Filed by Woodside Petroleum Ltd.

Pursuant to Rule 425 of the Securities Act of 1933

Subject Company: BHP Group Ltd (Commission File No.: 001-09526)


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ASX Announcement

 

Friday, 8 April 2022

 

ASX: WPL

OTC: WOPEY

     

Woodside Petroleum Ltd.

 

ACN 004 898 962

 

Mia Yellagonga

11 Mount Street

Perth WA 6000

Australia

 

T +61 8 9348 4000

www.woodside.com.au

MERGER EXPLANATORY MEMORANDUM

Attached is the Merger Explanatory Memorandum for the proposed merger between Woodside and BHP’s petroleum business, which is Annexure A to the Notice of Annual General Meeting 2022.

 

 

Contacts:

 

INVESTORS

 

Damien Gare

W: +61 8 9348 4421

M: +61 417 111 697

E: investor@woodside.com.au

  

MEDIA

 

Christine Forster

M: +61 484 112 469

E: christine.forster@woodside.com.au

This ASX announcement was approved and authorised for release by Woodside’s Disclosure Committee.


 

Annexure A

Project Endeavour

Merger Explanatory Memorandum

 

  Dated 8/04/2022  

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Disclaimer and important notices

General

This Merger Explanatory Memorandum is Annexure A to the notice of annual general meeting of Woodside Shareholders (“Notice of Meeting”) to be held at 10.00am (AWST) on 19 May 2022 (“Meeting”). You should read the Notice of Meeting and this Merger Explanatory Memorandum in full before making any decision as to how to vote on item 2 as set out in the Notice of Meeting (“Merger Resolution”).

Purpose of this document

This Merger Explanatory Memorandum has been prepared for Woodside Shareholders in connection with the Merger Resolution. The purpose of this Merger Explanatory Memorandum is to provide Woodside Shareholders with information that the Woodside Board believe to be material to deciding whether or not to approve the Merger Resolution.

This Merger Explanatory Memorandum does not constitute or contain an offer to Woodside Shareholders, or a solicitation of an offer from Woodside Shareholders, in any jurisdiction.

A copy of this Merger Explanatory Memorandum has been provided to ASIC and ASX. Neither ASIC nor ASX, nor their respective officers, take any responsibility for the contents of this Merger Explanatory Memorandum.

Defined terms, times and dates

Capitalised terms used in this Merger Explanatory Memorandum are defined in Section 11. Section 11.3 also sets out some rules of interpretation which apply to this Merger Explanatory Memorandum.

All times and dates referred to in this Merger Explanatory Memorandum are times and dates in Perth, Australia, unless otherwise indicated.

No investment advice

This Merger Explanatory Memorandum has been prepared without reference to the investment objectives, financial and taxation situation or particular needs of any Woodside Shareholder or any other person. The information and recommendations contained in this Merger Explanatory Memorandum do not constitute, and should not be taken as, financial product advice. The Woodside Board encourages you to seek independent financial and taxation advice before making any investment decision and any decision as to whether or not to vote in favour of the Merger Resolution.

This Merger Explanatory Memorandum is important and requires your immediate attention. It should be read in its entirety before making a decision on whether or not to vote in favour of the Merger Resolution. In particular, it is important that you consider the potential risks of the Merger, as set out in Section 8, and the views of the Independent Expert set out in the Independent Expert Report contained in Annexure 3 of this Merger Explanatory Memorandum.

If you are in any doubt as to any action to take in relation to the Merger, you should consult an independent and appropriately licenced and authorised professional adviser.

Industry and market data

This Merger Explanatory Memorandum contains industry, market and competitive position data that is based on industry publications and studies conducted by third parties as well as Woodside’s internal estimates and research. These industry publications and third party studies generally state that the information they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

 

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While Woodside believes that each of these publications and third party studies is reliable, Woodside has not independently verified the market and industry data obtained from these third party sources. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this Merger Explanatory Memorandum and may differ among third party sources. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described in Section 8 and in the “Forward-looking statements” paragraph below. These and other factors could cause results to differ materially from those expressed in the forecasts or estimates relating to Woodside or BHP Petroleum or in those of independent third parties. While Woodside believes its internal research is reliable, and its selection of industry publications and third party studies and the description of its market and industry are appropriate, neither such research nor these descriptions have been verified by any independent source.

In addition, references to “independent energy company” in this Merger Explanatory Memorandum exclude NOCs, companies with free float less than 60% (for example, LUKOIL, Wintershall Dea and Rosneft), major integrated oil and gas companies (for example, BP, Chevron, Eni, ExxonMobil, Repsol, Shell and Total) and Canadian oil sands companies (for example, Canadian Natural Resources, Cenovus and Suncor).

Forward-looking statements

Some of the statements appearing in this Merger Explanatory Memorandum may be in the nature of forward-looking statements. Forward-looking statements or statements of intent in relation to future events in this Merger Explanatory Memorandum (including in the Independent Expert Report) should not be taken to be forecasts or predictions that those events will occur. Forward-looking statements generally may be identified by the use of forward-looking words such as ‘guidance’, ‘believe’, ‘aim’, ‘expect’, ‘anticipate’, ‘intending’, ‘foreseeing’, ‘likely’, ‘should’, ‘planned’, ‘may’, ‘estimate’, ‘potential’, or other similar words. Similarly, statements that describe the objectives, plans, goals or expectations of Woodside are or may be forward-looking statements. You should be aware that those statements and any assumptions on which they are based are only opinions and are subject to inherent risks and uncertainties. Those risks and uncertainties include factors and risks specific to the industries in which Woodside operate (for example, price fluctuations, actual demand, currency fluctuations, geotechnical factors, drilling and production results, gas commercialisation, development progress, operating results, engineering estimates, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial markets conditions in various countries, approvals and cost estimates), as well as general economic conditions, prevailing exchange rates and interest rates and conditions in financial markets. Actual events or results may differ materially from the events or results expressed or implied in any forward-looking statement and deviations are both normal and to be expected. If any of the assumptions on which a forward-looking statement is based were to change or be found to be incorrect, this would also likely cause outcomes to be different from the statements made in this Merger Explanatory Memorandum. Investors are strongly cautioned not to place undue reliance on forward-looking statements, particularly in light of the current economic and political climate and the significant volatility, uncertainty and disruption caused by the COVID-19 pandemic and the current conflict between Russia and Ukraine.

None of Woodside nor any of its related bodies corporate, nor any of their respective officers, directors, employees, advisers or representatives (“Beneficiaries”), nor any person named in this Merger Explanatory Memorandum or involved in the preparation of this Merger Explanatory Memorandum, makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward-looking statement, or any events or results expressed or implied in any forward-looking statement. Accordingly, you are cautioned not to place undue reliance on those statements.

The forward-looking statements in this Merger Explanatory Memorandum reflect views held only at the date of this Merger Explanatory Memorandum. Subject to any continuing obligations under the ASX Listing Rules or the Corporations Act, Woodside and its related bodies corporate, and their Beneficiaries, disclaim any obligation or undertaking to distribute after the date of this Merger Explanatory Memorandum any updates or revisions to any forward-looking statements to reflect any change in expectations in relation to those statements or any change in events, conditions or circumstances on which any statement is based.

 

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Responsibility statement

Except as outlined below, the information contained in this Merger Explanatory Memorandum has been prepared by Woodside and is its responsibility alone. Except as outlined below, neither BHP, nor any of its related bodies corporate, nor any of each of their respective officers, directors, employees or advisers, assume any responsibility for the accuracy or completeness of that information.

BHP has prepared and provided the BHP Information and is responsible for that information. Neither Woodside, nor any of its related bodies corporate, nor any of their respective officers, directors, employees or advisers, assume any responsibility for the accuracy or completeness of the BHP Information.

KPMG has prepared the Independent Expert Report (contained in Annexure 3 of this Merger Explanatory Memorandum) and takes responsibility for that report. Neither Woodside, nor any of its related bodies corporate, nor any of their respective officers, directors, employees or advisers, assume any responsibility for the accuracy or completeness of the information contained in the Independent Expert Report, except, in the case of Woodside, in relation to the information which it has provided to the Independent Expert.

Gaffney Cline & Associates has prepared the Independent Technical Specialist Report (included in the Independent Expert Report contained in Annexure 3 of this Merger Explanatory Memorandum) and takes responsibility for that report. Neither Woodside, nor any of its related bodies corporate, nor any of their respective officers, directors, employees or advisers, assume any responsibility for the accuracy or completeness of the information contained in the Independent Technical Specialist Report, except, in the case of Woodside, in relation to the information which it has provided to the Independent Technical Specialist.

Ernst & Young has prepared the Independent Limited Assurance Report (contained in Annexure 1 of this Merger Explanatory Memorandum) and takes responsibility for that report. Neither Woodside, nor any of its related bodies corporate, nor any of their respective officers, directors, employees or advisers, assume any responsibility for the accuracy or completeness of the information contained in the Independent Limited Assurance Report, except, in the case of Woodside, in relation to the information which it has provided to Ernst & Young.

No consenting party has withdrawn their consent to be named before the date of this Merger Explanatory Memorandum.

Foreign jurisdictions

The release, publication or distribution of this Merger Explanatory Memorandum in jurisdictions other than Australia may be restricted by law or regulation in those other jurisdictions and persons outside Australia who come into possession of this Merger Explanatory Memorandum should seek advice on, and observe, any of those restrictions. Any failure to comply with those restrictions may constitute a violation of applicable laws or regulations.

This Merger Explanatory Memorandum has been prepared in accordance with the laws of the Commonwealth of Australia and the information contained in this Merger Explanatory Memorandum may not be the same as that which would have been disclosed if this Merger Explanatory Memorandum had been prepared in accordance with the laws and regulations of a jurisdiction outside Australia.

Financial amounts

All financial amounts in this Merger Explanatory Memorandum are expressed in US currency unless otherwise stated.

Any discrepancies between totals in tables or financial statements, or in calculations, graphs or charts are due to rounding.

All financial and operational information set out in this Merger Explanatory Memorandum is current as at the date of this Merger Explanatory Memorandum, unless otherwise stated.

 

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Charts, maps and diagrams

Any diagrams, charts, maps, graphs or tables appearing in this Merger Explanatory Memorandum are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in diagrams, charts, maps, graphs and tables is based on information available as at the date of this Merger Explanatory Memorandum.

Privacy

Woodside may collect personal information in the process of implementing the Merger.

The type of information that it may collect about you includes your name, contact details and information on your shareholding in Woodside and the names of persons appointed by you to act as a proxy, attorney or corporate representative at the Meeting as relevant to you. The collection of some of this information is required or authorised by the Corporations Act.

The primary purpose of the collection of personal information is to assist Woodside to conduct the Meeting and implement the Merger. Without this information, Woodside may be hindered in its ability to issue this Merger Explanatory Memorandum, conduct the Meeting, and implement the Merger.

Personal information of the type described above may be disclosed to the Woodside Share Registry, third party service providers (including print and mail service providers and parties otherwise involved in the conduct of the Meeting), authorised securities brokers, professional advisers, related bodies corporate of Woodside, regulatory authorities, and also where disclosure is otherwise required or allowed by law.

Woodside Shareholders who are individuals and the other individuals in respect of whom personal information is collected as outlined above have certain rights to access the personal information collected in relation to them. If you would like to obtain details of information about you held by the Woodside Share Registry in connection with Woodside Shares, please contact the Woodside Share Registry.

Woodside Shareholders who appoint an individual as their proxy, corporate representative or attorney to vote at the Meeting should ensure that they inform that individual of the matters outlined above.

Date of Merger Explanatory Memorandum

This Merger Explanatory Memorandum is dated 8 April 2022.

 

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Letter from the Chairman of Woodside

8 April 2022

Dear Woodside Shareholder,

On behalf of the Directors, I am pleased to provide you with this Merger Explanatory Memorandum, which contains comprehensive information about the proposed Merger of Woodside and BHP’s petroleum business.

Woodside Shareholders are being asked to consider this transformative opportunity and approve the Merger and the associated issue of New Woodside Shares.

This is a significant decision for Woodside’s long-term future.

The case for the proposed Merger is compelling, bringing together the best of both organisations to create a global independent energy company with the scale, diversity and resilience to create value for shareholders and increased ability to navigate the energy transition. It will provide the financial strength to fund planned developments in the near term and investment in new energy opportunities and the Woodside Board strongly expects it to support shareholder returns through the cycle.

We are also expecting to realise pre-tax synergies of more than $400 million per annum.

Background

On 17 August 2021, Woodside and BHP announced they had entered into a Merger Commitment Deed, with an effective date of 1 July 2021, to combine BHP Petroleum assets and Woodside through an all-stock merger. On 22 November 2021, Woodside and BHP signed a binding Share Sale Agreement for the acquisition by Woodside of the entire share capital of BHP Petroleum in exchange for New Woodside Shares. Woodside and BHP also executed an Integration and Transition Services Agreement, providing for the planning of integration activities after Implementation, activities to separate BHP Petroleum and its petroleum business from the BHP Group, and a framework for transition services to be provided by BHP to Woodside after Implementation.

The merger ratio was based on the relative values of the respective oil and gas portfolios of Woodside and BHP Petroleum as at 1 July 2021, whereas accounting standards will record the respective values as at Implementation, which is expected to occur on 1 June 2022. The application of the accounting standards is likely to result in the recognition of goodwill due, in part, to the significant increase in the value of Woodside Shares during this period. Woodside Shareholders are encouraged to consider the section on Merger Consideration and the indicative Merged Group Pro Forma Historical Financial Information set out later in this Merger Explanatory Memorandum and the associated risk factors set out in Section 8.

Independent expert

To assist Woodside Shareholders assess the Merger and consider whether to vote in favour of the Merger Resolution, Woodside appointed KPMG as the Independent Expert to prepare an Independent Expert Report.

KPMG has concluded that the Merger is in the best interests of Woodside Shareholders, in the absence of a superior offer. The Independent Expert Report states that on balance Woodside Shareholders will be better off approving the Merger. A complete copy of the Independent Expert Report is contained in Annexure 3 of this Merger Explanatory Memorandum.

Woodside Board recommendation

After carefully considering all aspects, benefits and risks of the Merger and the Independent Expert Report, the Woodside Board unanimously recommends that Woodside Shareholders vote in favour of the Merger Resolution at the Meeting.

The Woodside Board’s recommendation is made in the absence of a Superior Proposal and subject to the Independent Expert maintaining the conclusion that the Merger is in the best interests of Woodside Shareholders.

Reasons why you may want to vote in favour of or against the Merger

Section 1 sets out a summary of the reasons that shareholders may wish to vote for or against the Merger Resolution. In considering how to vote, shareholders should also be aware that there are a number of risks to consider, both general in nature and those specific to the Merger and the Merged Group. These risks are covered in detail in Section 8.

 

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How to vote

Your vote on the Merger is important, and I encourage you to attend the Meeting, which will be held at 10.00am (AWST) on 19 May 2022 at the Perth Convention & Exhibition Centre, 21 Mounts Bay Road, Perth, Western Australia or online at web.lumiagm.com/397447934.

Information on how to vote is set out in the Notice of Meeting.

Further information

We encourage you to consider the information set out in this Merger Explanatory Memorandum, including the Independent Expert Report, both of which set out key considerations for Woodside Shareholders in deciding how to vote.

You are encouraged to seek independent financial, legal and taxation advice before making any investment decision in relation to your shares.

You can also call the Woodside Shareholder information line on 1300 631 206 (within Australia) or +61 3 9415 4393 (outside Australia) or visit the Woodside website at www.woodside.com.au.

Conclusion

The Woodside Board considers that the Merged Group will have a portfolio of complementary, high-margin oil and long-life conventional gas assets in predominantly OECD countries, expected to generate the financial strength and resilience to help Woodside to supply the energy needed for global growth and development through the energy transition.

To all our shareholders, we appreciate your ongoing support. I am pleased to present this opportunity to you on behalf of the Woodside Board and believe that it has the potential to deliver sustainable and long-term financial returns to you.

The Woodside Board remains focused on delivering value to all our stakeholders and building a stronger, more resilient, and diversified company.

 

Yours sincerely,

Richard Goyder, AO

Chairman

Woodside Petroleum Ltd

 

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1   Reasons to vote for or against the Merger Resolution    10
  1.1   Overview    10
  1.2   Reasons to vote in favour of the Merger Resolution    11
  1.3   Why you may consider voting against the Merger    18
  1.4   Other considerations    19
2   Frequently asked questions    20
3   Overview of the Merger    25
  3.1   Outline of the Merger    25
  3.2   Board / Director Recommendations    26
  3.3   Merger consideration    26
  3.4   Independent Expert conclusion    29
4   Industry Overview    31
  4.1   Overview    31
  4.2   Australia oil and gas overview    31
  4.3   West coast of Australia domestic gas market    31
  4.4   East coast of Australia domestic gas market    33
  4.5   LNG market    35
  4.6   Oil market    37
5   Overview of BHP Petroleum    39
  5.1   Overview    39
  5.2   Overview of assets    39
  5.3   Growth projects    55
  5.4   Recent performance    56
  5.5   Reserves and resources    57
  5.6   Corporate structure of BHP Petroleum    59
  5.7   Financial information    63
6   Overview of the Merged Group    65
  6.1   Overview of assets    65
  6.2   Reserves and future production capacity    66
  6.3   Strategy    70
  6.4   Integration planning and business continuity    77
  6.5   Potential synergies and value creation    78
  6.6   Corporate structure of the Merged Group    81
  6.7   Board, Executive Leadership Team and KMPs    82
  6.8   Employees    89
  6.9   Decommissioning    90
7   Financial Information for the Merged Group    95
  7.1   Overview    95
  7.2   Basis of preparation    97

 

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  7.3   Merged Group Pro Forma Historical Income Statement    106
  7.4   Merged Group Pro Forma Historical Statement of Financial Position    107
  7.5   Merged Group Pro Forma Historical Statement of Cash Flows    111
8   Risk Factors    114
  8.1   Overview    114
  8.2   Risks relating to Implementation of the Merger    114
  8.3   Risks relating to the Merged Group    120
  8.4   Risks relating to the ownership of Woodside Shares    142
9   Australian Tax Section    145
  9.1   Material Tax Implications    145
  9.2   Implementation of the Merger and receipt of New Woodside Shares by Eligible BHP Shareholders    145
  9.3   Dividends on New Woodside Shares    147
  9.4   Disposal of New Woodside Shares    148
  9.5   Provision of TFN and/or ABN    149
  9.6   Other Australian taxes    149
10   Additional Information    150
  10.1   Specific information required by Listing Rule 7.3    150
  10.2   Regulatory approvals    150
  10.3   Key documents    151
  10.4   Ineligible Foreign BHP Shareholders    159
  10.5   Small Parcel BHP Shareholders    159
  10.6   ADR and CREST information for U.S. and UK holders    159
  10.7   Specific disclosures    162
  10.8   Exchange controls    162
  10.9   Currency    162
  10.10   Consents and interests    162
11   Glossary and Interpretation    164
  11.1   Definitions    164
  11.2   Glossary of technical and financial terms    173
  11.3   Interpretation    176
12   Appendices    177
 

Annexure 1: Independent Limited Assurance Report

   177
  Annexure 2: BHP Petroleum Historical Financial Information    178
  Annexure 3: Independent Expert Report    179
13   Corporate Directory    180

 

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1

Reasons to vote for or against the Merger Resolution

1.1 Overview

Set out below are some of the reasons why the Woodside Board unanimously recommends that Woodside Shareholders vote in favour of the Merger Resolution at the Meeting. Also set out below are some of the reasons why you may decide to vote against the Merger Resolution, notwithstanding the unanimous recommendation of the Woodside Board and that the Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders.

You should read this Merger Explanatory Memorandum in its entirety before deciding whether or not to vote in favour of the Merger Resolution.

 

 

  Reasons to vote for the Merger Resolution and benefits of the Merger

  

The Merger will create a portfolio of complementary, long-life conventional gas and high-margin oil assets.

  

The Merger strengthens free cash flow generation through the investment cycle and adds substantial balance sheet capacity.

  

The Merger supports shareholder returns through continued capital discipline.

  

The Merger delivers a strong growth profile and a wide range of growth opportunities.

  

The Merger creates an opportunity for energy transition leadership and increased capacity to navigate the energy transition.

  

The Merger is expected to unlock pre-tax synergies of more than $400 million per annum.

  

The Merger has the unanimous support of the Woodside Board.

  

The Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders.

  Reasons to vote against the Merger Resolution and disadvantages of the Merger

×

  

You may not agree with the recommendation of the Woodside Board and/or the conclusion of the Independent Expert.

×

  

The risk profile of the Merged Group will change, which you may consider to be disadvantageous to you relative to the risk profile of the current Woodside business.

×

  

Your percentage shareholding and voting power in Woodside will be diluted by the issue of the Share Consideration.

×

  

Woodside Shares may trade below the current price.

 

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1.2 Reasons to vote in favour of the Merger Resolution

The key reasons for the Woodside Board’s unanimous recommendation that Woodside Shareholders vote in favour of the Merger Resolution at the Meeting are as follows:

1.2.1     The Merger will create a portfolio of complementary, long-life conventional gas and high-margin oil assets

The Merged Group is expected to be a top 10 global independent energy company by production and the largest energy company listed on the ASX.1 The Merged Group will have a portfolio of complementary, long-life conventional gas assets and high-margin oil assets and the financial resilience to help supply the energy needed for global growth and development through the energy transition.

