BHP considers merger in effort to exit oil and gas sector

BHP Group is in talks over a potential merger of its oil and gas unit with Woodside Petroleum Ltd. to accelerate a retreat from fossil fuels amid increasing pressure to curb emissions.

Options being discussed include a distribution of Woodside shares to BHP holders to allow the Australian energy firm to add operations spanning Australia to the Gulf of Mexico, the companies said in separate statements. BHP'S unit could be valued at more than US$15 billion, a person familiar with the details said last month.

The petroleum division “simply no longer fits within BHP'S portfolio or future-facing strategy,” said Saul Kavonic, an analyst at Credit Suisse Group AG. Having missed opportunities to sell thermal coal assets at higher prices, “BHP should know it's better to exit petroleum sooner rather than later,” he said.

BHP, which generates the bulk of profits from iron ore and copper, is reviewing its portfolio as energy supermajors grapple with global pressure from investors and governments over climate action, in some cases by shrinking core production and adding renewable energy assets. Chief executive Mike Henry has already signalled plans to focus the world's biggest miner on materials tied to renewable energy and electrification.

“BHP confirms that we have initiated a strategic review of our petroleum business to reassess its position and long-term strategic fit,” the company said.

While talks with Woodside “are currently progressing, no agreement has been reached on any such transaction,” it said.

Though BHP has said it expects oil and gas demand to remain strong for at least another decade, and recently announced US$800 million of investments in growth options, the company is wary of becoming stuck with assets that'll become more difficult to exit as the world attempts to curb consumption of fossil fuels.

The talks with Woodside come a week after environmental campaign group Market Forces tabled a proposal on behalf of about 100 small investors that calls on BHP to wind down oil, gas and coal production in line with international targets to cut greenhouse gas emissions.

A deal that would see investors take on Woodside shares risks undercutting BHP'S climate pledge, according to campaigner Will van de Pol.

“We know that investors have clearly signed up to the goal of net zero by 2050,” he said.