For more than 50 years, the name Woodside has been synonymous with oil and gas in Australia.

Key points:

  • Woodside will acquire BHP’s oil and gas business in a proposed $41 billion merger deal
  • Analysts tip the deal will pave the way for Woodside’s $US12 billion Scarborough project
  • The merger will relieve pressure on Woodside whose existing assets are depleting

Although preceded by Australian mining giant BHP in the petroleum game, Woodside rose to become the local champion of an industry that fuelled much of the world’s economic activity.

Such was Woodside’s financial and political importance in Australia, in 2001 the then treasurer Peter Costello famously torpedoed a takeover bid by Royal Dutch Shell on national interest grounds.

But as the ground shifted underneath the fossil fuel industry in recent years and investors began spurning fossil fuels, a little-acknowledged reality began dawning on observers.

Woodside was — without the successful execution of a last-gasp LNG development — seemingly a company without much of a future.

That was until this week when news of a proposed tie-up between Woodside and the oil and gas arm of mining giant BHP led analysts to say the company now had a path forward.

Deal ‘clears path’ for Woodside

Woodside future - North Rankin

The merger between Woodside and BHP would create one of the world’s biggest oil and gas players.(

Supplied: Woodside

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The deal would involve the merger of the two businesses in a transaction valued at $41 billion.

Crucially, Graeme Bethune from consultancy EnergyQuest said the agreement would pave the way for the planned $US12 billion Scarborough LNG development off Western Australia’s north-west coast.

Doubts had been growing about whether Scarborough would go ahead given BHP owns 26.5 per cent of the project and had been tight-lipped about when or whether it would commit to a final investment decision.

Mr Bethune said the proposed new Woodside would own 100 per cent of the project and have few qualms about proceeding.

“Getting other joint venture partners across the line on major investment decisions is always tough,” Mr Bethune said.

As part of the deal, Woodside will acquire what Mr Bethune said was a raft of high-performing oil and gas assets around the world including some in the Gulf of Mexico.

He said these assets were “major generators of cash” and would significantly boost Woodside’s financial firepower.

However, Mr Bethune said that, while Woodside would roughly double in size thanks to the BHP deal, the window of opportunity for big new “greenfield” oil and gas developments was closing.

Scarborough ‘could be last’

Provided Scarborough went ahead, Mr Bethune said, it could be the last major LNG project of its kind developed in Australia.

“The cheapest kinds of expansions in LNG are brownfield projects, either incremental expansions of existing projects and backfilling them too,” he said.

Woodside's Pluto LNG project in the Pilbara lit up with lights at dusk.

The Pluto LNG development in the Pilbara was Woodside’s last major expansion project.(

Supplied: Woodside

)

“I don’t think we should be in a search for brand new projects.

Recent uncertainty about the fate of Scarborough stands in contrast to the record of the gas industry over the past 15 years, when $300 billion was spent on giant new projects around the country.

Alison George, head of research at responsible investment firm Regnan, said concerns about the oil and gas industry’s carbon emissions were making it much harder for new projects to go ahead.

Ms George said such concerns might have ensnared Scarborough but the BHP merger would “clear a path” and buy Woodside “time and money” to figure out a life beyond fossil fuels.

She noted Woodside itself had identified hydrogen and ammonia as other options to pursue as the world shifted towards net-zero emissions.

A narrow route widens

“The existing fields Woodside operates were starting to decline and had an outlook of decline,” Ms George said.

“The pathway to that was narrower. There were fewer choices for that.

“Now, with this much more diversified asset base, there are many more opportunities.”

Goodwyn Platform, North West Shelf Project

Oil and gas has been viewed as a sunset industry.(

Supplied: Woodside

)

Benefits not without risks

According to Ms George, the BHP deal clarified Woodside’s position as an oil and gas “pure play” while elevating it to a league among the world’s biggest producers.

Ms George noted this could make it easier for Woodside to attract money from overseas investors but there were potential downsides as well.

She said that, by becoming a major oil and gas player internationally, Woodside “may be sticking its head above the parapet” regarding its environmental performance.

“With the scale that it’s bringing to Woodside, it’s going to bring it to the attention of a lot of investors who may not have necessarily paid attention in the past,” she said.

“So, while Woodside has certainly heard strongly from its local institutional shareholder base on the climate transition in recent years, I think this move may well make that more intense and those conversations more diverse globally.”

Blonde woman wearing black suit and ruffled shirt standing in front of Woodside workers controlling a robot

Woodside acting CEO Meg O’Neill says Scarborough is a “project for our times”.(

ABC: Daniel Mercer

)

This week, Woodside’s chief executive, Meg O’Neill, said the deal — which would be paid for by issuing scrip to BHP shareholders — took account of BHP’s liabilities for decommissioning declining assets in places such as Bass Strait and Western Australia.

Ms O’Neill said the fact Woodside was not assuming any debt as part of the deal also meant it would be well placed to chase “low carbon opportunities” in the future.

BHP deal buys Woodside space to plan life beyond fossil fuels
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