 

Figure 1

International portfolio of Merged Group assets (pro forma, as at 31 December 2021)1,2,3

 

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The Merger is expected to provide Woodside with increased scale and diversity of geographies, products and end markets through an attractive and long-life portfolio of energy assets. The combined conventional asset base will benefit from enhanced resilience through the commodity price cycle, through increased diversification, long-life assets in predominantly OECD countries and high-margin operating cash flows. This is expected to support Woodside Shareholder returns as well as investment in the evolution of the Woodside business through the energy transition.

 

 

1 Top 10 global independent energy company by hydrocarbon production. Woodside analysis based on the Wood Mackenzie Corporate Benchmarking Tool Q4 2021, 1 December 2021. See the section titled ‘Disclaimer and Important Notices’ for clarification of independent energy company.

2 Combined Woodside and BHP Petroleum total production for the 12 months to 31 December 2021. Excludes Algeria and Neptune production. Comprised of 53% BHP Petroleum production and 47% Woodside production.

3 Equivalent to 88 MMboe, combined Woodside and BHP Petroleum LNG production for the 12 months to 31 December 2021. Comprises 20% BHP Petroleum production and 80% Woodside production.

 

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Figure 2

Merged Group product mix and geographic diversification (pro forma as at 31 December 2021) 45

 

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Figure 3

Merged Group 2P and 2C volumes (as at 31 December 2021) 6

 

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4 Combined Woodside and BHP Petroleum for the 12 months to 31 December 2021. Excludes Algeria and Neptune production. Totals may not add due to rounding. For comparative purposes, on a Woodside stand-alone basis for the 12 months to 31 December 2021:

 

  -

Balanced production mix: 78% LNG, 19% oil and condensate, 3% Western Australia domestic gas, 0% East coast Australia domestic gas and <1% LPG, NGLs and other natural gas

 

  -

Geographic diversification: 100% Western Australia

5 NGLs refer to a mixture of light hydrocarbons that exist in the gaseous phase in the reservoir and are recovered as liquids in gas processing plants. NGLs mostly include very light hydrocarbons (ethane, propane, or butanes).

6 Merged Group 2P and 2C volumes as at 31 December 2021. Excludes Algeria and Neptune volumes. For comparative purposes, Woodside stand-alone volumes as at 31 December 2021:

 

  -

2P reserves: 2,292 MMboe, 89% gas and 11% liquids

 

  -

2C resources: 6,599 MMboe, 92% gas and 8% liquids.

 

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Figure 4

Attractive conventional portfolio in low-risk jurisdictions (as at 31 December 2021) 7

 

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Further information on the portfolio of the Merged Group is set out in Section 6.

1.2.2     The Merger strengthens free cash flow generation through the investment cycle and adds substantial balance sheet capacity

The Merged Group’s enlarged and diversified portfolio of producing assets is expected to support significantly increased and sustained cash flows. Woodside’s strong balance sheet is expected to be strengthened by the addition of unlevered BHP Petroleum assets and the improved financial resilience of the merged portfolio. The increased balance sheet capacity is expected to enable the Merged Group to deliver growth while maintaining an investment-grade credit rating (as affirmed by ratings agencies following the announcement of the Merger).8

On a pro forma basis (12 months to 31 December 2021), the Merged Group has:

 

   

An earnings base with revenue of more than $12 billion and EBIT of $5 billion

 

   

Operating cash flows of more than $6 billion supported by resilient operating assets, and

 

   

A strong balance sheet with low gearing of approximately 8%.

 

 

7 Source: Wood Mackenzie estimates based on 2022 production of peers with market capitalisation >$10 billion, excluding NOCs and companies with free float below 65%. Woodside analysis. Chart approximates positions of various companies based on this data. Dataset: APA, BP, Chevron, ConocoPhillips, Coterra, Continental, Devon, Diamondback, ENI, EOG, ExxonMobil, Hess, Inpex, Marathon, Occidental, Ovinitiv, Pioneer, Repsol, Santos, Shell, Total and Woodside. Santos is shown on a pro forma basis after the merger with Oil Search. For comparative purposes, Woodside on a standalone basis consists of 100% OECD and 100% conventional production, based on this data set.

8 Source: S&P, 28 October 2021; Moody’s, 15 December 2021.

 

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Figure 5

Illustrative future production profile of Merged Group9

 

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Figure 6

Strong and sustained cash flow generation by Merged Group as at 31 December 202110

 

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9 Figure 5 is indicative only, and is intended to provide an overall future production profile for the Merged Group. It is based on the assumptions that current sanctioned projects are delivered within their target schedules, and that the Merged Group holds an 82% participating interest in Sangomar and 100% in Scarborough. It also assumes no sell-down of participating interests in Sangomar or Scarborough. To avoid doubt, production from Algeria and Neptune is excluded. Figure 5 is given in advance of completion of the Merger and based, in some respects, on external views of the BHP Petroleum asset base. Accordingly, Figure 5 is provided for illustrative purposes only and should not be relied on as guidance of future production of the Merged Group. Please refer to the “Disclaimer and important notices” section (including under the heading “Forward-looking statements”) for important cautionary information relating to forward-looking statements.

10 Figure 6 is indicative only, and is intended to provide an overall future profile for operating cash flow and free cash flow. Figure 6 assumes a Brent oil price forward curve (as at 24 March 2022) of $107/bbl in 2022, $93/bbl in 2023, $84/bbl in 2024, $79/bbl in 2025, $76/bbl in 2026 followed by a long term $65/bbl (real terms 2022) from 2027. Includes unsanctioned U.S. GOM and Western Australia subsea tiebacks. Assumes 82% Sangomar and 100% Scarborough, noting the equity selldown processes for Sangomar and Scarborough are ongoing. To avoid doubt, production from Algeria and Neptune is excluded. Excludes financing costs. Assumes long-term foreign exchange rate of 0.75 USD per 1.00 AUD. Assumes currently sanctioned projects being delivered in accordance with their current project schedules. Assumes transaction costs of $410 million. Excludes integration costs, cost of attainment of synergies and synergies. Please refer to the “Disclaimer and important notices” section (including under the heading “Forward-looking statements”) for important cautionary information relating to forward-looking statements.

 

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1.2.3 The Merger supports shareholder returns through continued capital discipline

Significant operating cash flow is expected to support returns to Woodside Shareholders over time, while Woodside maintains its focus on disciplined growth investment, in line with its capital allocation framework described at Figure 7 below. It is intended that this capital allocation framework will also apply to the Merged Group.

In line with Woodside’s current dividend policy, the Merged Group’s dividend policy will be based on net profit after tax (NPAT) excluding non-recurring items, with a minimum 50% payout ratio and a targeted payout ratio between 50% and 80%. The NPAT basis is expected to help preserve cash and protect the Merged Group’s balance sheet in periods of low commodity pricing.

In periods of excess cash generation, additional opportunities to provide returns to Woodside Shareholders through special dividends and share buy-backs will be considered.

It is expected that Australian shareholders of the Merged Group will benefit from the continued distribution of Woodside’s significant franking credit balance under the Merged Group’s dividend policy.

 

Figure 7

Capital allocation framework

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  1.

CCUS refers to carbon capture utilisation and storage.

  2.

Payback refers to RFSU + X years.

  3.

Target is for net equity Scope 1 and 2 greenhouse gas emissions, relative to a starting base of the gross annual average equity Scope 1 and 2 greenhouse gas emissions over 2016-2020 and may be adjusted (up or down) for potential equity changes in producing or sanctioned assets with an FID prior to 2021. Following Implementation (which remains subject to Conditions including regulatory approvals), the starting base will be adjusted for the then combined Woodside and BHP petroleum portfolio.

 

Importantly, the enlarged portfolio is expected to deliver the cash flow and financial resilience to fund the Merged Group’s evolution through the energy transition. Woodside’s climate strategy comprises of reducing net equity Scope 1 and 2 greenhouse gas emissions, and investing in the products and services to help Woodside’s customers reduce their emissions. In December 2021, Woodside announced a target of $5 billion (subject to the Merger being Implemented) of new energy products and lower-carbon services investments by 2030, with those investments to be made in line with the capital allocation framework illustrated above.

1.2.4     The Merger delivers a strong growth profile and a wide range of growth opportunities

In addition to the recently sanctioned Scarborough and Pluto Train 2 projects, the Merged Group has a wide range of near-term and longer-term potential growth opportunities that will be progressed in line with Woodside’s disciplined growth strategy.

 

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These growth opportunities include:

 

   

Attractive U.S. GOM tiebacks to existing infrastructure which could deliver low capital expenditure and high return additional production

 

   

Large longer-term LNG and other potential oil and LNG development opportunities, and

 

   

New energy opportunities including hydrogen, ammonia and carbon capture and storage.

All growth opportunities are screened against portfolio metrics using price, scenario and climate analysis and tested through Woodside’s capital allocation framework.

 

Figure 8

Portfolio and opportunity optimisation11

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1.2.5     The Merger creates an opportunity for energy transition leadership and increased capacity to navigate the energy transition

The Merged Group is expected to be a larger, more financially resilient company, with increased scale and technical depth, enabling the Merged Group to better navigate the energy transition than either Woodside or BHP Petroleum could on a standalone basis.

Woodside has previously announced in the Woodside Annual Report 2021 and its Climate Report 2021 that it has set near- and medium-term targets to reduce net equity Scope 1 and 2 greenhouse gas emissions, 15% by 2025 and 30% by 2030, towards an aspiration of net zero by 2050 or sooner.12 Woodside expects these targets to be maintained for the Merged Group, although the possible pathways to achieve those ambitions will need to be determined following the integration of the BHP Petroleum assets.

As announced on 8 December 2021, Woodside is progressing several new energy opportunities across hydrogen and ammonia for power generation with potential 2030 capacity of approximately 3,000 megawatts.

Woodside is also assessing carbon capture and storage opportunities, including the development of a large-scale, multi-user project near Karratha, Western Australia.

 

 

11 Illustrative of the considerations. Not an exhaustive list.

12 Target is for net equity Scope 1 and 2 greenhouse gas emissions, relative to a starting base of the gross annual average equity Scope 1 and 2 greenhouse gas emissions over 2016-2020 and may be adjusted (up or down) for potential equity changes in producing or sanctioned assets with an FID prior to 2021. Following Implementation (which remains subject to Conditions including regulatory approvals), the starting base will be adjusted for the then combined Woodside and BHP Petroleum portfolio.

 

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Figure 9

Merged Group’s net equity Scope 1 and 2 greenhouse gas emission reduction targets 13

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The chart above shows indicative design out, operate out and offset emissions reductions to achieve the Merged Group’s net equity Scope 1 and 2 greenhouse gas emissions targets in 2030. The values do not represent cumulative abatement over the period leading up to those years.

1.2.6     The Merger is expected to unlock pre-tax synergies of more than $400 million per annum

The combination of highly complementary asset portfolios through the Merger is expected to unlock synergies.

Woodside has undertaken comprehensive integration planning work and has identified pre-tax synergies that are expected to be in excess of $400 million per annum (100% basis, pre-tax).

Woodside expects to realise the annual synergies through a combination of corporate, operations, exploration and growth activities.

Further information regarding the potential synergies expected to result from the Merger can be found in Section 6.5.

1.2.7     The Merger has the unanimous support of the Woodside Board

After carefully considering the advantages and disadvantages of the Merger for Woodside Shareholders, for the reasons set out in this Merger Explanatory Memorandum, the Woodside Board believes that the Merger is in the best interests of Woodside Shareholders. The Woodside Board unanimously recommends that Woodside Shareholders vote in favour of the Merger Resolution at the Meeting, in the absence of a Superior Proposal and subject to the Independent Expert maintaining its conclusion that the Merger is in the best interests of Woodside Shareholders.

1.2.8     The Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders

To assist Woodside Shareholders to assess the Merger and consider how to vote on the Merger Resolution, Woodside appointed KPMG as the Independent Expert to prepare the Independent Expert Report.

 

13 Target is for net equity Scope 1 and 2 greenhouse gas emissions, relative to a starting base of the gross annual average equity Scope 1 and 2 greenhouse gas emissions over 2016-2020 and may be adjusted (up or down) for potential equity changes in producing or sanctioned assets with an FID prior to 2021. Following Implementation (which remains subject to Conditions including regulatory approvals), the starting base will be adjusted for the then combined Woodside and BHP Petroleum portfolio.

 

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The Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders, in the absence of a superior offer. This conclusion is on the basis that the Independent Expert has assessed the underlying value of Woodside as a standalone entity to be in the range of A$23.09 to A$26.42 per Woodside share and the value of the Merged Group to be in the range of A$26.25 and A$29.81 per Merged Group share. As the range of assessed values for a Woodside share prior to the Merger lies predominately below the range of assessed values for a share in the Merged Group on an equivalent basis, the Independent Expert has concluded that the Merger is fair to Woodside Shareholders.

The Independent Expert also concluded that, based on its assessment of the full underlying value of Woodside and BHP Petroleum as stand-alone entities, the aggregate 52% interest that Woodside Shareholders will hold in the Merged Group is broadly consistent with Woodside’s contribution to the Merged Group.

The Independent Expert Report is included in full in this Merger Explanatory Memorandum at Annexure 3. See Section 3.4 for further information.

1.3 Why you may consider voting against the Merger

1.3.1     You may not agree with the recommendation of the Woodside Board and/or the conclusion of the Independent Expert

Notwithstanding the unanimous recommendation of the Woodside Board and the conclusion of the Independent Expert (refer to Annexure 3), you may believe the Merger is not in your interests.

1.3.2     The risk profile of the Merged Group will change, which you may consider to be disadvantageous to you relative to the risk profile of the current Woodside business

Woodside Shareholders are currently exposed to certain risks by virtue of having an equity interest in Woodside.

While Woodside and BHP Petroleum both have international operations, with common areas of interest across a number of regions, products and end markets (including common ownership of a number of assets), the profile, capital structure and size of the Merged Group will be significantly different from that of Woodside prior to the Merger.

If the Merger is implemented, Woodside Shareholders will maintain a level of exposure to these risks and will become exposed to additional risks associated with having an indirect equity interest in BHP Petroleum (which will be owned by Woodside following Implementation) and with Implementation more generally. These risks include, but are not limited to, the Merged Group not realising the expected growth opportunities and synergies. In addition, the Merged Group’s increased scale of operations as a result of the Merger will increase the exposure to the risks that Woodside currently faces (as described in Section 8.3), including the exposure to challenges associated with climate change and the energy transition.

However, following Implementation, the Merged Group’s diversified portfolio of assets will mean that Woodside Shareholders have a reduced risk exposure to any one asset.

1.3.3     Your percentage shareholding and voting power in Woodside will be diluted by the issue of the Share Consideration

Your equity interest in Woodside will be diluted if the Merger is implemented. In this regard, Implementation will reduce Woodside Shareholders’ aggregate interest in Woodside’s assets from 100% to approximately 52% as a result of the issue of New Woodside Shares, though Woodside Shareholders will gain exposure to BHP Petroleum’s assets.

 

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1.3.4     Woodside Shares may trade below the current price

The price at which Woodside Shares trade on ASX after the Merger is implemented may be influenced by a range of factors and Woodside Shares may trade below the price of Woodside Shares on the Last Practicable Date (being A$33.20), the date of the Meeting or the Implementation Date.

The levels of liquidity and volatility at which Woodside Shares may trade after the Merger is implemented could differ from those at which Woodside Shares currently trade, including as a result of the sale facility to be conducted by the Sale Agent (refer to Section 10.4).

There is no guarantee that Woodside Shares post-Merger will trade in or above the Independent Expert’s assessed value per Merged Group share of A$26.25 to A$29.81 or that they will trade at or above the price of Woodside Shares on the Last Practicable Date of A$33.20.

1.4 Other considerations

In considering how to vote in relation to the Merger Resolution, Woodside Shareholders should be aware that there are a number of risks, both general in nature and specific to the Merger and the Merged Group. These include:

 

   

Risks relating to Implementation of the Merger

   

Risks relating to the Merged Group, and

   

Risks relating to the ownership of Woodside Shares.

These risks are described in detail in Section 8.

Certain risks associated with the Merger are also considered in the Independent Expert Report which is included in full in this Merger Explanatory Memorandum at Annexure 3. In particular, the Independent Expert points out that the Merger is being undertaken at a time of significant geopolitical unrest, during a period of significant global uncertainty arising from the impact of COVID-19 variants and against a background of increasing focus by the global community on environmental, social and governance issues, and that evaluation of the Merger requires Woodside Shareholders to consider both matters of value and also the broader commercial and qualitative aspects of the proposal in order to determine how to vote. Woodside Shareholders are encouraged to read the Independent Expert Report in detail for these reasons.

 

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2

Frequently asked questions

This section answers some frequently asked questions about the Merger. It is not intended to address all relevant issues for Woodside Shareholders. This section should be read together with all other parts of this Merger Explanatory Memorandum.

 

   
    Question   Answer   More information
   

Why have I received this Merger Explanatory Memorandum?

 

The information set out in this Merger Explanatory Memorandum will assist you, as a Woodside Shareholder, to decide how you wish to vote on the Merger Resolution at the Meeting.

 

Please see Section 1 for further information regarding the reasons to vote for or against the Merger Resolution.

   

What is the Merger?

 

If the Merger is implemented, Woodside will acquire all of the issued share capital in BHP Petroleum International Pty Ltd, which holds BHP’s oil and gas business, and Woodside will issue 914,768,948 New Woodside Shares to BHP as part of the Merger Consideration, with those New Woodside Shares to be immediately distributed by BHP to, or for the benefit of, BHP Shareholders.14

 

The Merged Group will be owned by Existing Woodside Shareholders (as to approximately 52%) and BHP Shareholders (as to approximately 48%) (based on the issue of 914,768,948 New Woodside Shares and the number of Woodside Shares outstanding on the Last Practicable Date) subject to any BHP Shareholders being Ineligible Foreign BHP Shareholders or Relevant Small Parcel BHP Shareholders.

 

The Merger is subject to satisfaction of various Conditions, including Woodside Shareholder Approval, regulatory and other approvals as detailed in Section 10.2.

 

Please see Section 3 for further information on the Merger.

   

Why is Woodside proposing the Merger?

 

The Woodside Board considers that the Merger of Woodside and BHP Petroleum is a highly attractive opportunity that is expected to create a top 10 global independent energy company by production and the largest energy company listed on the ASX.15 The Merger is expected to deliver benefits for both Woodside Shareholders and BHP Shareholders by creating a long-life conventional portfolio of scale and diversity of geography, product and end markets.

 

See Section 1.2 for information regarding the reasons to vote for the Merger Resolution and Section 3.1 for further information regarding why Woodside is proposing the Merger.

   

Does the Woodside Board recommend the Merger Resolution?

 

The Woodside Board unanimously recommends that Woodside Shareholders vote in favour of the Merger Resolution, in the absence of a Superior Proposal and subject to the Independent Expert maintaining its conclusion that the Merger is in the best interests of Woodside Shareholders.

 

Please see Section 3.2 for further information regarding the recommendation of the Woodside Board.

 

 

14 

The number of New Woodside Shares to be issued assumes that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation.

15 

Top 10 global independent energy company by hydrocarbon production. Woodside analysis based on the Wood Mackenzie Corporate Benchmarking Tool Q4 2021, 1 December 2021. See the section titled ‘Disclaimer and Important Notices’ for clarification of independent energy company.

 

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    Question   Answer   More information
   

What has the Independent Expert said?

 

The Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders.

 

The Independent Expert Report is included in full in this Merger Explanatory Memorandum at Annexure 3.

 

Please see Section 3.4 and the Independent Expert Report for further information regarding the Independent Expert’s conclusion.

   

What are the reasons to vote for the Merger Resolution and the benefits of the Merger Resolution?

 

The reasons why you should consider voting for the Merger Resolution are set out in Section 1.2, and include that the Merger is expected to:

•  Create a portfolio of complementary, long-life conventional gas and high-margin oil assets;

•  Strengthen free cash flow generation through the investment cycle and add substantial balance sheet capacity;

•  Support shareholder returns through continued capital discipline;

•  Deliver a strong growth profile and a wide range of growth opportunities;

•  Create an opportunity for energy transition leadership and increased capacity to navigate the energy transition; and

•  Unlock pre-tax synergies of more than US$400 million per annum.

The Merger has the unanimous support of the Woodside Board.

Note also the conclusions of the Independent Expert set out above.

 

Please see Section 1.2 for further information regarding the reasons to vote for the Merger Resolution.

   

What are the reasons to vote against the Merger Resolution and disadvantages of the Merger Resolution?

 

The reasons why you might consider voting against the Merger Resolution are set out in Section 1.3, and include that:

•  You may not agree with the recommendation of the Woodside Board and/or the conclusion of the Independent Expert;

•  The risk profile of the Merged Group will change, which you may consider to be disadvantageous to you relative to the risk profile of the current Woodside business;

•  Your percentage shareholding and voting power in Woodside will be diluted by the issue of the Share Consideration; and

•  Woodside Shares may trade below the current price.

