18 August 2021
Woodside yesterday announced its plan to acquire BHP’s global portfolio of oil and gas assets, which would roughly double the company’s fossil fuel production capacity. In payment, Woodside will issue new shares amounting to 48% of the combined company’s total to BHP shareholders.
With both companies currently pursuing significant oil and gas expansion plans that are incompatible with the Paris climate goals, the deal would see Woodside take on BHP Petroleum’s exposure to climate change transition risk. Put simply, Woodside is doubling down on its bet against the world achieving its climate commitments.
Having just sanctioned another oil expansion project earlier this month, BHP is now seeking to hand ready-made projects to Woodside, allowing the dedicated oil and gas producer to go all in on climate destruction, while BHP attempts to wash its hands of the dirty projects it got off the ground.
Even before the deal was confirmed, major Woodside shareholder Allan Gray raised concerns, with portfolio manager Simon Mawhinney stating “There’s almost nothing that this deal offers that looks compelling to us”, and pointing out the dilution of Woodside shareholders’ benefits under the deal. Analysts also questioned the potential impact on Woodside’s share price as climate-conscious BHP investors may seek to offload shares in the expanded pure-play oil and gas company, which they would be lumped with under the proposed deal. The cost of decommissioning BHP’s older assets was also raised as a concern for Woodside shareholders by analysists.
With the deal and BHP’s annual results announced after the ASX closed yesterday, the market reaction so far today has been scathing, with BHP Group Ltd’s share price down 6.31% by 2.45pm.
Speaking about the proposed deal, Market Forces Asset Management Campaigner Will van de Pol said, “Investors are increasingly demanding companies bring their business models into line with global climate goals, and have been shifting capital away from companies that have no willingness or ability to do so. This deal would leave climate-conscious BHP investors lumped with shares in a massive and expanding pure play fossil fuel producer, when we know the industry needs to rapidly shrink if we are to avoid the worst impacts of climate change.”
“Meanwhile, Woodside has proven its desperation to push through as much oil and gas production as quickly as possible. Woodside is going all in on its bet against the Paris climate goals, and is willing to take on BHP’s unwanted climate transition risk exposure and looming decommissioning liabilities in order to pursue even more expansion, including the ticking carbon bomb that is the Scarborough gas project.”
Resolution more important than ever
The proposed merger will be subject to a vote by Woodside shareholders and is targeted to complete in Q2 2022. In the meantime, BHP investors will vote on a Market Forces-coordinated shareholder resolution, calling on the company to manage down its fossil fuel production in line with its stated support for net-zero emissions by 2050.
The supporting statement for that resolution reads (in part): “While divestment addresses stranded asset risk exposure, it fails to manage the reputational risk associated with avoiding responsibility for employee transition support and site rehabilitation. By providing a leading example of responsibly managing down fossil fuel assets, BHP can preserve and realise the genuine value that exists in these assets, align with global climate goals, and support its workers in the transition to a decarbonised economy.”
The shareholder resolution therefore gives BHP investors a critical opportunity to have their say on what they want BHP to do with its fossil fuel assets. Do they want to see them managed in a way that ensures reliable returns, consistency with global climate goals, and provisions for employee transition and site remediation responsibilities? Or do they want them palmed off to a company that has demonstrated it has no intention of limiting production in line with the Paris Agreement, which BHP investors will end up being lumped with shares in?
What does the deal mean for Scarborough?
Woodside and BHP are partners in the proposed Scarborough gas project, which is aiming for a final investment decision by the end of 2021. Along with producing the emissions equivalent of 15 coal power stations running for 30 years, the Scarborough gas project and associated expansion of Pluto LNG facility (Pluto 2) threatens to accelerate degradation of the Murujuga Rock art (proposed for World Heritage listing) due to industrial emissions, and would also cause significant impacts to the local marine environment.
The proposed merger deal would remove any potential barriers or friction BHP may have created in making the call to go ahead with Scarborough, and also boost Woodside’s near-term cashflow, making it easier to fund expansions.
While there was some speculation that taking on BHP’s assets would dampen Woodside’s enthusiasm for expansion projects like Scarborough, the company has reaffirmed its commitment to this massive, dirty development.
However, Woodside reiterated it will need to sell down it stake in Pluto 2 (currently 100%, offering up to 49% for sale) before making the call to go ahead with the Scarborough and Pluto 2. It is also looking to sell part of its stake in the Scarborough offshore gas field component.
This makes it clear: any company that decides to buy into Pluto 2 will effectively be the catalyst for setting off one the biggest carbon bombs Australia has ever seen. Brookfield, Global Infrastructure Partners, and CKI have all been reported as likely bidders. Any potential buyers of a stake in Pluto 2 should be aware that civil society across Australia and beyond will not stand for this climate-wrecking project to be enabled.