BHP hands surprisingly small $ 3.9 billion cleanup tab to Woodside in oil merger

MELBOURNE, Sept. 14 (Reuters) – BHP Group (BHP.AX) to transfer $ 3.9 billion lower than expected oil and gas decommissioning liability to Woodside (WPL.AX) upon merger of its oil activities with independent Australian gas producer.

Woodside shares jumped 6.5% after the figure was disclosed in BHP’s annual report on Tuesday, outperforming gains of around 4% among its peers.

“The long-awaited number of BHPP’s (BHP Petroleum) abandonment provision has been released, below what we feared it might be,” Credit Suisse analyst Saul Kavonic said in a note. .

BHP said in its annual report that in June 2021, its oil assets included “real estate plant and equipment and closure and rehabilitation arrangements of approximately $ 11.9 billion and $ 3.9 billion, respectively” .

When the merger was announced in August, investors raised concerns as Woodside refused to disclose the rehabilitation responsibilities that had been assumed in setting the terms of the deal with BHP’s oil business to create one of the world’s top 10 independent oil and gas companies. Read more

Oil and gas rehabilitation provisions, which are estimates of the cost of removing platforms and pipelines and cleaning up end-of-life sites, represent approximately one-third of BHP’s total closure and rehabilitation provisions. of $ 11.9 billion for all of its assets.

Kavonic said he assumed Woodside could inherit $ 5 billion to $ 7 billion in decommissioning liabilities as part of the merger with BHP’s oil arm, which includes assets in Australia, the Gulf of Mexico, to Trinidad and Tobago and Algeria.

Citi had estimated BHP’s decommissioning liability in Australia’s Bass Strait alone at $ 3.4 billion.

Once tax offsets are factored in, the actual cost of decommissioning could be less than $ 1 billion, Kavonic said, adding that those costs could be deferred by reusing the sites for activities such as carbon capture and storage. or offshore wind in the future.

Reporting by Sonali Paul; Editing by Muralikumar Anantharaman

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