 

Please see Section 1.3 for further information regarding the reasons to vote against the Merger Resolution.

   

What are the potential risks of the Merger?

 

If the Merger is implemented, Woodside Shareholders may be exposed to several risks including, but not limited to risks relating to:

•  Implementation of the Merger;

•  The Merged Group; and

•  The ownership of Woodside Shares.

 

Please see Section 8 for further information regarding the potential risks in relation to Implementation of the Merger, the Merged Group and Woodside Shares.

   

What happens if the Merger Resolution is not approved?

 

If the Merger Resolution is not approved, the Merger will not be completed, Woodside will not pay the Merger Consideration and BHP Petroleum will remain a wholly owned subsidiary of BHP.

 

Please see Section 8.2 for further information regarding what happens if the Merger Resolution is not approved.

 

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    Question   Answer   More information
   

What if I cannot or do not wish to attend the Meeting?

 

Woodside Shareholders who cannot or do not wish to attend the Meeting may appoint a proxy to attend and vote at the Meeting or may utilise direct voting to exercise their voting rights without needing to attend the Meeting or appoint a proxy. The Company encourages you to register your direct voting or proxy instructions online at the Share Registry website www.investorvote.com.au.

 

Please see the Notice of Meeting for further information regarding instructions on how to vote.

   

Is voting compulsory?

 

Voting is not compulsory. However, your vote is important in deciding whether the Merger is approved.

 

N/A

   

Who is excluded from voting on the Merger Resolution?

 

Woodside will disregard any votes cast in favour of the Merger Resolution by or on behalf of:

•  Any persons who are expected to participate in, or who will obtain a material benefit as a result of, the proposed issue of New Woodside Shares (except a benefit solely by reason of being the holder of ordinary shares in Woodside or BHP or tradeable interests in those shares, such as in the form of ADSs); or

•  An associate of that person or those persons.

 

Please see the Notice of Meeting for further information regarding voting exclusions.

   

When will the results of the Meeting be known?

 

Results of the Merger Resolution are expected to be known shortly after the close of the Meeting on 19 May 2022.

Results will be released to ASX and uploaded to Woodside’s website at www.woodside.com.au once they are known.

 

N/A

   

What are the tax implications of the Merger for Woodside Shareholders?

 

Woodside Shares held by existing Woodside Shareholders will not be impacted by Implementation of the Merger, and they will not receive any consideration in connection with the Merger (unless they are also an Eligible BHP Shareholder and receive New Woodside Shares in that capacity). Accordingly, there are no Australian tax implications of the Merger for Existing Woodside Shareholders in their capacity as a Woodside Shareholder.

 

Please see Section 9 for further information regarding the Australian income tax, GST and stamp duty implications for Woodside Shareholders who are also Eligible BHP Shareholders of Implementation and of holding New Woodside Shares.

   

What relationship will exist between Woodside and BHP following the Merger with respect to the BHP Petroleum business?

 

Following Implementation, Woodside and BHP will remain as separate entities, with their respective securities listed on several stock exchanges. With respect to BHP Petroleum, BHP will continue to provide certain services through the Integration and Transition Services Agreement, which BHP and Woodside entered into simultaneously with their entry into the Share Sale Agreement.

 

See Section 10.3.2 for further information regarding the Integration and Transition Services Agreement.

 

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    Question   Answer   More information
   

Is Implementation subject to any conditions?

 

Implementation of the Merger is subject to the satisfaction (or waiver, if permitted) by 30 June 2022 (or an agreed later date) of a number of Conditions as set forth in the Share Sale Agreement including, among others, approval by certain regulatory and competition authorities, approval of Woodside Shareholders, the issuing of the Independent Expert Report with a “best interests” conclusion, and the completion of the Restructure. A vote of BHP Shareholders is not required to complete the Merger.

 

The Merger Resolution will be approved if more than 50% of the Woodside Shares voted at the Meeting are voted in favour of the Merger Resolution. Three Woodside Shareholders present at the Meeting will constitute a quorum.

 

If the Merger Resolution is not approved by Woodside Shareholders (or if any other Condition to Implementation is not met or waived), the Merger will not complete, Woodside will not pay the Merger Consideration and BHP Petroleum will remain a wholly owned subsidiary of BHP (unless BHP determines otherwise).

 

See Section 10.3.1 for further information regarding the Conditions.

   

When will the Merger be completed?

 

Woodside and BHP are working to complete the Merger in accordance with the Share Sale Agreement. In addition to regulatory approvals, and assuming that the Merger Resolution is approved by Woodside Shareholders at the Meeting, other important Conditions to the Implementation of the Merger exist. Subject to the satisfaction of all outstanding Conditions, Woodside and BHP are targeting Implementation on 1 June 2022. The Share Sale Agreement contains a cut-off date of 30 June 2022 for Implementation, which may be extended at the agreement of Woodside and BHP.

 

N/A.

   

What happens if the Merger does not complete?

 

If the Merger does not complete for any reason, Woodside will not pay the Merger Consideration and BHP Petroleum will remain a wholly owned subsidiary of BHP (unless BHP determines otherwise).

 

Please see Section 8.2 for further information regarding what happens if the Merger Resolution is not approved.

 

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    Question   Answer   More information
   

What will BHP Shareholders receive if the Merger completes? After the Merger, how much of the combined company will BHP Shareholders own?

 

Upon Implementation, BHP Shareholders will be entitled to, in aggregate, 914,768,948 New Woodside Shares (assuming that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation).

 

The Merged Group will be owned by Existing Woodside Shareholders (as to approximately 52%) and BHP Shareholders (as to approximately 48%) (based on the issue of 914,768,948 New Woodside Shares and the number of Woodside Shares outstanding on the Last Practicable Date) subject to any BHP Shareholders being Ineligible Foreign BHP Shareholders or Relevant Small Parcel BHP Shareholders.

 

Eligible BHP Shareholders will be entitled to a specific number of New Woodside Shares in respect of each BHP Share that the BHP Shareholder holds at the Distribution Record Date, which date will be set by BHP. Based on the number of New Woodside Shares to be issued and the number of BHP Shares outstanding on the Last Practicable Date, each BHP Shareholder is expected to be entitled to approximately 0.1807 New Woodside Shares in respect of each BHP Share.

 

See Sections 3.1 and 3.3 in relation to the number of New Woodside Shares to which BHP Shareholders will be entitled upon Implementation.

   

Where will I be able to trade Woodside Shares after Implementation?

 

Woodside Shares are currently listed on ASX under the ticker symbol “WPL”.16

 

Woodside will also seek a secondary listing for Woodside ADSs to be listed and trade on the NYSE. No trading market exists in the United States for Woodside Shares. BHP ADS Holders will not be able to trade the New Woodside Shares underlying the New Woodside ADSs received as Share Consideration for the BHP ADSs before the New Woodside Shares are deposited with the Woodside Depositary and corresponding New Woodside ADSs are issued and delivered to the BHP ADS Holders.

 

In addition, Woodside will make applications to the FCA and the LSE for all of the Woodside Shares to be admitted to the standard listing segment of the Official List and to trading on the LSE’s Main Market for listed securities.

 

See Sections 3.3.1 and 10.6 for further information relating to the secondary listings.

   

What if I am also a BHP Shareholder?

 

If you are an Existing Woodside Shareholder who is also a BHP Shareholder, you should carefully consider all material made available to you by BHP.

 

N/A

   

Where can I find more information about Woodside, BHP Petroleum and the Merger?

 

You can find out more information about Woodside, BHP Petroleum and the Merger by reading this Merger Explanatory Memorandum. See also response to “Further questions” below.

 

N/A

   

Further questions

 

If you are in any doubt as to any action to take in relation to the Merger, you should consult your legal, financial, taxation or other professional adviser.

 

N/A

 

 

16 

At its Meeting to be held on 19 May 2022, Woodside is proposing a resolution to change its name from “Woodside Petroleum Ltd” to “Woodside Energy Group Ltd”. Woodside has reserved the ticker symbol “WDS”, and will formally apply to change the ticker symbol after its name change takes effect.

 

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3

Overview of the Merger

3.1 Outline of the Merger

On 17 August 2021, Woodside and BHP announced that they had entered into a Merger Commitment Deed, with an effective date of 1 July 2021, to combine BHP Petroleum assets and Woodside through an all-stock merger. The Merger will be on a cash-free and debt-free basis, where BHP Petroleum will settle all intercompany loan balances prior to Implementation.

With the combination of two high quality asset portfolios, the Merger is expected to create a top 10 global independent energy company by production and the largest energy company listed on ASX.17 Woodside believes that the Merger will help it supply the energy needed for global growth, and support its financial resilience, through the energy transition.

On 22 November 2021, Woodside and BHP entered into a binding Share Sale Agreement to implement the Merger (together with an Integration and Transition Services Agreement, which sets out the parties’ obligations in relation to the separation, transition and integration of BHP’s oil and gas portfolio with Woodside’s oil and gas portfolio).

If the Merger is implemented, Woodside will acquire all of the issued share capital in BHP Petroleum International Pty Ltd, which holds BHP’s oil and gas business, and Woodside will issue 914,768,948 New Woodside Shares to BHP as part of the Merger Consideration,18 with those New Woodside Shares to be immediately distributed by BHP to Eligible BHP Shareholders (and transferred to the Sale Agent, in the case of New Woodside Shares attributable to Ineligible Foreign BHP Shareholders and Relevant Small Parcel BHP Shareholders).

The Merged Group will be owned by Existing Woodside Shareholders (as to approximately 52%) and BHP Shareholders (as to approximately 48%) (based on the issue of 914,768,948 New Woodside Shares and the number of Woodside Shares outstanding on the Last Practicable Date) subject to any BHP Shareholders being Ineligible Foreign BHP Shareholders or Relevant Small Parcel BHP Shareholders.

Eligible BHP Shareholders will be entitled to a specific number of New Woodside Shares in respect of each BHP Share that the BHP Shareholder holds at the Distribution Record Date, which date will be set by BHP. Based on the number of New Woodside Shares to be issued and the number of BHP Shares outstanding on the Last Practicable Date, each BHP Shareholder is expected to be entitled to approximately 0.1807 New Woodside Shares in respect of each BHP Share.

The Merger is subject to satisfaction (or waiver, if permitted) of various Conditions including Woodside Shareholder Approval and regulatory and other approvals as detailed in Section 10.2.

If all of the Conditions are satisfied (or waived, if permitted), including Woodside Shareholder Approval, then:

 

 

100% of the issued share capital of BHP Petroleum International Pty Ltd will be transferred to Woodside (or its nominee) and BHP Petroleum will become a wholly owned subsidiary of Woodside

 

 

Woodside will pay to BHP the Merger Consideration, including the Share Consideration of 914,768,948 New Woodside Shares which will be issued to BHP19

 

 

BHP will immediately distribute to Eligible BHP Shareholders (and transfer to the Sale Agent, in the case of New Woodside Shares attributable to Ineligible Foreign BHP Shareholders and Relevant Small Parcel BHP Shareholders) the Share Consideration, pro rata to their respective ownership of BHP

 

17 

Top 10 global independent energy company by hydrocarbon production. Woodside analysis based on the Wood Mackenzie Corporate Benchmarking Tool Q4 2021, 1 December 2021. See the section titled ‘Disclaimer and Important Notices’ for clarification of independent energy company.

18 

The number of New Woodside Shares to be issued assumes that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation.

19 

The number of New Woodside Shares to be issued assumes that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation.

 

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Ineligible Foreign BHP Shareholders and Relevant Small Parcel BHP Shareholders will receive a cash payment from the proceeds of the sale of New Woodside Shares by the Sale Agent in lieu of receiving New Woodside Shares.

Following Implementation, the Merged Group will comprise Woodside and its subsidiaries, including each member of the BHP Petroleum group.

From the date of issue, New Woodside Shares issued as the Share Consideration will be fully paid and rank equally with Woodside Shares currently on issue. Following Implementation, Woodside Shares will continue to be listed on ASX, and Woodside will make applications for secondary listings on the NYSE in the United States (in the form of Woodside ADSs) and on the LSE in the United Kingdom.

Section 10.3.1 provides details about the timing for the payment of the cash proceeds from the sale of New Woodside Shares by the Sale Agent that Ineligible Foreign BHP Shareholders and Relevant Small Parcel BHP Shareholders will receive in lieu of the receipt of New Woodside Shares under the Merger.

Implementation will not result in any change to any BHP Shareholder’s ownership of BHP Shares.

3.2 Board / Director recommendations

After carefully considering all aspects, benefits and risks of the Merger and the Independent Expert Report (including the Independent Technical Specialist Report), the Woodside Directors unanimously:

 

 

Support the Merger; and

 

 

Recommend that Woodside Shareholders vote in favour of the Merger Resolution,

in the absence of a Superior Proposal and subject to the Independent Expert maintaining its conclusion that the Merger is in the best interests of Woodside Shareholders.

Each Woodside Director intends to vote in favour of the Merger Resolution in respect of any Woodside Shares they hold or control, in the absence of a Superior Proposal and subject to the Independent Expert maintaining its conclusion that the Merger is in the best interests of Woodside Shareholders. In reaching their recommendation, the Woodside Directors have considered a range of factors, including the potential for Existing Woodside Shareholders to share in the potential value creation from the expected diversification, growth and scale of the Merged Group. Refer to Sections 1.2 and 1.3 for a discussion of some of the matters that the Woodside Board has taken into account in making its recommendation to Woodside Shareholders.

3.3 Merger consideration

Under the Share Sale Agreement, the Merger will take economic effect from 1 July 2021.

As a result, subject to Implementation, Woodside will become entitled to the economic benefit and risks of the BHP Petroleum assets and liabilities that are the subject of the Merger with effect from 1 July 2021, and BHP Shareholders will become entitled to the agreed number of Woodside Shares with adjustment for dividends and certain other events from that same date. Movements in the value of either BHP Petroleum’s assets or Woodside Shares after 1 July 2021 will not affect the “merger ratio” and would be to the benefit or detriment of each party.

Nevertheless, for accounting purposes, the Merger will be treated as if it is effective as of the Implementation Date. The accounting treatment of the consideration paid by Woodside will be determined by the price of the Woodside Shares at the Implementation Date. The price of Woodside Shares has increased by approximately 50% from 1 July 2021 to the Last Practicable Date for a variety of potential reasons including increases in commodity prices. Accounting standards require the value of Woodside Shares (including the increase in the value of Woodside Shares from July 2021 to the Implementation Date) to be allocated to the BHP Petroleum assets and liabilities acquired at their fair value and any amount above that allocated to goodwill. Following Implementation, Woodside will need to determine the fair value of the BHP Petroleum assets and liabilities as at the Implementation Date and calculate the value of goodwill on acquisition to be recognised. Subsequently, on an ongoing basis, Woodside will need to assess the extent to which the goodwill may be impaired.

 

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The Pro Forma Financial Information includes an estimate of goodwill arising on acquisition, based on assumptions as to the price of Woodside Shares and other factors. See Section 7 for further information.

If the Merger is implemented, Woodside will acquire 100% of the issued share capital of BHP Petroleum International Pty Ltd in exchange for:

 

 

The Share Consideration: the issue of 914,768,948 New Woodside Shares by Woodside to BHP on Implementation, with those New Woodside Shares to be immediately distributed by BHP to, or for the benefit of, BHP Shareholders20

 

 

The following cash payments:

 

  -  

The Woodside Dividend Payment, payable by Woodside to BHP on Implementation, and

 

  -  

Any other adjustments to the Merger Consideration payable in accordance with the Share Sale Agreement.

Separately, if required, BHP will pay to Woodside, or Woodside will pay to BHP, the Locked Box Payment on Implementation. The Locked Box Payment refers to:

 

   

The net cashflows generated by BHP Petroleum (adjusted for permitted adjustments) since the Effective Time,

 

   

Net of any cash retained in bank accounts beneficially controlled by BHP Petroleum.

Further information regarding the Share Sale Agreement, the Woodside Dividend Payment and the Locked Box Payment is set out in Section 10.3.1.

3.3.1       Share Consideration

With respect to the Share Consideration, BHP has provided Woodside with written notice stating that BHP directs Woodside to issue the Share Consideration to BHP, following which BHP will procure that the New Woodside Shares are immediately distributed to Eligible BHP Shareholders (or transferred to the Sale Agent, in the case of New Woodside Shares attributable to Ineligible Foreign BHP Shareholders and Relevant Small Parcel BHP Shareholders).

Upon Implementation, Woodside will issue New Woodside Shares and:

 

 

Ensure that each New Woodside Share is unencumbered, fully paid up and ranks equally with existing Woodside Shares

 

 

Procure that all New Woodside Shares are listed for quotation on ASX (or relevant secondary listing exchanges), and

 

 

Cause a holding statement or allotment confirmation advice to be promptly despatched to each BHP Shareholder and Depositary Interest holder that has received New Woodside Shares or Depositary Interests (respectively).

Eligible BHP Shareholders will be entitled to a specific number of New Woodside Shares in respect of each BHP Share that the BHP Shareholder holds at the Distribution Record Date (which date will be set by BHP), with their aggregate entitlement to New Woodside Shares rounded down to the nearest whole number of New Woodside Shares. Based on the issue of 914,768,948 New Woodside Shares and the number of BHP Shares outstanding on the Last Practicable Date, Eligible BHP Shareholders are expected to be entitled to approximately 0.1807 New Woodside Shares in respect of each BHP Share.

Based on the closing price of Woodside Shares on each of the relevant dates specified in the table below, the Share Consideration implies the total consideration as set out in the table below.

 

           
Date    Event    Closing Woodside
share price
   AUD/USD    Number of Woodside
Shares
issued to BHP
at
Implementation
   Share
Consideration
value (USD)
         

16 August 2021

   Last trading day
before the
Merger was
announced
   A$21.18    0.7336    914,768,948    $14.213 billion
 

 

20 

The number of New Woodside Shares to be issued assumes that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation.

 

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19 November 2021

   Last trading day
before the Share
Sale Agreement
was entered into
   A$22.11    0.7274    914,768,948    $14.712 billion
         

24 March 2022

   Last Practicable
Date
   A$33.20    0.7473    914,768,948    $22.696 billion

The 914,768,948 New Woodside Shares to be issued as Share Consideration will represent approximately 48% of the shares on issue in the Merged Group upon Implementation, with Existing Woodside Shareholders owning approximately 52% of the Merged Group.21

From the Implementation Date, the New Woodside Shares received as part of the Merger Consideration will be fully paid and rank equally with existing Woodside Shares.

Following Implementation, Woodside Shares will continue to be listed on ASX.

BHP ADS Holders will be issued New Woodside Shares in the form of Woodside ADSs, each representing a Woodside Share. Woodside will file with the SEC the U.S. Registration Statements for the issue of the Woodside ADSs and the distribution of the New Woodside Shares under U.S. securities laws prior to the Meeting. In addition, Woodside has applied to list the Woodside ADSs on the NYSE, under the symbol “WDS”.

Woodside will also apply for admission of the Woodside Shares in the United Kingdom on the LSE under a standard listing, under the symbol “WDS”.

See Section 10.6 for further information. Further information can also be found in the U.S. Registration Statements and the UK prospectus which are expected to be filed by Woodside and released to ASX shortly following the date of this Merger Explanatory Memorandum.

3.3.2       Woodside Dividend Payment and Locked Box Payment

Separate to the Share Consideration, on Implementation:

 

 

Woodside will pay the Woodside Dividend Payment to BHP; and

 

 

If required, BHP will pay to Woodside, or Woodside will pay to BHP, the Locked Box Payment.

The Woodside Dividend Payment is, in effect, the payment to BHP of a cash amount at Implementation representing the cash dividend that would have been received (between the Effective Time and Implementation) by BHP Shareholders if they had been issued the Share Consideration at the Effective Time. The Woodside Dividend Payment amounts to $830 million.

The Locked Box Payment is a payment from BHP to Woodside at Implementation representing the positive net cash flow generated by BHP Petroleum (adjusted for permitted adjustments) following the Effective Time (or, if that amount were negative, Woodside will be required to make a cash payment to BHP at Implementation). As at the date of this Merger Explanatory Memorandum, Woodside estimates the Locked Box Payment (based on an Implementation Date of 1 June 2022) to be approximately $1.6 billion (such amount to be reduced by any cash held in bank accounts beneficially controlled by BHP Petroleum as at the Implementation Date), payable by BHP to Woodside.22

Further information regarding the Share Sale Agreement, the Woodside Dividend Payment and the Locked Box Payment is set out in Section 10.3.1.

 

21 

In each case assuming that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation

22 

This estimate is based on Woodside’s current expectations of BHP Petroleum net cash flows (adjusted for permitted adjustments) for the period from 1 July 2021 to 1 June 2022 (when Implementation is expected to occur). The estimate assumes an average Brent oil price in 2022 of $107/bbl. Given this is an estimate only, the actual amount of the Locked Box Payment may vary (potentially significantly) from the amount currently anticipated by Woodside due to a variety of factors, including as a result of volatility in commodity prices. Please refer to the “Disclaimer and important notices” section (including under the heading “Forward-looking statements”) for important cautionary information relating to forward-looking statements.

