synergies in how these assets are managed."
What's next?
Completion of the merger is targeted for the second quarter of the 2022 calendar year. Prior to completion, BHP and Woodside will carry on their respective businesses in the normal course. However, they will put in place appropriate plans to enable a smooth transition of ownership. The effective date of the merger will be backdated to 1 July 2021.
Upon completion, Woodside will issue new shares to BHP shareholders which are expected to comprise approximately 48% of all Woodside shares (on a post-issue basis) as consideration for the acquisition of BHP Petroleum.
However, while BHP has agreed to exclusivity arrangements with Woodside, these arrangements do not restrict BHP from considering superior proposals for BHP Petroleum. Though, a termination fee of US$160 million is payable in certain circumstances if the merger does not complete.
Scarborough given the go-ahead
Finally, BHP also released an announcement relating to the development of the Scarborough upstream project located in the North Carnarvon Basin, Western Australia.
According to the release, BHP has approved US$1.5 billion in capital expenditure for phase 1 of the development. Final investment decisions have also been made by Woodside and the Scarborough Joint Venture.
Mr Henry commented: "Scarborough will be amongst the lowest carbon incremental sources of LNG to world markets. Scarborough will provide a reliable source of LNG for global customers and secure gas supply for the domestic market, as well as ongoing employment in Western Australia. Scarborough will provide important cash flows and value for shareholders of the enlarged Woodside."
