Sonali Paul

MELBOURNE, (Reuters) – Australian gas producer Woodside (OTC) Petroleum Ltd has agreed to merge with BHP Group’s petroleum arm. An independent expert affirmed that the group’s combined value is approximately $40 billion.

BHP was able to transfer its oil business to Woodside as part of a $nil price deal. The combined group will offer shareholders 48% ownership and Woodside will become a leading 10 international independent oil-and gas producer.

KPMG estimates that the total value of the company is between $37.2 billion – $42.3 billion. That equates to A$26.25 – A$29.81 per share. KPMG’s estimate of Woodside’s per share value was also equal to, or greater than, its assessment.

KPMG stated that “based on these measures the proposed transaction” is fair for Woodside shareholders in a Woodside-commissioned report. It was released Friday to shareholders ahead of the May 19 vote.

Woodside’s Board unanimously recommended that shareholders approve the merger.

After the release of the report, its shares plunged 1.5% to A$32.40. This compares with 0.5% gains in the wider market.

KPMG’s assessment of the combined group was lower than UBS estimates. Credit Suisse (SIX), A$34.60 per Share and A$33 Per Share, depending on banks’ oil price outlooks.

Independent experts assumed that the price would be $100 per barrel by 2022 and then fall to $70 per barrel by 2026.

Saul Kavonic, Credit Suisse analyst, said that KPMG’s report didn’t shine as brightly on BHP’s growth prospects as it hoped. This included significantly underestimating its Calypso gas discovery in Trinidad.

He said that the cashflow profile did not show an increase in cash flow, despite Woodside’s Scarborough gas plant coming online in 2026. This, he stated, “may flag risk for decline elsewhere including at Pluto/Sangomar/North West Shelf”.

KPMG highlighted BHP’s strength in the combined balance sheet. BHP assets were handed over debt-free which would reduce the group’s gearing by around 8%, as opposed to Woodside’s goal gearing of 15%-35%.

KPMG reported that Woodside can now access significant growth and development opportunities through BHP Petroleum’s asset portfolio. This is in an immediate timeframe that Woodside wouldn’t have had otherwise.

BHP also announced that, based upon Woodside’s April 6 share price of $25.55, the implied value for BHP Petroleum was $23.4 billion.

Woodside stated Friday that it anticipates reaching its goal of over $400 million cost savings by combining both groups early in 2024. This includes cutting executive positions and staff. However, the company said the costs for implementing the changes could be up to $600,000,000 in one-off expenses in the first two year.

According to an independent expert, Woodside will inherit about $3.9B in BHP oil and gas closing and rehabilitation obligations.