 

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3.3.3       Ineligible Foreign BHP Shareholders

A BHP Shareholder who is not an “Eligible BHP Shareholder” will be an “Ineligible Foreign BHP Shareholder” for the purposes of the Merger (except certain South African BHP Shareholders who validly elect to receive New Woodside Shares in accordance with arrangements to be outlined by BHP). Ineligible Foreign BHP Shareholders will not receive New Woodside Shares in connection with the Merger.

Refer to Section 10.4 for further information in relation to the treatment of Ineligible Foreign BHP Shareholders.

3.3.4       Small Parcel BHP Shareholders

A Small Parcel BHP Shareholder who validly elects (in accordance with the instructions to be issued by BHP) to have the New Woodside Shares to which they will be entitled (pursuant to the Merger and the subsequent BHP distribution of New Woodside Shares) sold by the Sale Agent under the sale facility will be a “Relevant Small Parcel BHP Shareholder”. Relevant Small Parcel BHP Shareholders will not receive New Woodside Shares in connection with the Merger.

Refer to Section  10.5 for information in relation to the treatment of Relevant Small Parcel BHP Shareholders.

3.4 Independent Expert conclusion

To assist Woodside Shareholders to assess the Merger and consider whether to vote in favour of the Merger Resolution Woodside appointed KPMG as the Independent Expert, to prepare the Independent Expert Report.

The Independent Expert has concluded that the Merger is in the best interests of Woodside Shareholders. This conclusion is on the basis that the Independent Expert has assessed the underlying value of Woodside as a standalone entity to be in the range of A$23.09 to A$26.42 per Woodside share and the value of the Merged Group to be in the range of A$26.25 and A$29.81 per Merged Group share. As the range of assessed values for a Woodside share prior to the Merger lies predominately below the range of assessed values for a share in the Merged Group on an equivalent basis, the Merger is fair to Woodside Shareholders.

The Independent Expert also concludes that the aggregate 52% interest that Woodside Shareholders will hold in the Merged Group is broadly consistent with Woodside’s contribution to the Merged Group.

As part of its assessment, the Independent Expert points out that the Merger is being undertaken at a time of significant geopolitical unrest, during a period of significant global uncertainty arising from the impact of COVID-19 variants and against a background of increasing focus by the global community on environmental, social and governance issues, and that evaluation of the Merger requires Woodside Shareholders to consider both matters of value and also the broader commercial and qualitative aspects of the proposal in order to determine how to vote.

The Independent Expert outlines certain matters that it believes Woodside Shareholders should also consider in deciding how to vote on the Merger Resolution, including that:

 

 

The change in the investment characteristics of holding a share in the Merged Group compared to Woodside as a standalone entity, including that Woodside Shareholders will benefit from a larger, more financially robust, geographically diverse business, with the potential for increased liquidity and investor interest

 

 

The Merger is expected to increase Woodside’s capacity to successfully navigate and take a leading position in relation to the transition to new energy

 

 

The potential for Woodside Shareholders to participate in further operational and strategic synergies over and above those included by it in its assessed values for the Merged Group

 

 

BHP Petroleum’s asset base provides Woodside with immediate access to significant development and growth opportunities, within a timeframe that is unlikely otherwise to have been available to Woodside as a standalone entity

 

 

Woodside has indicated that it does not intend, at this time, to change its dividend policy

 

 

The merger ratio is broadly supported by various financial and other relative contribution measures, and

 

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It is arguable that, in theory, completion of the Merger may reduce the prospect of Woodside Shareholders receiving an offer for their shares inclusive of a full premium for control.

Based on its assessed values and these factors, the Independent Expert concludes that on balance Woodside Shareholders will be better off approving the Merger Resolution.

The Independent Expert Report is included in full in this Merger Explanatory Memorandum at Annexure 3. Woodside Shareholders are encouraged to read the Independent Expert Report in detail to understand these commercial and qualitative considerations.

 

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4

Industry Overview

4.1 Overview

Woodside overview

Woodside operates as an explorer for and producer of energy products.

Woodside’s Australian operations are primarily in Western Australia. Domestic gas is sold to customers in Western Australia. LNG, LPG, condensate and oil are sold to customers primarily in Asia. Woodside’s operations outside of Australia are not in production.

BHP Petroleum overview

BHP Petroleum also operates as an explorer for and producer of energy products.

BHP Petroleum’s Australian operations are on the east and west coasts of Australia. Domestic gas is sold to customers in Australia. Crude oil and gas is sold to customers in Japan, South Korea and China. BHP Petroleum’s global operations are in the United States Gulf of Mexico (“U.S. GOM”) and the Republic of Trinidad and Tobago (“T&T”). Crude oil products from BHP Petroleum’s U.S. GOM operations are sold into the U.S. domestic and global oil market with gas volumes sold into the U.S. domestic gas market. Similarly, crude oil produced from BHP Petroleum’s T&T operation is sold into the global oil market and gas volumes are sold domestically.

4.2 Australia oil and gas overview

Australia is home to substantial onshore and offshore oil and gas reserves, the development of which has underpinned the nation’s position as a leading global LNG exporter.

There are two distinct regional gas markets which service domestic gas consumption, one on each coast of Australia.

4.3 West coast of Australia domestic gas market

4.3.1       Market overview

The Western Australian domestic gas market primarily services several large industrial consumers and mining firms, the majority of which are supplied directly through the transmission network (such as the Dampier to Bunbury Natural Gas Pipeline and the Goldfields Gas Pipeline). The remaining large customers are supplied by domestic LNG facilities, which convert natural gas to LNG which is then transported by road. Customers supplied through the retail distribution network account for 6% of Western Australia’s total domestic gas consumption. Despite its relatively small population, Western Australia has the highest natural gas consumption of all Australian states. Western Australia consumed 669 PJ of gas in 2018-2019, approximately 42% of Australia’s total gas consumption.

The large majority of gas reserves in Western Australia are from conventional reservoirs located in the Carnarvon and Perth basins. While most of Western Australia’s gas reserves are developed as LNG export projects, domestic supply in Western Australia is underpinned by a domestic gas reservation policy (“WA Domestic Gas Policy”). Under the policy, introduced in 2006, gas equivalent to 15% of LNG production from LNG export projects is required to be reserved for domestic use as a condition of LNG project approval. The WA Domestic Gas Policy contains flexibility, allowing negotiations to occur on a case-by-case basis regarding the method by which the LNG project proponents fulfil their domestic gas commitments, including from alternative sources.

4.3.2       Key recent trends

In 2021, a number of producers made progress on developing and commercialising domestic gas fields and LNG projects which are likely to contribute to supply in the coming years. Demand for Western Australia’s key commodities, particularly gold and iron ore, has remained strong throughout the COVID-19 pandemic which has flowed through to increased domestic gas demand for mining operations.

 

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The Western Australian Government clarified the WA Domestic Gas Policy to state that it would not agree to exports of gas through the Western Australian pipeline network, and that supply of gas to the east coast would be treated as an export for the purposes of the policy.

In the past 18 months there has been an increase in proposed hydrogen projects, with a number of producers, including Woodside, entering into hydrogen development opportunities. As at January 2022, the Western Australian Government was funding seven renewable hydrogen feasibility studies as part of the Renewable Hydrogen Strategy. The studies include examining solar hydrogen for waste collection and light vehicle fleets in Cockburn, a hydrogen refuelling hub in Mandurah, and the potential for an electrolysis hydrogen production plant in the Great Southern or Wheatbelt regions of Western Australia.

4.3.3       Market dynamics

The Western Australian domestic gas market is characterised by:

 

 

Large gas reserves that are generally located offshore and developed mainly to supply the global LNG market

 

 

A limited number of large suppliers/producers and consumers

 

 

Bilateral, confidential, long-term take-or-pay gas sales contracts

 

 

Residential, commercial, and small industrial consumers comprising a small proportion of total demand

 

 

Small volumes of short-term and spot gas sales

 

 

A small number of pipelines, interconnectors, and limited surplus pipeline capacity

 

 

Information about supply that is available to be contracted, potential buyers, and gas contract pricing is not readily available, and

 

 

78 PJ of storage capacity.

4.3.4       Demand outlook

According to the Australian Energy Market Operator (“AEMO”), gas consumption in Western Australia is expected to be supported by strong demand for the State’s commodities through the development of new resources projects. Long-term west coast gas demand is expected to grow moderately at an average annual rate of 0.8% until 2031, growing from 1,071 TJ/day in 2022 to 1,150 TJ/day in 2031. In 2021, large customers accounted for approximately 85% of gas consumed in Western Australia with a majority of gas consumed in the minerals processing, mining and electricity generation sectors.

4.3.5       Supply outlook

Gas supply to the Western Australian domestic market is largely dependent on the sustained development of gas reserves. Overall, potential gas supply is projected to decline at an average annual rate of 1.40% between 2022 and 2031. AEMO notes that there is a large volume of undeveloped gas from fields such as Clio-Acme and Equus that could supply the Western Australian domestic market over the next 10 years but are currently too speculative to include in its potential supply forecasts.

4.3.6       Supply and demand balance

The supply of gas in the Western Australian domestic gas market is expected to be sufficient to meet demand until 2024. Between 2025 and 2027 gas demand may exceed supply by 51 PJ in total across these years, at rates of up to 85 TJ/day in 2026 (up to 7% of daily demand). From 2027 the Scarborough project is forecast to supply up to 210 TJ/d into the domestic market. The development of Perdaman Chemical and Fertiliser’s proposed urea project would add a large new consumer to the Karratha region; it is expected to start production in 2025 (subject to FID). After 2030, declining reserves at domestic gas only facilities is expected to cause forecast gas demand to again exceed forecasted supply.

 

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Figure 10

Domestic gas market balance, base scenario, 2022 to 203123

 

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4.4 East coast of Australia domestic gas market

4.4.1       Market overview

Australia’s east coast gas market includes New South Wales, Australian Capital Territory, Queensland, South Australia, Victoria and Tasmania, is connected by gas transmission pipelines, and also sources gas supply from the Northern Territory via the Northern Gas Pipeline. This market is characterised by:

 

 

Domestic gas demand of 553 PJ (2021), from the industrial, residential and commercial, and gas-fired power generation sectors

 

 

Key supply basins which include the Surat–Bowen Basin (Queensland), the Cooper Basin (South Australia), and Otway, Gippsland, and Bass Basins (Victoria)

 

 

Three LNG export projects located in Queensland, which consume about 70% of gas production in Eastern Australia

 

 

Approximately 200 PJ of gas storage capacity.

4.4.2       Key recent trends

Gas sales in the east coast market are heavily contract-based, with only a small share of production traded on the wholesale (spot) market. This is because long-term contracts provide producers the confidence to invest in new gas supply, and gas consumers security of supply at agreed price indices and levels. Bilateral contracts are negotiated between buyers and sellers, with a shift towards more shorter-term contracts in recent years. Negotiated price outcomes are generally not disclosed to the market.

Several spot hubs exist for short-term trading, however these volumes account for a relatively small share of the market (approximately 10-20%) and are used for market balancing by gas players.

Higher marginal costs of supply for new supply sources available in the east coast market may put upward pressure on prices, compared to pre-2015 levels. There is a forecasted risk of gas shortfalls in the east coast gas market as soon as winter 2023, prompting several developers to propose LNG import terminals to be built on the east coast.

 

23 

Forecasts prepared by AEMO using information from gas producers, industry and government to project the supply-demand balance in the Western Australian gas market. Sourced from AEMO “2021 Western Australian Gas Statement of Opportunities”, published in December 2021

 

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4.4.3       Demand outlook

The outlook for gas demand in the long-term is uncertain, with forecasted scenarios ranging from relatively flat demand to steadily declining demand over time. This uncertainty arises from potential policy changes (e.g. Victoria’s proposed Gas Substitution Roadmap), the availability of gas supply that is affordable for more price-sensitive consumers, and the outlook for gas-fired power generation, which is subject to the growth of renewable energy and electricity storage, coal power plants, and electricity transmission connectivity between regions. Gas-fired power generation is increasingly playing a critical balancing role in the power sector, for periods of lower renewable energy and/or coal-fired power generation, making gas-fired power demand subject to short-term events.

4.4.4       Supply outlook

The east coast market’s supply outlook is forecast to be challenged, as reserves located near domestic demand centres in offshore Victorian basins, particularly the Gippsland Basin, are in decline.

The proposed introduction of LNG import terminals on the east coast of Australia at various locations (e.g. Victoria, New South Wales, and South Australia), could address these supply shortfall risks and provide incremental supply.

In April 2021, BHP announced the successful commissioning of the Gippsland Basin Joint Venture’s West Barracouta natural gas field in the Bass Strait offshore Victoria, which will provide new domestic gas supply to Australia’s east coast. The West Barracouta field is the largest domestic gas project in Australia in recent years and will help to increase the supply of gas to the east coast of Australia. In March 2022, ExxonMobil announced it was making incremental investments to deliver an additional 200 PJ of gas over the next five years, through the Gippsland Basin Kipper offshore field and the Turrum field.

Santos’ proposed Narrabri gas project in New South Wales has targeted FID for 2023 and would add a large new supply source if progressed.

4.4.5       Supply and demand balance

The east coast gas market is likely to have future supply shortfalls without the development of further gas resources and/or LNG import terminals. While the northern region of the east coast of Australia will be self-sufficient in gas until 2030, the southern region (which includes New South Wales, Australian Capital Territory, Victoria, Tasmania and South Australia) is contending with the decline of legacy basins. Gas supply to meet this shortfall may come from Queensland, Northern Territory, and/or LNG import terminals. However, pipeline capacity limitations and costs may constrain the available gas supply to the most southern states in particular: Victoria and Tasmania.

 

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Figure

11 Projected eastern and south-eastern Australia gas production (including export LNG), Central scenario, existing, committed, and anticipated developments, 2022E-2040E (PJ)24

 

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4.5 LNG market

4.5.1       Market overview

The LNG market is a global export-driven market dominated by larger players. Australia was the largest LNG exporter by volume in 2021, producing 79.2 Mt compared to Qatar at 78.0 Mt and the U.S. at 67.5 Mt.

4.5.2       Key recent trends

The global LNG price recovery has accelerated since the lows experienced at the start of the COVID-19 pandemic, supported by a recovery in Chinese LNG demand (which was up 20% in the second half of 2021 compared to 2020), European carbon prices and other factors.

Global production in 2021 grew by 20 Mt on 2020 volumes. However, much of the “growth” is a result of LNG plants in marginal supply markets such as Egypt and the U.S. which are returning to regular production profiles after operating at reduced levels in 2020 due to depressed LNG prices. Supply has not been quick to rebound following the COVID-19 pandemic as a result of lower investment over 2015-2017 and also because of delays to several projects under construction. Organic supply growth is expected to return in 2022, as new projects in the U.S. and Indonesia come online. Overall capacity additions from under-construction projects during 2023-2025 are expected to be small, with Tortue FLNG Phase 1 (on the border of Senegal and Mauritania) expected in 2023 and Costa Azul Phase 1 (Mexico) in 2025. Woodside’s Scarborough development is targeted to commence production in 2026. The current conflict between Russia and Ukraine is likely to affect Russian projects, such as Arctic LNG-2 which had been expected to become operational in late 2023, and delays are possible.

4.5.3       Market dynamics

The majority of Australian LNG is sold into the Asia Pacific market under long-term bilateral contract arrangements, with pricing indexed to the price of crude oil. Historically these contracts have had durations of up to 25 years. This provided producers, particularly for greenfield projects, with a level of certainty on the recovery of significant upfront investment and provided purchasers long-term security of energy supply. In recent years, primarily due to the increased liquidity in the global LNG market, producers and purchasers in the Asian region have concluded bilateral contracts over shorter durations of between 5 and 15 years.

 

24 

Forecasts prepared by AEMO using information from gas producers, industry and government to project the supply-demand balance in the eastern and south-eastern Australian gas markets. Sourced from AEMO “Gas Statement of Opportunities: For eastern and south-eastern Australia”, published in March 2022

 

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Historically the exact terms of the oil price linkage in Asian LNG contracts is negotiated confidentially between buyers and sellers, with contracted LNG prices traditionally linked to the price of JCC. JCC reflects the average price of crude oil imported into Japan and closely correlates to the lagged price of Brent oil. In recent years, Brent oil has been commonly used as a contract price marker for LNG in the Asian region, particularly in China, Korea, Taiwan, India and south-east Asia. This contrasts with the spot market pricing of domestic natural gas in North America, and to a lesser extent Europe, where competing sources of gas (pipeline and LNG) are priced in hubs. LNG exports from the United States are commonly indexed to the U.S. natural gas hub, Henry Hub.

In addition, as global markets become increasingly interdependent and physical liquidity rises, there has been an increase in term and spot sales arrangements in the Asia-Pacific region priced off the Platts JKM benchmark price assessment, which is reflective of gas-on-LNG competition and prevailing LNG market supply-demand balances.

Long-term LNG contracts are often subject to periodic price review which may occur through bilateral agreement or be triggered contractually as a result of significant movements in oil price. This is particularly the case with contracts greater than ten years in duration. While most of Australia’s LNG production continues to be traded via long-term contracts, there has been an increase in spot sales and short-term contract sales. A key contributing factor is the greater flexibility that short-term contracts can provide in terms of responding to changes in sources of supply and demand for LNG.

4.5.4      Demand outlook25

According to Wood Mackenzie, global LNG demand is expected to more than double in volume between 2021 and 2050. With indigenous production decline in Europe and parts of Asia, LNG imports are expected to become the preferred supply type for many economies. Europe, for example, could see LNG demand increase by 51 Bcm despite overall gas demand declines of 184 Bcm in 2021-2050. Asia represents almost 90% of all the gas demand growth for 2021-2050, and Australian LNG producers benefit from the close proximity to and long-term relationships with customers in Asian markets.

While there are challenges posed for natural gas demand due to the energy transition, Wood Mackenzie is forecasting global gas demand to grow between 2021 and 2035. Natural gas’ share in global total primary energy demand is expected to peak by the early 2040s, highlighting the role gas is expected to play in supporting the energy transition in the medium to longer-term. However, gas demand could see a substantial decline under Wood Mackenzie’s AET-1.5 scenario (Accelerated Transition 1.5-degree scenario). Wood Mackenzie’s AET-1.5 scenario outlines a view of the world that limits the average rise in global temperatures to 1.5 degrees Celsius compared with pre-industrial times.

4.5.5      Supply outlook

The 2020 COVID-19 pandemic and low oil and gas prices in 2020 resulted in a number of delays to the start dates for new LNG supply projects that are under-construction and to the timelines for projects that were proposed to take FID. In 2020, only one project took FID, the Energia Costa Azul LNG project in Mexico. In 2021, a few projects took FID, including Qatar’s North Field East project, the Darwin LNG backfill (Barossa) in Australia, Russia’s Baltic LNG (Ust-Luga) and the Scarborough-Pluto Train 2 project in Australia.

More than 96 Mtpa of under-construction LNG capacity is likely to become operational between 2026 and 2030. In addition, Wood Mackenzie estimates that up to 80 Mtpa of supply capacity will take FID within the next 36 months.

 

 

25 

This paragraph includes statistical data and market analysis regarding global gas demand. This information has been taken from information published by Wood Mackenzie, a provider of market overview and analysis, in a report entitled “Commodity Report, Global Gas Demand” dated October 2021. This is licenced from Wood Mackenzie by Woodside.

 

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In the longer-term, Qatar, Russia and the U.S. were forecast to dominate LNG supply additions into the next decade, based on the large number of current project proposals and substantial and relatively low-cost gas resources. Russia’s role in energy markets after the invasion of Ukraine is uncertain.

4.6 Oil market

4.6.1      Market overview and dynamics

The COVID-19 pandemic reduced oil demand in 2020 to well below 2019 levels. After an increase of 5.6 MMbbl/d in 2021, the IEA estimates that oil demand will grow by 2.1MMbbl/d in 2022 to reach 99.7 MMbbl/d, slightly above pre-COVID-19 levels. The forecast reflects new estimates of reduced demand as a result of the Russia and Ukraine conflict.

In the second quarter of 2020, the oil market saw oil supply heavily outpacing world oil demand, leading to an increase in global oil inventories within a short span of a couple of months. In response to this situation, in April 2020, OPEC and non-OPEC oil producing countries participating in the ‘Declaration of Cooperation’, known as OPEC+, announced voluntary production adjustments commensurate with the material oil stock surplus, to achieve the rebalancing and stabilisation of the oil market.

Since early 2020, OPEC+ has been playing a significant role in balancing the market through production curbs. OPEC+ member countries have the ability to produce over 40% of the world’s crude oil. Equally important to global prices, OPEC+ oil exports can represent more than 60% of the total petroleum traded internationally. Due to this market share, OPEC+ actions can, and do, influence international oil prices.

The extent to which OPEC+ utilises available production capacity is often used as an indicator of the tightness of global oil markets, as well as an indicator of the extent to which OPEC+ is exerting upward influence on prices. The U.S. Energy Information Administration defines spare capacity as the volume of production that can be brought on within 30 days and sustained for at least 90 days. Saudi Arabia, the largest oil producer within OPEC+ and the world’s largest oil exporter, historically has had the greatest spare capacity. Saudi Arabia generally keeps more than 1.5 – 2 MMbbl/d of spare capacity on hand for market management. OPEC+ spare capacity provides an indicator of the world oil market’s ability to respond to potential crises that reduce oil supplies. As a result, oil prices tend to incorporate a rising risk premium when OPEC spare capacity reaches low levels.

Australia holds just 0.3% of the world’s oil reserves as of September 2021. Most of Australia’s known remaining oil resources are LPG and condensate, associated with offshore gas fields in the Browse, Carnarvon and Bonaparte basins. Australian oil production has been in decline since 2009 as new reserve developments have failed to match the rate of depletion in existing fields. Oil production in 2019 showed a reversal to this long-term trend following the start-up of the Greater Enfield (Woodside operated), Ichthys and Prelude projects.

The U.S. GOM area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure. In 2021, production from U.S. GOM was affected by hurricane activity which resulted in prolonged outages.

4.6.2      Key recent trends

As at March 2022, oil prices were at decade highs. This was reflective of markets pricing in a geopolitical risk premium as a result of the conflict between Russia and Ukraine (Dated Brent was $127/bbl and WTI was $115/bbl) as a shortage of natural gas, LNG and coal boosted demand for oil while economic growth continues and global mobility improves. Despite increasing global COVID-19 cases in Q4 2021, measures taken by governments to contain the virus were less severe than during earlier waves and the resulting impact on economic activity and oil demand was relatively subdued. Oil demand exceeded IEA expectations in Q4 2021 increasing by 1.1 MMbbl/d to 99 MMbbl/d.

Prior to Russia’s invasion of Ukraine, world oil supply was projected to rise sharply in 2022 towards the year end as U.S. output bounced back from Hurricane Ida and responded to the higher price environment and as OPEC+ continued to unwind cuts. Canada and Brazil are also expected to achieve record production levels. Additionally in January 2022, Ecuador, Libya and Nigeria were already ramping up production.

 

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Notwithstanding the above supply increases, the current conflict between Russia and Ukraine is expected to create a supply shock, with the IEA estimating that from April 2022 as much as 3 MMbbl/d of Russian oil production could be shut in as a result of sanctions and self sanctions.

4.6.3      Long term demand and supply outlook

Demand for crude oil and petroleum products is influenced by many factors and is impossible to predict with certainty. Specifically, factors such as the rate of global economic growth, evolving energy policies, and technological trends will have material impacts on the path for long-term oil demand. The policies undertaken by governments to reduce carbon emissions will play a significant role in determining this path.

Wood Mackenzie26 , a provider of market data and analysis, estimated in November 2021 that global total liquids demand would continue to grow until peaking in 2034 at 108 MMbbl/d and then gradually decline thereafter. Under this outlook, by 2050 total demand will have retreated to 96 MMbbl/d, approximately 4 MMbbl/d lower than 2019 levels.

Other forecasters may make different assumptions about the drivers of oil demand and thus may have alternate outlooks. In addition, many forecasters consider the potential impact of global policies that could limit the average rise in global temperatures to 2 degrees Celsius or 1.5 degrees Celsius compared with pre-industrial times. Wood Mackenzie has developed such scenarios. For example, in their AET-1.5 scenario, which assumes that the average rise in global temperatures is limited to 1.5 degrees Celsius compared with pre-industrial times, oil demand peaks earlier and declines more rapidly than in the outlook described above. Under this scenario, oil demand declines by nearly two thirds from current levels by 2050.

Potential sources of supply to meet future oil demand include currently producing fields in the OPEC+ countries, the US and elsewhere, and new oil developments. With Russia being one of the world’s largest oil producers, the ongoing conflict between Russia and Ukraine and associated sanctions has created uncertainty over the long-term supply outlook from that region.

 

 

 

26 

This paragraph includes statistical data and market analysis regarding oil supply and demand. This information has been taken from information published by Wood Mackenzie, a provider of market overview and analysis, in a report entitled “Macro Oils, Long-term outlook to 2050” dated November 2021. This is licenced from Wood Mackenzie by Woodside.

 

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5

Overview of BHP Petroleum

5.1 Overview

5.1.1      BHP Group overview

Incorporated in 1885, BHP is a leading global resources company with a market capitalisation of approximately A$250 billion.27 BHP’s operations revolve around the discovery, development, production and marketing of iron ore, metallurgical coal, copper, nickel and uranium. BHP also has substantial interests in potash, and, through BHP Petroleum, oil and gas. BHP is headquartered in Melbourne, Australia, with more than 80,000 employees and contractors, operating in over 90 locations worldwide. BHP Group Limited is registered in Australia with its registered office at 171 Collins Street, Melbourne, Victoria 3000, Australia.

5.1.2      BHP Petroleum overview

BHP pioneered the development of an oil and gas industry in Australia with the Bass Strait discovery in 1965. BHP Petroleum International Pty Ltd is a wholly owned subsidiary of BHP. The BHP Petroleum business now has conventional oil and gas assets located in the United States Gulf of Mexico (“U.S. GOM”), Australia, the Republic of Trinidad and Tobago (“T&T”), Algeria and Mexico, and appraisal and exploration options in T&T, central and western U.S. GOM, Eastern Canada, Barbados and Egypt. The crude oil and condensate, gas and natural gas liquids (“NGLs”) produced by the assets of BHP Petroleum are sold on the international spot and domestic markets. BHP Petroleum also includes BHP Petroleum’s effective interest in the Rhourde Ouled Integrated Development (“Algerian Assets”), which BHP is in the process of divesting.

During FY2021, BHP Petroleum achieved first production at two major development projects, both of which were delivered on or ahead of schedule. The Ruby oil and gas project in T&T achieved first production in May 2021. The Atlantis Phase 3 project achieved first production in the first half of the 2021 financial year. Total BHP Petroleum production and unit costs for FY2021 was 103 MMboe and $10.83/boe respectively.28

5.2 Overview of assets

5.2.1      Overview of BHP Petroleum assets

BHP Petroleum has an international portfolio of assets which includes oil and gas production in the U.S. GOM, Australian LNG, oil and domestic gas assets and T&T oil and domestic gas assets. Key growth in the portfolio is driven by sanctioned and unsanctioned developments to currently producing assets in the U.S. GOM, as well as the development of the Scarborough field in Australia.

 

 

27 

Based on the closing price of BHP’s shares of A$49.30 as at the Last Practicable Date.

28 

BHP Petroleum Unit costs are calculated as ratio of net costs of the assets to the equity share of production. BHP Petroleum unit costs exclude freight, exploration and development and evaluation expense and other costs that do not represent underlying cost performance of the business.

 

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Producing Assets as at 31 December 202129

 

         
Asset                   Description    Operator   

BHP Petroleum

participating

interest

  

2021 Production30

MMboe

         

Greater Shenzi31

   Offshore oil and gas asset located in the U.S. GOM. Recently BHP approved the brownfield expansion of Shenzi via the Shenzi North Project.    BHP Petroleum    72%    9.4
         

Atlantis

   Offshore oil assets located in the U.S. GOM.    BP    44%    13.9
         

Mad Dog

   Offshore oil asset located in the U.S. GOM. Phase 2 expansion of the project is currently underway.    BP    23.9%    4.9
         
North West Shelf    LNG facility processing gas and condensate from the offshore North Rankin and Goodwyn-A offshore platforms. Onshore facilities include 5 LNG trains with 16.9 Mtpa export capacity, condensate trains and a domestic gas plant.    Woodside    16.67%32    22.7
         

Bass Strait

  

Southeast Australian major integrated oil and gas asset consisting of offshore facilities, onshore plants and associated pipeline infrastructure.

   ExxonMobil   

Gippsland Basin Joint Venture (GBJV): 50.0%

Kipper Unit Joint Venture (KUJV): 32.5%

   29.2
         

Pyrenees

  

Northwest Australian offshore oil asset facility consisting of FPSO

   BHP Petroleum   

WA-42-L permit: 71.43%

WA-43-L permit: 39.999%

   2.8
         

Macedon

  

Northwest Australian offshore gas asset with the gas piped to an onshore processing plant.

   BHP Petroleum    71.43%    8.4
         

T&T (Angostura and Ruby)

  

Angostura: Offshore oil and gas asset located northeast of Trinidad

   BHP Petroleum    45.0% Block 2(c)    10.6

 

29 

Includes all actively producing sanctioned and brownfield projects.

 

30 

Production attributable to BHP Petroleum’s participationg interest in the relevant Asset for the 12 months ending 31 December 2021.

 

31 

Includes Shenzi & Shenzi North (72% interest) and Wildling (100% interest pre-FID).

 

32 

North West Shelf LNG ownership is 12.5-16.67% across 9 separate joint venture agreements, see Section 5.2.5 for further detail. This range does not include BHP Petroleum’s interest in the historic “Domestic Gas Joint Venture” which is 8.33%.

 

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Producing Assets as at 31 December 202129

 

         
Asset                   Description    Operator   

BHP Petroleum

participating

interest

  

2021 Production33

MMboe

         
    

Ruby: Offshore oil and gas asset located northeast of Trinidad, tied into Angostura infrastructure

       

68.46% effective interest in Block 3(a) Project Ruby

    

 

 

 

Sanctioned Assets33

 

         
Asset                   Description    Operator   

BHP Petroleum

participating

interest

   Timing
         

Scarborough

   Western Australian offshore gas development exporting gas from a floating production unit to the Pluto LNG facility for onshore processing.    Woodside    26.5%   

FID announced 22 November 2021

Targeting first cargo in 2026

5.2.2     Shenzi

Shenzi overview and history

The Shenzi conventional oil and gas field is located approximately 195km off the coast of Louisiana in the Green Canyon protraction area, GOM. The field has produced approximately 350 MMboe (100% basis) since production commenced in 2009. Crude oil produced from the field is transported to connecting pipelines for onward sale to Gulf coast customers. Natural gas production is transported via a lateral pipeline that is tied into the Cleopatra natural gas pipeline for ultimate transmission onshore to the Neptune processing plant in St. Mary’s Parish, Louisiana.

The Shenzi Joint Venture has recently sanctioned two brownfield developments. First, a subsea multiphase pumping project to increase production rates from existing wells, which is targeted to be completed in 2022. The other sanctioned project involves sidetracks of existing M9U production wells to access unswept oil in the M9U reservoir and achieved first oil in the fourth quarter of 2021. There are also additional unsanctioned infill opportunities at Shenzi to increase production with 3 producing and 2 water injection wells tied back to the Shenzi tension leg platform.

In addition to the currently producing Shenzi field, the project also includes the future tie-back developments of Shenzi North and Wildling which will take advantage of existing infrastructure and production capacity in the nearby Shenzi production facility. Shenzi North, the first development phase of the Greater Wildling mini-basin, was discovered in 2017. On 5 August 2021, BHP approved the funding of $544 million in capital expenditure (100% basis) to execute the Shenzi North oil project in the U.S. GOM. The project is expected to add two wells and subsea equipment to establish a new drill centre north of Shenzi. Production is expected to begin in FY2024.

The Wildling project adds an additional two wells and subsea equipment. The Wildling field, which is also located in the Wildling mini basin was discovered in 2017 and is expected to be developed as a subsea tie-back to the Shenzi tension leg platform. Potential FID is expected in 2022-2023, which would lead to first production in 2024-2025.

 

33 

Includes all sanctioned and brownfield projects.

 

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Ownership structure and joint ventures

The Shenzi field covers lease blocks GC609, GC610, GC652, GC653 and GC654. On 6 November 2020, BHP finalised a membership interest purchase and sale agreement with Hess to acquire an additional 28% working interest in Shenzi, taking its working interest from 44% to 72%. Repsol is the only other participant in the Shenzi Joint Venture, with a 28% working interest.

Shenzi North lies in lease blocks GC608 and GC609. The ownership is 72% BHP Petroleum and 28% Repsol.

Greater Wildling lies in lease blocks GC520 and GC564. Greater Wildling is 100% BHP Petroleum owned and operated.

BHP Petroleum owns a 25% and 22% interest respectively in the companies that own and operate the Caesar oil pipeline and the Cleopatra natural gas pipeline which connect the Green Canyon area to connecting pipelines that transport the product onshore.    

 

Figure 12

Shenzi Project map34

 

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Offshore infrastructure

 

 

 

Shenzi Tension Leg Platform

 

   

Location

  

195km off the coast of Louisiana (United States) in the Green Canyon protraction area, Gulf of Mexico

   

Facility type

  

Tension leg platform

   

Fields discovered (approximate)

  

Shenzi (2002), Greater Wildling (2017), which includes Shenzi North development

   

Product

  

Oil and gas

   

Production capacity

  

Oil: 100,000 bbl/d

Gas: 50 MMscf/d

 

34 

Shenzi Project map in relation to BHP Petroleum’s U.S. GOM projects. Fields, blocks and pipelines shown in maps are stylised and not to scale. Map only shows BHP Petroleum fields, leases and pipelines which are referenced in the BHP Petroleum Overview part of this Merger Explanatory Memorandum.

 

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Shenzi Tension Leg Platform

 

   

First production

  

2009

   

Production wells (current/current and sanctioned)

  

18 / 21

5.2.3     Atlantis

Atlantis overview and history

The Atlantis conventional oil and gas field is one of the largest producing fields in U.S. GOM, located off the coast of Louisiana in the south-eastern Green Canyon protraction area. Oil and gas from the field is transported to existing shelf and onshore interconnections via the Caesar and Cleopatra pipelines.

Atlantis was discovered in 1998 and has produced approximately 460 MMboe (100% basis) since first production was achieved in 2007. The development of Atlantis occurred over several phases:

Phase 1: sanctioned in 2003

Phase 2: Operator (BP) submitted Development Operations Coordination Document in 2009, targeting Atlantis North flank. Production commenced in 2009

Phase 3: sanctioned in 2019 with first production achieved in 2020, including eight subsea wells and associated manifolds and flow lines.

Atlantis possesses multiple unsanctioned projects currently in the planning phase, leveraging existing infrastructure and technology. Future development phases for Atlantis include multiple infill campaigns with a total of twelve additional producing wells and six additional water injection wells utilising existing infrastructure. In addition, a major facilities expansion is planned to include topsides modification, subsea multiphase pumping, and upgrades to water injection and water handling facilities.

Ownership structure and joint ventures

Atlantis field lies within lease blocks GC699, GC742, GC743, and GC744. It is owned by BP (56.0%, Operator) and BHP Petroleum (44.0%).

 

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Figure 13

Atlantis Project map35

 

 

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Offshore infrastructure

 

 

 

Atlantis Platform

 

   
Location   210 km off the coast of Louisiana (United States) in the south-eastern Green Canyon protraction area
   
Facility type   Semi-submersible wet tree development
   
Fields discovered (approximate)   Atlantis (1998)
   
Product   Crude oil and natural gas
   
Production capacity  

Oil: 200,000 bbl/d

 

Gas: 180 MMscf/d

   
First production   2007
   
Production wells (current/current and sanctioned)   26 / 31

 

35 Atlantis Project map in relation to BHP Petroleum’s U.S. GOM projects. Fields, blocks and pipelines shown in maps are stylised and not to scale. Map only shows the BHP Petroleum fields, leases and pipelines which are referenced in the BHP Petroleum Overview part of this Merger Explanatory Memorandum.

 

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5.2.4     Mad Dog

Mad Dog overview and history

The Mad Dog conventional oil and gas field is located off the coast of Louisiana in the Green Canyon protraction area, U.S. GOM. Mad Dog was discovered in 1998 and has produced approximately 260 MMboe (100% basis) since first production, which was achieved in 2005.

Phase 1 of the project is processed through a subsea truss spar, Spar A. Oil from the project is transported to Ship Shoal 332B through the Caesar pipeline where it is then transported via the Cameron Highway Oil Pipeline System internally in the U.S. Gas from the project is exported to Ship Shoal 332A through the Cleopatra pipeline, where it is then transported to the Manta Ray Gathering System and then to the Nautilus Gas Transportation System into Louisiana.

Mad Dog Phase 2, which was sanctioned in 2017 for $2.2 billion in capital expenditure (BHP Petroleum share), focuses development on the southern flank of the field and is targeting first production in 2022. Mad Dog Phase 2 includes a new semi-submersible floating production unit (“FPU”) named Argos. The development plan includes 14 production wells and eight water injectors (nine producers and four water injectors have been drilled to date). The new platform will be moored approximately 10km southwest of the existing Mad Dog platform.

Beyond the sanctioned projects, there are further brownfield growth opportunities at Mad Dog. There are additional opportunities to increase the Mad Dog Phase 2 production beyond the initial investment scope with 9 new wells tied back to existing facility. Additionally, there is potential for a water injection expansion at the project with two water injector wells providing water from Mad Dog Phase 2 facility to increase production at the existing Spar A facility.

Ownership structure and joint ventures

Mad Dog field lies in lease blocks GC738, GC781, GC782, GC824, GC825, GC826, GC868, GC869, and GC870. It is owned by BP (60.5%, Operator), BHP Petroleum (23.9%), and Chevron (15.6%).

 

Figure 14

Mad Dog Project map36

 

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36 Mad Dog Project map in relation to BHP Petroleum’s U.S. GOM projects. Fields, blocks and pipelines shown in maps are stylised and not to scale. Map only shows the BHP Petroleum fields, leases and pipelines which are referenced in the BHP Petroleum Overview part of this Merger Explanatory Memorandum.

 

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Offshore infrastructure

 

     

Mad Dog Platform

   Phase 1 (A-Spar)    Phase 2 (Argos)
   

Location

   200km off the coast of Louisiana (United States) in the south-eastern Green Canyon protraction area
     

Facility type

   Subsea truss spar    Semi-submersible floating production
platform
   

Fields discovered

(approximate)

   Mad Dog (1998)
     

Product

   Crude oil and gas    Crude oil and gas
     

Production capacity

  

Oil: 100,000 bbl/d

 

Gas handling: 60 MMscf/d

  

Oil: 140,000 bbl/d

 

Gas: 75 MMscf/d

     

First production

   2005    Target first production in 2022
     

Production wells (current

/current and sanctioned)

   10 / 13 – 14    0 / 14

5.2.5     North West Shelf

The North West Shelf fields lie within permits WA-1-L. WA-23-L, WA-24-L, WA-3-L, WA-30-L, WA-5-L, WA-6-L, WA-7-R, WA-57-L. WA-58-L, WA-56-L, WA-2-L and WA-28-P, WA-4-L, WA-9-L, WA-16-L, WA-52-L, WA-53-L and WA-11-L. Ownership of the various North West Shelf joint ventures operated by Woodside (“NWS Project”) and the associated production is split between several joint ventures with different participating interests.

BHP Petroleum owns an equity interest of between 12.5% and 16.67%37 in the various North West Shelf joint ventures operated by Woodside. Woodside’s equity interests are similar in percentage terms (generally one-sixth of the project with some variations) with the notable exception of its interest in the Okha FPSO as described below.

Dedicated LNG facilities, such as the gas treatment, liquefaction trains and LNG storage tanks, are owned on an equal one-sixth basis by six of the seven NWS Project participants (excluding CNOOC). All other assets, which are used in both the domestic gas and LNG processing activities, are owned in varying percentages (excluding CNOOC) based on their interests in the above joint ventures. Six of the seven NWS Project participants (excluding CNOOC) also separately own an equal share in ships utilised for the NWS Project.

Though also located on the North West Shelf, the Okha FPSO is reported as its own entity by Woodside. That joint venture is owned by Woodside (33.33%), with BHP Petroleum, BP, Chevron, and MIMI each having a one sixth participating interest.

 

37 This range does not include BHP Petroleum’s interest in the historic “Domestic Gas Joint Venture”, which is 8.33%.

 

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5.2.6     Bass Strait

Bass Strait overview and history

The Bass Strait Project consists of numerous conventional oil and gas fields, in the well-established Gippsland Basin off the south-east coast of Victoria, Australia. The project consists of an integrated network of offshore platforms and subsea tie-backs connected via extensive pipeline infrastructure to onshore processing facilities at Longford and Long Island Point. Bass Strait was Australia’s first major offshore oil and gas development and has sold over 8 Tcf of pipeline gas and over 4 billion bbl of oil since first production in 1969.

Natural gas production from Bass Strait currently supplies approximately 40% of Australian east coast domestic gas demand and is the largest supplier into the Eastern Australian domestic gas market, which spans Queensland, New South Wales, Victoria, Tasmania, Australian Capital Territory, Northern Territory, and South Australia. The asset also produces crude oil and condensate, LPG and ethane which is sold to both domestic and international customers.

The Longford facilities process both crude oil and natural gas to achieve requisite sales specifications. Natural gas is exported directly into the east coast gas network while crude and natural gas liquids are transferred to the Long Island Point facility by pipeline. Crude is stored at Long Island Point prior to transfer to domestic refineries via pipeline or export customers via ship loading. Natural gas liquids are processed to produce butane, propane and ethane products. Butane and propane are stored prior to onward sale via truck loading, pipeline, or export shipping. Ethane is sold via pipeline to a customer in the Altona petrochemical area.

In April 2021, the Gippsland Basin Joint Venture successfully commissioned the West Barracouta natural gas field with a capital investment of approximately A$400 million (100% share). Bass Strait retains a portfolio of contingent and prospective opportunities, primarily from deeper, acid gas resources with commercialisation enabled by the Longford Gas Conditioning Plant, commissioned in 2017, which provides acid gas processing capability. Further investment to deliver additional gas between 2023 and 2027 including additional development from the Kipper field and advancing funding decision for the Turrum field were announced in March 2022.

Several of the Bass Strait offshore facilities have ceased production following field depletion and an active program of restoration is underway. Near term activities are dominated by well plug and abandonment with planning in progress for longer term facility decommissioning and removal.

 

Figure 15

Bass Strait Project map38

 

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38 Bass Strait Project map. Fields, blocks and pipelines shown in maps are stylised and not to scale. Map only shows the key BHP Petroleum fields, leases and pipelines which are referenced in the BHP Petroleum Overview part of this Merger Explanatory Memorandum.

 

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Ownership structure and joint ventures

Bass Strait production is primarily from the Gippsland Basin Joint Venture, owned by ExxonMobil (50%, operator) and BHP Petroleum (50%), and the Kipper Unit Joint Venture, owned by ExxonMobil (32.5%, operator), BHP Petroleum (32.5%) and Mitsui (35%). Kipper unit production is processed by the Gippsland Basin Joint Venture under a processing agreement. The Gippsland Basin Joint Venture fields lie in permits Vic/L1-L11 and Vic/L13-19 and the Kipper field lies in permits Vic/L9 and Vic/L25.

Bass Strait key production hubs

 

             
Bass Strait
hubs
  Barracouta   Snapper   Marlin /
Turrum
  Tuna / West
Tuna
  Kipper   Oil Block
   
Location   Bass Strait off the south-east coast of Australia
             
Facility type   Steel jacket
platform and
West
Barracouta
subsea tieback
  Steel jacket
platform
  Steel jacket
platform
  Steel jacket
platform and
concrete
gravity
structure
  Subsea
tieback to
West Tuna
  Steel jacket
platform
             
Fields discovered (approximate)   Barracouta
(1965)
  Snapper
(1968)
  Marlin (1966)   Tuna (1968)   Kipper
(1986)
  Cobia (1967),
Halibut (1967),
West  Kingfish
(1977)
   
Product   Natural gas, natural gas liquids (condensate & LPG’s) & crude oil
   
Production capacity  

Processing via onshore gas plants at Longford and Long Island Point:

 

Gas: 1,040 TJ/day

 

Crude oil and condensate: 65,000 bbl/d

 

Liquified petroleum gas: 5,150 tonnes /d

 

Ethane: 850 tonnes/d

             
First production   1969   1981   1970   1979   2017   1970
             

Active production wells

 

(Note: no future drill wells currently sanctioned)

  9   23   15   65   2   58

5.2.7     Pyrenees

Pyrenees overview and history

The Pyrenees project consists of 6 conventional oil fields located approximately 45km northwest of Exmouth, Western Australia, in the Carnarvon Basin. Crude oil is offloaded from the FPSO directly to tankers for sale to international markets and attracts a premium to Brent given its low sulphur content. Produced formation water is treated on the facility and reinjected for disposal in four subsea water injection wells. A single well into the Macedon gas field allows for injection or production of natural gas depending on facility requirements.

The Pyrenees Phase 4 project has been sanctioned with infill drilling and well intervention for water shut-off.

 

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Ownership structure and joint ventures

The Pyrenees development covers two separate production licences: WA-42-L is owned by BHP Petroleum (71.4%, Operator) and Santos (28.6%). WA-43-L is owned by BHP Petroleum (40%, Operator), Santos (31.5%) and Inpex (28.5%).

 

Figure 16

Pyrenees Project map39

 

 

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Offshore infrastructure

 

 

Pyrenees

   
Location   45km north west of Exmouth, Western Australia
   
Facility type   Floating production, storage and offloading facility (Pyrenees Venture)
   
Fields discovered (approximate)   Ravensworth (2003), Crosby (2003), Stickle (2004), Wildbull (2004),
Tanglehead (2004) and Moondyne (1993)
   
Product   Crude oil
   
Production capacity   Oil: 96,000 bbl/d
   
First production   2010
   
Production wells (current/current and sanctioned)   22 / 22

Note: includes one gas well drilled into the Macedon field. Pyrenees Phase 4 is sanctioned on the basis of well re-entry for infill drilling and water shutoff and so therefore will not add to well count.

 

 

39 Pyrenees Project map in relation to BHP Petroleum’s and Woodside’s Western Australia projects. Fields, blocks and pipelines shown in maps are stylised and not to scale with the intent to show the general location and proximity of BHP Petroleum and Woodside’s Carnarvon Basin fields assets. Maps only show the key Woodside and BHP Petroleum fields, leases and pipelines.

 

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5.2.8     Macedon

Macedon overview and history

Macedon is an offshore gas field located in the Exmouth sub-basin around 40km north of Exmouth, Western Australia. Gas is produced from subsea wells and flows through a pipeline to a gas treatment plant located near Onslow. Sales quality gas is then transported via a dedicated 67km pipeline into the Dampier to Bunbury Natural Gas Pipeline and thereon for onward sale into the Western Australian domestic gas market.

Ownership structure and joint ventures

Macedon lies within WA-42-L, the same production licence as Pyrenees. It is owned by BHP Petroleum (71.4%, Operator) and Santos (28.6%).

 

Figure 17

Macedon Project map40

 

 

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Offshore infrastructure

 

 

 

Macedon

 

   

Location

 

100km offshore west of Onslow, Western Australia

   

Facility type

 

Onshore single-train gas plant

   

Fields discovered (approximate)

 

Macedon (1992)

   

Product

 

Natural gas and condensate

   

Production capacity

 

Gas: 213 MMscf/d

 

Condensate: 110 bbl/d

   

First production

 

2013

 

40 Macedon Project map in relation to BHP Petroleum’s and Woodside’s Western Australia projects. Fields, blocks and pipelines shown in maps are stylised and not to scale with the intent to show the general location and proximity of BHP Petroleum and Woodside’s Carnarvon Basin assets. Map only shows the key Woodside and BHP Petroleum fields, leases and pipelines.

 

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Macedon

 

   
Production wells (current/current and sanctioned)  

4 / 4

Note: excludes one Macedon gas well drilled as part of the Pyrenees development

5.2.9 Trinidad and Tobago

Angostura and Ruby overview and history

The Greater Angostura field is an offshore conventional oil and gas field located 38km northeast of Trinidad. The Angostura field was discovered in 1999, with first oil achieved in January 2005 (Phase 1). Phase 2 established gas sales in 2011. First gas for Angostura Phase 3 was established in September 2016. Ruby is a conventional offshore oil and gas field located within the Greater Angostura Fields. First oil was achieved in May 2021.

The current development comprises a main central processing platform (“CPP”), gas export platform (“GEP”), four wellhead protector platforms (“WPP”) and onshore terminal. Flowlines connect the Ruby wellhead platform back to the CPP and GEP for processing.

Crude oil from CPP is transported to the Terminal Facility located in the south eastern end of Trinidad. Calypso crude from the Angostura and Ruby fields is sold on a spot basis to international markets via the Terminal Facility while the gas is sold domestically under term contracts via separate pipelines to T&T from the GEP.

Ownership structure and joint ventures

The Angostura field lies in Block 2c. It is owned by BHP Petroleum (45.0%, Operator), National Gas Company (30.0%) and Chaoyang (25.0%).

The Ruby field lies in Block 3a. It is owned by BHP Petroleum (68.46%, Operator) and National Gas Company (31.54%).

 

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Figure 18

Angostura and Ruby Project map41

 

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Offshore infrastructure

 

     

 

T&T

 

 

 

Angostura – Block 2(c)

 

 

Ruby – Block 3(a)

   
Location   38.5km north-east of Trinidad
     
Facility type   1 CPP, 1 GEP, 4 WPPs   1 WPP
     
Fields discovered
(approximate)
  Angostura (1999)   Ruby (2006)
     
Product   Oil and Gas   Oil and Gas
     
Production capacity  

Oil: 100,000 bbl/d

 

Gas: 340 MMscf/d

 

Tie-in to Angostura infrastructure

 

Oil: 16,000 bbl/d

 

Gas: 80 MMscf/d

     
First production   2005   2021
     
Production wells (current/
current and sanctioned)
  22 / 22   5 / 5
     
Injection wells (current/
current and sanctioned)
  7 / 7   1 / 1

 

41 Angostura and Ruby Project map. Fields, blocks and pipelines shown in maps are stylised and not to scale. Map only shows the key BHP Petroleum fields, leases and pipelines.

 

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5.2.10     Scarborough

The Scarborough field is located approximately 375km west-northwest offshore the Burrup Peninsula. Scarborough is part of the Greater Scarborough resource, including the Jupiter and Thebe fields.

Scarborough is owned by Woodside (73.5%, Operator) and BHP Petroleum (26.5%).

BHP Petroleum also owns an equal 50% participating interest with Woodside in the Thebe (WA-63-R) and Jupiter (WA-61-R) fields, which are part of the Greater Scarborough fields and options for potential future subsea tie-backs to the Scarborough FPU.

Woodside, as operator of the Scarborough Joint Venture, is developing the Scarborough gas resource through new offshore facilities connected by an approximately 430km pipeline to the second LNG train (“Pluto Train 2”) at the existing Pluto LNG onshore facility.

On 22 November 2021, Woodside announced that final investment decisions had been made to approve the Scarborough and Pluto Train 2 developments, including new domestic gas facilities and modification to Pluto Train 1. On 18 January 2022, Woodside announced the completion of the sale of a 49% non-operating participating interest in the Pluto Train 2 Joint Venture to Global Infrastructure Partners (“GIP”). Woodside has retained a 51% participating interest in Pluto Train 2 Joint Venture. Woodside remains the operator of Pluto LNG and the Pluto Train 2 Joint Venture.

In Q2 2020, the Scarborough Offshore Project Proposal was accepted by NOPSEMA and in Q4 2020, Production Licences were granted for the WA-61-L (Scarborough) and WA-62-L (North Scarborough) titles. Following approval by the Western Australia Minister for Environment of the Scarborough Nearshore Ministerial Statement 1172 in Q3 2021, all key primary environmental approvals are in place to support the final investment decisions.

In April 2022, further key primary approvals were received from the Commonwealth-Western Australian Joint Authority to support execution of the Scarborough Project. The Scarborough Joint Venture has received an offer for the pipeline licence to construct and operate the Scarborough pipeline in Commonwealth waters. Approval has also been granted for the Scarborough Field Development Plan (“FDP”), enabling Woodside to commence petroleum recovery operations from Petroleum Production Licences WA-61-L and WA-62-L. Following approval of the FDP, the Scarborough and Pluto Train 2 processing and services agreement executed in November 2021 is now unconditional.

5.2.11     Other Australia infrastructure – no longer in production

BHP Petroleum is operator of several Australian fields that are no longer in production including the Griffin (45-71.43% equity) and Stybarrow (50%) offshore oil fields located off North West Cape and the Minerva offshore gas field (90% equity and operator) in the Otway basin. A program of restoration activities is underway and is being carried out in close cooperation with environment and safety regulators and other key stakeholders.

5.2.12     Algerian Assets sale

While BHP Petroleum’s reserves and resources as of 30 June 2021 and the combined financial statements of BHP Petroleum are inclusive of BHP Petroleum’s 28.85% interest in the Algerian Assets, these assets are currently classified as non-core and are expected to be divested prior to the Implementation of the Merger.

As part of the Merger, Woodside and BHP have agreed that BHP will retain the economic benefits of the Algerian Assets from the Merger effective date (1 July 2021), including the net proceeds from the divestment. If the divestment of the Algerian Assets has not completed prior to the Implementation of the Merger, Woodside will operate the Algerian Assets on behalf of BHP under an arrangement whereby BHP will retain all economic exposure and indemnify Woodside for any costs and liabilities associated with the Algerian Assets until such time as both parties agree alternative arrangements or the Algerian Assets lapse or terminate (whichever is earlier). As at 30 June 2021, the 1P reserves of the Algerian Assets were approximately 8.9 MMboe and the Algerian Assets contributed revenue of $164m, $159m and $258m for the financial years ended 30 June 2021, 2020 and 2019, respectively.

 

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5.2.13     Description of Property

The following table sets out the location, capacity and BHP Petroleum’s ownership interest in the assets described below.

 

         
Asset   Location  

BHP

Petroleum

interest (%)

  100% capacity   BHP
Petroleum
operated
         
Shenzi (Green Canyon 653)   U.S. GOM   72.0%  

100 kbbl/d oil

 

50 MMscf/d gas

  Yes
         
Atlantis (Green Canyon 743)   U.S. GOM   44.0%  

200 kbbl/d oil

 

180 MMscf/d gas

  No
         
Mad Dog (Green Canyon 782)   U.S. GOM   23.9%  

A-Spar (Phase 1): 100 kbbl/d oil

 

60 MMscf/d gas handling

 

Argos (Phase 2):140 kbbl/d oil

 

75 MMscf/d gas

  No
         
Bass Strait   Offshore and onshore Victoria  

Gippsland Basin
joint venture:
50.0%

 

Kipper Unit joint
venture: 32.5%

 

65 kbbl/d oil

 

1,040 TJ/d

 

5,150 tpd LPG

 

850 tpd Ethane

  No
   
North West Shelf LNG   Refer to Section 5.2.5
   
North West Shelf Oil (Okha FPSO)   Refer to Section 5.2.5
         
Pyrenees   Offshore Western Australia  

WA-42-L permit:
BHP Petroleum
71.43%

 

WA-43-L permit:
BHP Petroleum
39.999%

 

Production capacity: 96 kbbl/d oil

 

Storage: 920 kbbl

  Yes
         
Macedon   Offshore and onshore Western Australia   71.43%  

Production capacity: 213 MMscf/d gas,

 

0.02 kbbl/d condensate

  Yes

 

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Asset   Location  

BHP

Petroleum

interest (%)

  100% capacity   BHP
Petroleum
operated
         
Greater Angostura   Offshore
T&T
  45.0%  

100 kbbl/d oil

 

340 MMscf/d gas

  Yes
         
Ruby   Offshore
T&T
  68.46%  

16 kbbl/d oil

 

80 MMscf/d gas

  Yes

In addition to the assets described above, BHP Petroleum leases office space in several locations globally, the two largest being Houston, Texas and Port of Spain, Trinidad.

5.3 Growth projects

5.3.1     Trion

Trion overview and history

The Trion project (“Trion”) is a BHP Petroleum-operated oil and gas opportunity in Mexico, which was discovered by PEMEX (Mexico’s state-owned petroleum company) in 2012, with BHP acquiring operatorship in 2017.

Trion is a greenfield development that would represent the first oil production from Mexico’s deepwater, with potential for future discoveries to be tied back to Trion facilities. The Trion field is in the Perdido Foldbelt, Gulf of Mexico, at a water depth of 2,500m approximately 180km off the Mexican coastline and 30km south of the US/Mexico maritime border.

Ownership structure and joint ventures

BHP Petroleum holds a 60% participating interest in and operatorship of Blocks AE-0092 and AE-0093 containing the Trion discovery. PEMEX Exploration & Production Mexico holds a 40% interest in the blocks.

5.3.2     Calypso

Calypso overview and history

Calypso is a BHP Petroleum-operated deepwater gas discovery in T&T. The Calypso opportunity is located 217km off the coast of T&T and comprises several discoveries in deepwater Blocks 23(a) and TTDAA 14. Calypso is proximate to existing LNG infrastructure and downstream petrochemical facilities.

The Calypso appraisal drilling program (consisting of the Bongos-3, Bongos-3X and Bongos-4 wells) concluded on 20 December 2021. All wells encountered hydrocarbons. Bongos-3 confirmed volumes downdip of prior penetrations and Bongos-4 established volumes in a new segment. The well results are currently under evaluation and will be incorporated into the development plan. Ownership structure and joint ventures

Calypso sits within the Deepwater Blocks 23(a) and TTDAA 14 lease blocks. It is owned by BHP Petroleum (70.0%, operator) and BP (30%).

 

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5.3.3        Magellan

Magellan overview and history

The Magellan discoveries in the Trinidad South Deepwater license Block TTDAA 5 includes the LeClerc and Victoria gas fields discovered in 2016 and 2018, respectively. Both fields are approximately 200km east of the island of Trinidad in water depths of approximately 1,800 m.

Ownership structure and joint ventures

BHP Petroleum signed a Production Sharing Contract in 2013 for exploration in the TTDAA 5 Block, BHP Petroleum is operator and has a 65% working interest with Shell as partner.

5.4 Recent performance

 

 

         BHP Petroleum Financial and Key Operating Information

 

 

            $ million        

 

HY  to

Dec 2021  

 

    

FY    to

June 2021  

    

FY    to

June 2020  

    

FY    to

June 2019  

 

 

            Revenue

 

       3,198          3,909          3,997          5,867    

 

            Underlying EBITDA42

 

         2,870          2,238          2,164          4,061    

 

Profit/(loss) after taxation from Continuing Operations

 

       583            (361)          (178)          661      

 

Profit/(loss) after taxation from Continuing and Discontinuing operations

 

         583            (361)          (178)          326      

 

            Cash generated from operations

 

       1,980          1,743          1,925          3,693    

 

         Production volumes

 

                                   

 

            Gas

 

            Bcf      168.5          340.6            359.6            396.9      

 

            Liquids

 

            MMboe                25.1            46.0              48.9              55.1        

 

            Total

 

 

 

            MMboe      53             103               109               121         

During FY2021, BHP Petroleum acquired an additional 28% working interest in Shenzi for $0.5 billion, increasing its share from 44% to 72% of the project. In FY2019, BHP Petroleum completed the divestment of its U.S. Onshore Shale business, realising net proceeds on sale of $10.4 billion.

 

 

42  These are non-IFRS measures that are unaudited but derived from audited Financial Statements. These measures are presented to provide further insight into BHP Petroleum’s performance. Refer to definitions in Glossary.

 

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5.5 Reserves and resources

 

 

BHP Petroleum’s Entity Derived Net Reserves Estimates as at 31 December 2021

 

Country    Asset  

 

      Oil and Condensate Reserves       
(MMbbl)

  Gas Reserves (Bcf)
 

1P

 

 

2P

 

 

1P

 

 

2P

 

      Australia      

  

 

Bass Strait

 

  10.0   18.6   488.5   869.6
  

 

NWS

 

  17.8   22.2   728.9   913.4
  

 

Pyrenees

 

  10.1   18.8   11.2   1.1
  

 

Macedon

 

  0.0   0.0   222.7   300.2
  

 

Scarborough

 

  0.0   0.0   1,769.0   2,226.0

      U.S.

      GOM

  

 

Shenzi

 

  64.0   92.1   33.3   49.7
  

 

Shenzi North

 

  16.4   27.6   11.6   19.5
  

 

Atlantis

 

  62.3   144.3   57.4   139.2
  

 

Mad Dog

 

  126.8   178.2   48.2   67.2

      T&T

  

 

Angostura

 

  1.6   2.1   165.4   251.5
  

 

Ruby

 

  0.8   1.4   16.1   37.1
    

 

   Total

 

 

  309.9   505.3   3,552.2   4,874.4

Notes:

 

 

Net Reserves are BHP Petroleum’s estimates of its net economic entitlement volume after the deduction of royalties, under the terms of PSC, service contract, or concession that govern the assets.

 

 

1P reserves are based on US Securities and Exchange rules and the 2P estimates are based on the Society of Petroleum Engineers Petroleum Resources Management System. For an indication of the difference in outcomes that arise from the adoption of these different systems of estimation across BHP Petroleum’s assets, refer to the table of net reserves estimates in Section 6.2.1 under the heading “Independent Technical Specialist” where the Independent Technical Specialist’s 1P and 2P reserves estimates for those assets are presented in accordance with PRMS rules.

 

 

Gas reserves include NGL volumes. Conversion assumes 1 bbl of NGL equals 6,000 scf of natural gas.

 

 

Net reserves include volumes consumed in operations (CiO or fuel). BHP Petroleum includes onshore and offshore fuel used in operations as reserves whilst Woodside includes downstream fuel in their reserves estimate.

 

 

The above Reserves include production through to the end of the relevant concessions only.

 

 

Totals may not exactly equal the sum of the individual entries because of rounding.

 

 

The total BHP 1P crude and condensate reserves of 309.9 MMbbl includes Shenzi North but excludes Algeria which is not part of the Merger. The 300.1 MMbbl of 1P crude and condensate reserves appearing in Woodside’s registration statement on Form F-4 represents an adjustment of the BHP 1P reserves reported at 30 June 2021 in the BHP 20-F to 31 December 2021 and includes Algeria but excludes Shenzi North which had not yet been classified as reserves.

 

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BHP Petroleum’s Entity Derived Net Contingent Resources as at 31 December 2021

 

Country    Asset  

 

Net 2C Contingent Resources

 

 

Oil and Condensate

(MMbbl)

 

  Gas (Bcf)

      Australia      

  

 

Bass Strait

 

  57.8   906.1
  

 

NWS

 

  11.9   140.5
  

 

Pyrenees

 

  15.8   0.0
  

 

Macedon

 

  0.0   107.0
  

 

Greater Scarborough

 

  0.0   981.0
  

 

Greater Exmouth

 

  3.2   42.1

      U.S.

      GOM

  

 

Shenzi

 

  83.9   59.2
  

 

Wildling

 

  57.1   40.2
  

 

Atlantis

 

  155.1   405.7
  

 

Mad Dog

 

  164.5   52.3

      Mexico

  

 

Trion

 

  241.0   204.0

      T&T

  

 

Angostura

 

  0.9   188.1
  

 

Ruby

 

  3.2   45.6
  

 

Calypso

 

  0.0   2,456.3
  

 

Magellan

 

  0.0   246.7
    

 

    Total

 

 

  794.3   5,874.7

Notes:

 

 

Net Contingent Resources in this table are BHP Petroleum’s estimates of its net economic entitlement volume after the deduction of royalties, under the terms of PSC, service contract, or concession that govern the assets.

 

 

The contingent resource estimates are based on the Society of Petroleum Engineers Petroleum Resources Management System.

 

 

Gas contingent resources include NGL volumes. Conversion assumes 1 bbl of NGL equals 6,000 scf of natural gas.

 

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The volumes reported here are “unrisked” in the sense that no adjustment has been made for the risk that the asset may not be developed in the form envisaged or may not be developed at all (i.e. no “Chance of Development” (Pd) factor has been applied).

 

 

Contingent resources are not aggregated with Reserves because of the different technical and commercial risk involved and the different basis on which the volumes are determined.

 

 

Totals may not exactly equal the sum of the individual entries because of rounding.

 

 

“Consumed in Operations” volumes are included in the reported Contingent Resources.

5.6 Corporate structure of BHP Petroleum

Set out below is BHP Petroleum’s list of subsidiaries. The list of subsidiaries contains all group members with the exception of certain entities in which BHP Petroleum holds an insignificant minority shareholding.

 

Figure 19

Corporate Structure of BHP Petroleum as at the Last Practicable Date

 

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Entity

 

  Location     Ownership  
   

 

BHP Petroleum International Pty Ltd

 

  Australia     100.00%  
   

 

BHP Petroleum Pty Ltd

 

  Australia     100.00%  
   

 

North West Shelf Liaison Company Pty Ltd

 

  Australia     16.67%^  
   

 

North West Shelf Shipping Service Company Pty Ltd

 

  Australia     16.67%^  
   

 

Perdido Mexico Pipeline Holdings, S.A. de C.V.

 

  Mexico     99.99%1  
   

 

Perdido Mexico Pipeline, S. de R.L. de C.V.

 

  Mexico     99.99%1  
   

 

BHP Petroleum Investments (Great Britain) Pty Ltd

 

 

  Australia     100.00%  

 

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Entity

 

  Location     Ownership  
   

 

BHP Billiton Brasil Investimentos de Petróleo Ltda.

 

  Brazil     99.97%2  
   

 

BHP Billiton Brasil Exploração e Produção de Petróleo Limitada

 

  Brazil     99.99%3  
   

 

BHP Billiton Petroleum Limited

 

 

 

United Kingdom  

 

  100.00%  
   

 

BHP Petroleum (North West Shelf) Pty Ltd

 

  Australia     100.00%  
   

 

North West Shelf Lifting Coordinator Pty Ltd

 

  Australia     16.67%^  
   

 

North West Shelf Gas Pty Limited

 

  Australia     16.67%^  
   

 

International Gas Transportation Company Limited

 

  Bermuda     16.67%^  
   

 

China Administration Company Pty Ltd

 

  Australia     16.67%^  
   

 

BHP Petroleum (Tankers) Limited

 

  Bermuda     100.00%4  
   

 

BHP (Trinidad) Holdings Ltd.

 

  Saint Lucia     100.00%  
   

BHP (Trinidad-3A) Ltd

 

 

Republic of Trinidad  

and Tobago  

 

  100.00%  
   

 

BHP Billiton Petroleum Holdings (USA) Inc.

 

  United States     90.00%5  
   

 

Hamilton Brothers Petroleum Corporation

 

  United States     100.00%  
   

 

Hamilton Oil Company Inc.

 

  United States     100.00%  
   

 

BHP Billiton Boliviana de Petroleo Inc.

 

  United States     100.00%  
   

 

BHP Petroleum (North America) LLC

 

  United States     100.00%  
   

 

BHP Billiton Petroleum (Americas) Inc.

 

  United States     100.00%  
   

 

BHP Billiton Petroleum (GOM) Inc.

 

  United States     100.00%  
   

 

Oil Insurance Limited

 

  Bermuda     2.20%^  
   

 

BHP Hawaii Inc.

 

  United States     100.00%  
   

 

Iwilei District Participating Parties, LLC

 

  United States     14.96%^  
   

 

BHP Resources Inc.

 

  United States     100.00%  
   

 

BHP Holdings (Resources) Inc.

 

 

  United States     100.00%  

 

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Entity

 

  Location     Ownership  
   

 

Broken Hill Proprietary (USA) Inc.

 

  United States     100.00%  
   

 

BHP Billiton Marketing Inc.

 

  United States     100.00%  
   

 

BHP Billiton Petroleum (Deepwater) Inc.

 

  United States     100.00%  
   

 

Caesar Oil Pipeline Company, LLC

 

  United States     25.00%^  
   

 

Cleopatra Gas Gathering Company LLC

 

  United States     22.00%^  
   

 

Marine Well Containment Company LLC

 

  United States     10.00%^  
   

 

BHP Petroleum (Foreign Exploration Holdings) LLC

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 3) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 6) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 5) Limited

 

  United Kingdom     100.00%  
   

 

BHP Billiton Petroleum (Trinidad Block 7) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 14) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 23A) Limited

 

  United Kingdom     100.00%  
   

 

BHP Billiton Petroleum (Trinidad Block 23B) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 28) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Trinidad Block 29) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Bimshire) Limited

 

  United Kingdom     100.00%  
   

 

BHP Billiton petroleum (South Africa 3B/4B) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Egypt) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Carlisle Bay) Limited

 

  United Kingdom     100.00%  
   

 

BHP Petroleum (Mexico) Limited

 

  United Kingdom     100.00%  
   

 

BHP Billiton Petróleo Servicios Administrativos, S. de R.L. de C.V.

 

  Mexico     99.00%6  
   

 

BHP Billiton Petróleo Servicios de México, S. de R.L. de C.V.

 

  Mexico     99.00%6  
   

 

BHP Petroleum (Mexico Holdings) LLC

 

 

  United States     100.00%  

 

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Entity

 

   Location      Ownership  
   

 

Operaciones Conjuntas, S. de R.L. de C.V.

 

   Mexico      99.00%6  
   

 

BHP Billiton Petróleo Holdings de México, S. de R.L. de C.V. *

 

   Mexico      99.99%6  
   

 

BHP Billiton Petróleo Operaciones de México, S. de R.L. de C.V. *

 

   Mexico      99.00%6  
   

 

BHP Petroleum (Australia) Pty Ltd

 

   Australia      100.00%  
   

 

BHP Petroleum (International Exploration) Pty Ltd

 

   Australia      100.00%  
   

 

BHP Petroleum (Bass Strait) Pty Ltd

 

   Australia      100.00%  
   

 

BHP Petroleum (Victoria) Pty Ltd

 

   Australia      100.00%  
   

 

BHP Billiton Petroleum Holdings LLC

 

   United States      100.00%  
   

 

BHP Billiton (Trinidad-2C) Ltd

 

   Canada      100.00%  
   

 

BHP Petroleum (New Ventures) Corporation

 

   Canada      100.00%  

 

Notes: (^) Remainder of shares externally owned.

 

(1) 0.01% owned by BHP Petroleum Investments (Great Britain) Pty Ltd

 

(2) 0.03% owned by BHP Petroleum International Pty Ltd

 

(3) 0.01% owned by BHP Petroleum International Pty Ltd

 

(4) BHP Petroleum (Tankers) Limited is in the process of being liquidated. A final shareholder meeting in connection with the liquidation is scheduled for 12 April 2022.

 

(5) 90% Voting; 37.67% Capital; BHP Billiton Petroleum Holdings LLC (10% Voting; 62.33% Capital)

 

(6) BHP Petroleum (Mexico Holdings) LLC (0.01-1%)

 

Note: where the shade of colour changes, the entity listed directly above the subsidiary is the parent.

See * for an example

 

       

 

Subsidiary Level I

 

       

 

Subsidiary Level II

 

       

 

Subsidiary Level III

 

       

 

Subsidiary Level IV

 

       

 

Subsidiary Level V

 

 

         

 

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5.7 Financial information

BHP Petroleum is a subset of entities wholly owned by BHP Group Limited and whose parent is BHP Petroleum International Pty Ltd. The registered office of BHP Petroleum International Pty Ltd is 125 St Georges Terrace, Perth Western Australia 6000, Australia.

This subset of entities primarily represents BHP Group Limited’s interests in its petroleum businesses, whose principal activities are the exploration, development and production of oil and gas. These petroleum businesses comprise of conventional oil and gas assets located in the U.S. GOM, Australia, T&T, Algeria and Mexico and appraisal and exploration options in T&T, central and western U.S. GOM, Eastern Canada, Barbados and Egypt.

A list of the subsidiaries of BHP Petroleum International Pty Ltd is set out above in Section 5.6 and includes the legal entities carved out from BHP Group Limited in connection with the Merger. BHP Petroleum consists of BHP Petroleum International Pty Ltd and the entities it controls, except for the Restructure Entities.

The BHP Petroleum Historical Financial Information is included in Annexure 2.

While BHP Petroleum’s reserves and resources as of 30 June 2021 and the combined financial statements of BHP Petroleum are inclusive of BHP Petroleum’s 28.85% interest in the Algerian Assets, these assets are currently classified as non-core and are expected to be divested prior to the Implementation of the Merger.

Basis of presentation of BHP Petroleum Historical Financial Information

The BHP Petroleum Historical Financial Information included in Annexure 2 represents non-statutory combined financial statements that are intended to provide general purpose historical financial information of BHP Petroleum. They are combined financial statements, rather than consolidated financial statements on the basis that not all entities controlled by BHP Petroleum International Pty Ltd have been included in the carve out financial statements (on the basis that not all are included within the scope of the Merger). The Restructure Entities have been excluded from the scope of the Merger and excluded from the carve out financial statements. The combination of entities within BHP Petroleum has been prepared in accordance with the consolidation procedures set out in IFRS 10 Consolidated Financial Statements.

The financial information has been extracted from the accounting records of BHP Group Limited for the purposes of presenting the combined financial position, combined results of operations and combined cash flows of BHP Petroleum. The combined financial statements therefore reflect assets, liabilities, revenues and expenses directly attributable to BHP Petroleum. A list of the subsidiaries included within BHP Petroleum’s combined financial statements is included in Note 23 of BHP Petroleum Assets financials statements.

BHP Petroleum has adopted the same accounting policies as BHP Group, unless otherwise stated.

The combined financial statements of BHP Petroleum as at and for the reporting periods:

 

 

Are a combined general purpose financial statements

 

 

Have been prepared in accordance with the requirements of the Corporations Act and the UK Companies Act 2006

 

 

Were prepared in accordance with IFRS

 

 

Are prepared on a going concern basis

 

 

Measure items on the basis of historical cost principles, except for the following items:

 

  -

Derivative financial instruments and certain other financial assets and liabilities, which are carried at fair value.

 

 

Include significant accounting policies in the notes to the financial statements that summarise the recognition and measurement basis used and are relevant to an understanding of the combined financial statements

 

 

Apply a presentation currency of U.S. dollars, consistent with the predominant functional currency of BHP Petroleum’s operations. However, some subsidiaries and joint arrangements have functional currencies other than U.S. dollars

 

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Round amounts presented to the nearest million dollars, unless otherwise stated

 

 

Adopt all new and amended standards and interpretations under IFRS issued by the relevant bodies (refer to Note 25 ‘New and amended accounting standards and interpretations’), that are mandatory for application in periods beginning on 1 July 2019. Those new and amended standards and interpretations did not require restatement of prior period financial information

 

 

Early adopted amendments to IFRS 9 ‘Financial Instruments’ (IFRS 9); IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39); IFRS 7 ‘Financial Instruments: Disclosures’ (IFRS 7) and IFRS 16 ‘Leases’ (IFRS 16) in relation to Interest Rate Benchmark Reform (refer to Note 25 ‘New and amended accounting standards and interpretations’), and

 

 

Have not early adopted any other standards and interpretations that have been issued or amended but are not yet effective.

The accounting policies are consistently applied by all entities included in BHP Petroleum.

 

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6 Overview of the Merged Group

6.1 Overview of assets

On Implementation, the Merged Group will comprise the Woodside Group and BHP Petroleum.

The Merged Group will have a global portfolio of currently producing assets and future growth projects and opportunities. The key producing assets are integrated LNG projects in Western Australia, oil fields in the United States Gulf of Mexico (“U.S. GOM”), as well as oil and gas assets in Australia and the Republic of Trinidad and Tobago (“T&T”). The Merged Group’s key growth projects will include the Scarborough and Pluto Train 2 developments in Australia, the Shenzi North and Mad Dog Phase 2 expansions of the currently producing U.S. GOM oil projects, and the greenfield Sangomar Oil Field Development offshore Senegal. The Merged Group will also hold exploration and discovered resource opportunities in Australia, Timor-Leste, Senegal, Republic of Korea, Egypt, Congo, T&T, central and western U.S. GOM, Mexican Gulf of Mexico, Canada and Barbados.

 

Figure 20

Combined Woodside and BHP Petroleum Oil and Gas Production Assets43

 

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43 Combined portfolio. Woodside and BHP Petroleum combined annual production, reserves and contingent resource data as at 31 December 2021. Sunrise is included in Western Australia. Myanmar, Liard and Algeria are not shown on the map above. BHP volumes for NWS and Greater Scarborough are based on Woodside estimates. Oil includes crude, condensate and NGLs. Excludes Algeria and Neptune production and volumes. BHP assets comprise of Gulf of Mexico, Trinidad & Tobago, East coast Australia and Western Australia. Woodside assets comprise of Western Australia and Senegal

 

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6.2 Reserves and future production capacity

Woodside believes the Merger will deliver significant benefits for both Existing Woodside Shareholders and Eligible BHP Shareholders through the creation of a long-life conventional portfolio of scale and diversity of geography, product and end markets.

On a pro forma basis, the Merged Group is expected to consist of:

 

 

High quality conventional asset base producing around 193 MMboe (net production)44

 

 

Diversified production mix of 46% LNG, 29% oil and condensate and 25% domestic gas and liquids (net production)

 

 

Wide geographic reach with production from Western Australia, east coast Australia, U.S. GOM and T&T with approximately 95% of production (net production) from OECD nations, and

 

 

2P reserves of over 3.6 billion boe comprising 79% gas, and 21% liquids.

 

Figure 21

Merged Group production mix by type and region for the 12 months ending 31 December 2021 45

 

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6.2.1    Net Combined Reserves

Reserves and Resources remaining are estimates that can vary based on the competent person deriving the estimate and the basis assumed. The following estimates are set out in the tables below:

 

   

Entity derived estimates: Woodside has estimated 1P and 2P Reserves and 2C Resources utilising the Society of Petroleum Engineers Petroleum Resources Management System framework. BHP Petroleum has estimated 1P Reserves using the United States SEC guidelines and estimated 2P Reserves and 2C Resources utilising the Society of Petroleum Engineers Petroleum Resources Management System framework

 

   

Independent Technical Specialist derived: These are estimates derived by Gaffney Cline and Associates and have been estimated using the Society of Petroleum Engineers Petroleum Resources Management System framework, and

 

   

SEC submission: These are 1P Reserves estimates derived for submission to the US SEC based on SEC reserves guidelines. Entity derived estimates are used for BHP assets, and estimates derived by an external consultant are used for Woodside assets.

 

 

44 

Combined Woodside and BHP Petroleum total production for the 12 months to 31 December 2021. Excludes Algeria and Neptune production. Comprised of 53% BHP Petroleum production and 47% Woodside production.

45

Merged Group 2P and 2C volumes as at 31 December 2021. Excludes Algeria and Neptune volumes. For comparative purposes, on a Woodside stand-alone basis as at 31 December 2021

 

  -

2P reserves: 2,292 MMboe, 89% gas and 11% liquids

 

  -

2C resources: 6,599 MMboe, 92% gas and 8% liquids

 

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Merged Group Net Reserves Estimates as at 31 December 2021

 

               

 

Entity derived

 

  Independent Technical  Specialist   SEC
     Country    Asset  

 

Oil and
Condensate 
(MMbbl)

 

 

Gas

 

(Bcf)

  Oil and
Condensate 
(MMbbl)
 

Gas

(Bcf)

  Oil and
Condensate
(MMbbl)
 

Gas

 

(Bcf)

 

 

1P

 

  2P   1P   2P   1P   2P   1P   2P   1P   1P
   

Australia

  

 

Greater Pluto

 

  19.7   25.0   1,432.3   1,845.2   19.5   24.3   1,575.3   1,951.2   18.0   1,427.7
  

 

Bass Strait

 

  10.0   18.6   488.5   869.6   10.6   17.9   490.0   829.8   10.0   488.5
  

 

NWS

 

  40.6   50.8   1,370.5   1,721.0   43.2   55.6   1,439.5   1,892.4   35.6   1,226.4
  

 

Greater Exmouth

 

  21.6   25.3   0.0   0.0   16.0   24.1   0.0   0.0   16.4   0.0
  

 

Pyrenees

 

  10.0   19.0   11.2   1.1   10.0   19.0   0.0   0.0   10.1   11.2
  

 

Macedon

 

  0.0   0.0   222.7   300.2   0.0   0.0   239.0   308.4   0.0   222.7
  

 

Wheatstone

 

  10.6   16.7   564.0   849.9   8.8   16.5   608.9   947.4   5.2   304.2
  

 

Scarborough

 

  0.0   0.0   7,221.8   10,392.6   0.0   0.0   7,212.9   11,242.2   0.0   6,909.6
   

U.S. GOM

  

 

Shenzi

 

  64.0   92.1   33.3   49.7   64.0   91.9   33.5   51.2   64.0   33.3
  

 

Shenzi North

 

  16.4   27.6   11.6   19.5   16.4   26.8   11.6   18.9   16.4   11.6
  

 

Atlantis

 

  62.3   144.3   57.4   139.2   59.4   153.9   55.6   117.0   62.3   57.4
  

 

Mad Dog

 

  126.8   178.2   48.2   67.2   129.2   180.0   40.1   55.9   126.8   48.2
   

T&T

  

 

Angostura

 

  1.6   2.1   165.4   251.5   1.6   1.9   167.9   230.1   1.6   165.4
  

 

Ruby

 

  0.8   1.4   16.1   37.1   1.4   1.8   24.0   33.2   0.8   16.1
   

Senegal

  

 

Sangomar

 

  98.0   148.7   0.0   0.0   100.6   148.1   0.0   0.0   81.2   0.0
   

 

Total

 

  482.6   749.6   11,642.9   16,543.7   480.8   761.7   11,898.5   17,677.9   448.4   10,922.3

Notes:

 

Algeria and Neptune are excluded from the above Reserves.

 

 

Net Reserves are the Merged Group’s net economic entitlement volume after the deduction of royalties, under the terms of the PSC, service contract, or concession that govern the relevant assets.

 

 

Net gas reserves determined by Independent Technical Specialist include NGL volumes and 1,268 Bcf (1P)/1,859 Bcf (2P) consumed in operations (CiO or fuel); the Competent Person’s Report presents CiO volumes, company net NGL reserves and company net gas reserves excluding fuel in separate tables. BHP Petroleum includes onshore and offshore fuel used in operations as reserves whilst Woodside includes downstream fuel as reserves.

 

 

The above Reserves include production through to the end of the relevant concessions only.

 

 

Totals may not exactly equal the sum of the individual entries because of rounding.

 

 

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The reserves estimate generated by the Independent Technical Specialist vary when compared on an asset-by-asset basis to Woodside estimates. In aggregate, the Independent Technical Specialist’s estimates are approximately 2% higher for 1P and 0.75% higher for 2P.

 

 

Entity derived 1P estimates for the Woodside assets are based on SPE PRMS standards. These are generally higher than the reserves estimated based on SEC rules due to one or more of the following:

 

 

  o

Commodity price assumptions

 

  o

Exclusion of probabilistic aggregation

 

  o

Volumes associated with unpenetrated sand bodies fault blocks, and

 

  o

Cross-block volumes.

6.2.2    Net Combined Contingent Resources

 

   

 

Merged Group Net Contingent Resources as at 31 December 2021

 

              

 

Entity derived

 

  Independent Technical  Specialist
     Country   Asset  

 

Net 2C Contingent Resources

 

  Net 2C Contingent Resources
 

 

Oil and
Condensate
(MMbbl)

 

  Gas (Bcf)   Oil and
Condensate
(MMbbl)
  Gas (Bcf)
   

Australia

 

 

Greater Pluto

 

  22.5   1,116.5   22.8   1,290
 

 

Bass Strait

 

  57.8   906.1   18.1   138
 

 

NWS

 

  33.3   422.9   35.7   582
 

 

Greater Exmouth

 

  32.1   349.5   34.4   351
 

 

Pyrenees

 

  15.8   0.0   16.4   0
 

 

Macedon

 

  0.0   107.0   0.0   107
 

 

Wheatstone

 

  0.7   37.4   0.2   15
 

 

Greater Scarborough

 

  0.0   1,801.2   0.0   1,318
 

 

Greater Browse

 

  119.4   4,257.8   119.3   4,469
 

 

Greater Sunrise

 

  75.6   1,716.8   75.6   1,717
   

U.S. GOM

 

 

Shenzi

 

  83.9   59.2   25.0   7
 

 

Wildling

 

  57.1   40.2   36.9   11
 

 

Atlantis

 

  155.1   405.7   88.3   38
 

 

Mad Dog

 

  164.5   52.3   70.2   4

 

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Myanmar

 

 

Myanmar A6

 

  0.0   624.0   0.0   567

Mexico

 

 

Trion

 

  241.0   204.0   282.6   210

T&T

 

 

Angostura

 

  0.9   188.1   1.3   219
 

 

Calypso

 

  0.0   2,456.3   4.9   2,877
   

 

Magellan

 

  0.0   246.7   0.0   313

Senegal

 

 

Sangomar

 

  231.2   232.2   317.1   301

Canada

 

 

Liard

 

  0.0   25,373.3   0.0   13,350

 

Total

 

  1,294.0   40,642.7   1,148.8   27,884

Notes:

 

Algeria and Neptune are excluded from the above Contingent Resources.

 

 

For BHP Petroleum assets, the Entity Derived Net Interest Contingent Resources shown in this table are the net economic entitlement volumes after the deduction of royalties, under the terms of the PSC, service contract, or concession that govern the relevant assets. The Independent Technical Specialist Contingent Resource estimates provided are the working interest portion which is a higher estimate than Net Interest

 

 

The contingent resource estimates are based on the Society of Petroleum Engineers Petroleum Resources Management System.

 

 

The Independent Technical Specialist’s Contingent Resource Volume for Liard (Canada) shown is based on a working interest of 50.0%on the basis that not all the infrastructure-free leases have been transferred. The Entity derived Contingent Resource Volume for Liard is based on a working interest of 94.5% on the basis of Woodside assuming full equity in 28 non infrastructure related Liard Basin leases from Chevron Canada

 

 

The volumes reported are “unrisked” in the sense that no adjustment has been made for the risk that the asset may not be developed in the form envisaged or may not be developed at all (i.e. no “Chance of Development” (Pd) factor has been applied).

 

 

Contingent resources are not aggregated with Reserves because of the different technical and commercial risk involved and the different basis on which the volumes are determined.

 

 

Contingent gas resources include NGL volumes.

 

 

Totals may not exactly equal the sum of the individual entries because of rounding.

 

 

“Consumed in Operations” volumes are included in the reported Contingent Resources with the exception of Entity derived contingent resources which are net of upstream fuel and non-hydrocarbons that are not present in sales products.

 

 

Asset-by-asset Contingent Resource estimates made by the Independent Technical Specialist vary when compared to Woodside 2C estimates. In aggregate, Independent Technical Specialist estimates are 3% lower than the Entity derived estimates.

 

 

The Independent Technical Specialist has elected to only include a subset of BHP Petroleum identified Contingent Resources projects deemed most mature based on a judgement of technical and economic viability.

 

 

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6.2.3       Production

 

Historical Production (MMboe)46
     
Year    Woodside    BHP Petroleum    Merged Group
     

2019

   89.6    115.8    205.4
     

2020

   100.3    101.8    202.1
     

2021

   91.1    102.3    193.4

6.3 Strategy

Woodside will develop a strategy for the Merged Group to optimise value and shareholder returns through the energy transition. The goal is to leverage its base business profitability to build a low-cost, lower-carbon, profitable, financially resilient and diversified portfolio of growth opportunities to achieve its strategic objectives.

The strategy will see Woodside continuing to develop hydrocarbons while gradually building optionality in new energy products and lower-carbon services such as ammonia, liquid hydrogen and the development of carbon capture and utilisation through targeted opportunities with attractive growth potential.

In addition to these new energy opportunities, Woodside is assessing opportunities for carbon capture and storage, including an opportunity to develop a large-scale, multi-user project near Karratha, Western Australia.

The strategic planning framework will facilitate delivery of Woodside’s strategy, and execution of future investment decisions.

 

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46 Production for the 12 months ending 31 December. Production from Algeria and Neptune is included in BHP Petroleum production for 2019 and 2020, and excluded from BHP Petroleum production for 2021.

 

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6.3.1       Competitive advantage

Woodside’s strategy aims to establish a competitive advantage by offering its customers high valued products. Woodside operates international assets to deliver low-cost and high-margin products, and is maturing a portfolio of high-quality growth options, including both hydrocarbon and new energy opportunities. Understanding the changes in the energy market, combined with diversifying the portfolio into new energy, will help Woodside to identify new areas within known segments of the energy value chain where the Merged Group may gain a competitive advantage.

Woodside’s strategy to diversify its portfolio into new energy will be built on Woodside’s understanding of the energy value chain and the market evolution, and its capabilities to identify adjacent areas of the energy value chain where it may gain a competitive advantage.

6.3.2       Disciplined capital management and allocation

Woodside’s approach to capital management is to deploy its capital within a framework designed to optimise shareholder returns, through investing in growth opportunities or distributions, whilst maintaining a strong balance sheet.

 

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Woodside has a portfolio of international assets providing safe, reliable and low-cost operations which provides the foundation to deliver new growth opportunities.

In respect of investing in growth opportunities, Woodside’s disciplined capital allocation approach includes robust assessment of opportunities, portfolio outcomes and shareholder returns, while maintaining focus on safe and reliable operations.

Woodside’s capital allocation approach aligns to its strategy and is expected to enable the current portfolio to evolve into an optimised portfolio for the future, incorporating a mix of oil, gas, and new energy opportunities and shareholder returns.

The Merged Group will adopt Woodside’s capital allocation approach.

Woodside’s capital allocation framework sets target investment criteria for the assessment of oil, gas and new energy opportunities. It comprises investment targets for different business segments, as well as portfolio level financial and non-financial metrics to evaluate opportunities for their strategic fit and performance under different scenarios. The capital allocation framework is used to create a diversified and flexible portfolio which is responsive to changes in demand and supply for Woodside’s products.

 

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  1.

CCUS refers to carbon capture utilisation and storage.

 
  2.

Payback refers to RFSU + X years.

 
  3.

Target is for net equity Scope 1 and 2 greenhouse gas emissions, relative to a starting base of the gross annual average equity Scope 1 and 2 greenhouse gas emissions over 2016-2020 and may be adjusted (up or down) for potential equity changes in producing or sanctioned assets with an FID prior to 2021. Following Implementation (which remains subject to Conditions including regulatory approvals), the starting base will be adjusted for the then combined Woodside and BHP petroleum portfolio.

 

When assessing opportunities, Woodside considers a broad range of portfolio evaluation and opportunity evaluation factors relevant to the opportunity. These assessments can apply to acquisitions or divestments, and for evaluating the impact of a new project on the portfolio.

 

 

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The Merged Group portfolio will provide optionality across oil, gas and new energy. Each business segment is expected to meet specific investment criteria that reflect different risk-reward profiles.

The allocation approach intends to support continued investment in hydrocarbons where screening criteria are met as well as building capability and competitive advantage in new energy. In addition, Woodside expects to manage the emissions from all these investments to meet Woodside’s net equity Scope 1 and Scope 2 greenhouse gas emissions reduction targets of 15% by 2025, 30% by 2030, and a net zero aspiration by 2050 or sooner.48 After Implementation of the Merger, the baseline will be adjusted for the Merged Group portfolio.

Capital investment requirements are primarily funded by Woodside’s resilient and stable operating cash flows, in conjunction with a number of capital management levers:

 

 

47 Illustrative of the considerations. Not an exhaustive list.

48 Target is for net equity Scope 1 and 2 greenhouse gas emissions, relative to a starting base of the gross annual average equity Scope 1 and 2 greenhouse gas emissions over 2016-2020 and may be adjusted (up or down) for potential equity changes in producing or sanctioned assets with an FID prior to 2021. Following Implementation (which remains subject to Conditions including regulatory approvals), the starting base will be adjusted for the then combined Woodside and BHP petroleum portfolio.

 

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Participating interest management, ensuring a balance of capital investment requirements, project execution risk and long-term value. In January 2022, Woodside completed the sell-down of a 49% non-operating participating interest in the Pluto Train 2 Joint Venture. In 2022, Woodside will continue the targeted sell-down processes for Sangomar and the Scarborough offshore resource;

 

 

Debt management, to ensure that Woodside continues to have access to premium debt markets at a competitive cost to support its growth activities. Woodside seeks to manage average debt maturity on its debt portfolio. Woodside’s gearing target is 15-35%. Woodside continues to target maintaining an investment-grade credit rating; and

 

 

Focused expenditure management, to ensure prudent and efficient deployment of capital to support delivery of base business and growth opportunities.

Oil

The Merged Group’s oil investments will focus on high quality oil resources that can generate high returns to fund its future diversified growth. These opportunities, including subsea tiebacks to existing oil infrastructure, are characterised by quick developments, short payback periods and significant cash generation once operational.

Woodside plans to target oil opportunities for the Merged Group that deliver rates of return greater than 15% and payback within the first 5 years from RFSU.

Gas

Woodside believes gas will continue to play a major role in the energy transition, as countries switch from coal and look for stable forms of base-load power to support renewable energy generation. The Merged Group will invest in LNG and pipeline gas opportunities, focusing on developments through existing infrastructure and opportunities to develop optionality for hydrogen.

Woodside plans to target gas opportunities for the Merged Group that deliver rates of return above 12% and payback within 7 years from RFSU.

New Energy

Woodside believes the new energy products and services market is developing and could grow quickly as countries and businesses commit to net zero goals and policies to incentivise lower-carbon solutions across the globe strengthen. Woodside has set a target to invest at least $5 billion on new energy products and lower carbon services by 2030 to meet this growing demand.49

Woodside expects to diversify its product stream by investing in a diversified range of new energy opportunities. These include products and services to help customers reduce their emissions such as the supply of hydrogen and ammonia, and the provision of carbon, capture, utilisation and storage services to third parties to support their decarbonisation efforts.

These opportunities are expected to be scalable in nature, providing the opportunity for staged investment as the market develops.

Opportunities that deliver rates of return greater than 10% and payback within 10 years from RFSU will be targeted by the Merged Group. These thresholds reflect that these projects are not exposed to upstream or resource risk in the way a traditional oil or gas development is.

New energy opportunities recently announced by Woodside include H2Perth (an ammonia and hydrogen opportunity located near the Kwinana industrial hub south of Perth, Western Australia), H2TAS (a renewable hydrogen and ammonia opportunity located in the Bell Bay area of northern Tasmania), H2OK (a liquid hydrogen opportunity in Oklahoma) as well as a collaboration with Heliogen on deployment of their concentrated solar technology at a pilot facility in California.

 

49 Investment target assumes completion of the Merger. Individual investment decisions are subject to Woodside’s investment hurdles. Not guidance.

 

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Dividends

The Merged Group’s dividend policy is expected to be unchanged compared to Woodside’s current dividend policy.

The Woodside Board is responsible for approving dividends. The Woodside Board has determined there is no change to Woodside’s dividend policy of a minimum of 50% of net profit after tax excluding non-recurring items in dividends. The Woodside Board’s dividend payout ratio target is between 50% to 80% of net profit after tax, excluding non-recurring items, subject to market conditions and investment requirements.

Generally, Woodside pays dividends to its shareholders semi-annually, once in March or April and again in September or October of each year. Woodside maintains a dividend reinvestment plan that, if utilised by the Woodside Board, provides Woodside Shareholders with the option of reinvesting all or part of their dividends in additional Woodside Shares rather than taking cash dividends.

On 17 February 2022, the Woodside Board declared a final dividend of $1,018 million to Woodside Shareholders ($1.05 per Woodside Share), representing a payout ratio of approximately 80% of net profit after tax excluding non-recurring items. The dividend reinvestment plan remains active, allowing eligible Woodside Shareholders to reinvest their dividends directly into Woodside Shares at a 1.5% discount. Woodside’s prior dividends for the years ended 31 December 2015, 2016, 2017, 2018, 2019, 2020 and 2021 are as follows: 50

 

  Date Declared    Date Paid    Type of Dividend    Dividend per Share    Total Dividends

  18 February 2015

  

25 March 2015

  

Final

  

$1.44

  

$1,186 million

  19 August 2015

  

23 September 2015

  

Interim

  

$0.66

  

$544 million

  17 February 2016

  

8 April 2016

  

Final

  

$0.43

  

$354 million

  19 August 2016

  

30 September 2016

  

Interim

  

$0.34

  

$286 million

  22 February 2017

  

29 March 2017

  

Final

  

$0.49

  

$413 million

  16 August 2017

  

21 September 2017

  

Interim

  

$0.49

  

$413 million

  14 February 2018

  

20 March 2018

  

Final

  

$0.49

  

$413 million

  15 August 2018

  

20 September 2018

  

Interim

  

$0.53

  

$496 million

  14 February 2019

  

20 March 2019

  

Final

  

$0.91

  

$852 million

  15 August 2019

  

20 September 2019

  

Interim

  

$0.36

  

$337 million

  13 February 2020

  

20 March 2020

  

Final

  

$0.55

  

$518 million

  13 August 2020

  

18 September 2020

  

Interim

  

$0.26

  

$248 million

  18 February 2021

  

24 March 2021

  

Final

  

$0.12

  

$115 million

  18 August 2021

  

24 September 2021

  

Interim

  

$0.30

  

$289 million

  17 February 2022

  

23 March 2022

  

Final

  

$1.05

  

$1,018 million

Target Gearing

The Merged Group will target gearing within a range of 15% – 35%.

Hedging

The Merged Group’s approach to hedging will remain consistent with Woodside’s financial risk management principles.

Specifically, commodity price, interest rate and foreign exchange risk management will be undertaken in line with approved Board mandate parameters.

Woodside’s financial position and performance are affected by changes in crude oil prices and variations in the exchange rates of various currencies (predominately of the Australian dollar to the U.S. dollar) and in U.S. interest rates. Where appropriate, Woodside uses derivative financial instruments such as swaps, options, futures and forward contracts, to hedge its risks associated with commodity prices, interest rates and foreign currency fluctuations.

 

 

50 Dividends per share are calculated by dividing Woodside’s dividends paid by the number of ordinary shares outstanding.

 

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Currently, Woodside may manage its commodity price risk exposure by hedging up to 50% of oil-linked exposure from produced hydrocarbons to 31 December 2023. In addition, certain derivative financial instruments may be used to hedge pricing risk within Woodside’s trading portfolio.

As at the Last Practicable Date, Woodside had hedged approximately 16.2 MMboe of 2022 of oil exposed production at an average price of $74.65 per barrel and approximately 21.8 MMboe of 2023 oil exposed production at an average price of $74.50 per barrel. In addition, Woodside has taken hedges on Corpus Christi volumes for 2022 and 2023. As a result of hedging and term sales, approximately 97% of Corpus Christi volumes in 2022 and 73% in 2023 have reduced pricing risk as at the Last Practicable Date.

In July 2016, Woodside issued CHF175 million in senior unsecured notes under its Global Medium Term Notes Program. Associated with this issuance, Woodside entered into arrangements with a number of counterparties whereby the CHF proceeds were swapped to US dollars, and the CHF fixed interest coupon payments were swapped to floating rate US dollar obligations based on US$ LIBOR.

In January 2020, Woodside entered into a $600 million fully drawn syndicated term facility. Associated with this facility, Woodside entered into arrangements with a number of counterparties whereby the US$ floating interest rate was swapped to a fixed US$ interest rate over the term of the facility.

In December 2021, Woodside completed a foreign exchange hedge program to manage A$ foreign exchange exposure as part of the Scarborough and Pluto Train 2 developments. Woodside entered into arrangements with a number of counterparties whereby certain amounts of A$ were purchased under forward arrangements between 2022 and 2025. In March 2022, Woodside purchased an amount of A$ under forward arrangements to manage short term A$ foreign exchange exposure relating to operating expenditures in 2022.

Summary of hedge book as at the Last Practicable Date

 

 

Commodity Hedge Book

   

Oil

       

BBls Volume (Net Short)

    
   
      

2022

     

16,200,000

    
   
      

2023

     

21,840,000

    
   

TTF

       

MMBtu Volume (Net Short)

    
   
      

2022

     

18,452,502

    
   
      

2023

     

30,930,000

    
   

HH

       

MMBtu Volume (Net Long)

    
   
      

2022

     

25,288,000

    
   
        

2023

       

36,810,000

    
                         
 
Interest Rate Hedge Book
   

Interest Rate Swap

       

Notional

     

Rate                                     

   
   

17-Jan-27

     

$600 million

      Receive 3 month LIBOR
   
                Pay Fixed 1.72%
   

Cross Currency Swap

     

Notional

     

Rate

   
   

11-Dec-23

     

CHF175 million

      Receive Fixed 1%
   
             

$179 million

        Pay 3 month LIBOR + 2.80%
                         
 
Foreign Currency Hedge Book
   

Purchase A$ foreign exchange Forwards

     

Notional

     

Average Rate

   

2022 - 2023

       

AUD790 million

     

                0.71

   

Purchase A$ foreign exchange Forwards

     

Notional

     

Average Rate

   

2024 - 2025

           

AUD417 million

       

                0.71

 

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Shares on issue

Table 1 - Woodside Shares that are expected to be on issue on Implementation:

 

  Timing   Number

  On issue as at the Last Practicable Date

  983,980,823

  Estimated to be issued under the Merger

  914,768,94851

  Estimated total on issue following Implementation

  1,898,749,771

Table 2 - Woodside unquoted equity securities that are on issue as at the Last Practicable Date:

 

  Unquoted equity securities   Number on issue at the
Last Practicable Date

  Equity Rights

  5,711,407

  Performance Rights

  1,439,717

  Variable Pay Rights

  338,261

Unquoted equity securities are awarded under Woodside’s Employee Equity Plan, Executive Incentive Plan and Executive Incentive Scheme. Further details of the unquoted equity securities including vesting dates are available in the Remuneration Report in the Woodside Annual Report 2021 on pages 71 to 92.

On Implementation, it is expected that BHP Shareholders will own approximately 48% of the Merged Group (based on the issue of 914,768,948 New Woodside Shares and the number of Woodside Shares outstanding on the Last Practicable Date) subject to any BHP Shareholders being Ineligible Foreign BHP Shareholders or Relevant Small Parcel BHP Shareholders.

The Merged Group’s financing arrangements, including its banking facilities, access to capital market and maintenance of a relationship banking panel will remain in line with Woodside’s existing financing arrangements prior to Implementation. Specifically, commodity price risk management, interest rate risk management and foreign currency risk management will be undertaken in line with approved Woodside Board mandate parameters.

See Section 6.7.2 for further information in relation to the interests that Woodside Directors and other Key Management Personnel hold in Woodside Shares.

6.3.3       Market analysis

Woodside’s investment decisions are informed by energy market analysis including supply, demand and price outlooks. Through market analysis, Woodside seeks to monitor the global macroeconomic and geopolitical environment and the energy markets outlook to determine how these factors can impact the organisation and how to best respond, including how Woodside allocates capital. This is expected to include third party scenarios and Woodside’s own assessment of product prices and market conditions.

 

51 This figure assumes that no additional Woodside Shares are issued in connection with a Permitted Equity Raise and no further declaration of Woodside Dividends will occur prior to Implementation.

 

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Woodside uses scenario models to test the resilience of the current portfolio to different energy outlooks. The robustness of potential investments are also assessed to inform investment decisions around the growth strategy and future portfolio of the Merged Group to ensure that Woodside will remain profitable and resilient through various commodity cycles and climate outcomes, including the energy transition.

6.3.4       High performing culture

Woodside’s high performing culture, which includes an engaged, accountable and diverse workforce with a responsible ESG mindset, is critical to ensuring Woodside’s effectiveness in delivering its vision and strategy.

Values

The Merged Group values are still being defined but will reflect Woodside’s fundamental values, which are as follows:

 

 

Respect – we give everyone a fair go, give and receive feedback and listen with empathy

 

 

Ownership – we set goals, hold ourselves accountable and learn, including from mistakes

 

 

Sustainability – we keep each other safe, look after the environment and support our community

 

 

Working Together – we embrace inclusion, value diversity and build long-term relationships

 

 

Integrity – we are transparent, honest and fair and build trust by doing the right thing, and

 

 

Courage – we speak up, act decisively and embrace change.

Enablers

Woodside’s ability to successfully navigate the energy transition will be underpinned by three primary enablers:

 

   

Woodside’s safe and reliable operations will aim to keep its people safe and protect its revenues

 

   

Woodside’s focus on maintaining a strong balance sheet will aim to provide the financial flexibility to support the maturation of growth opportunities, and

 

   

Woodside’s technology capability will aim to improve base business efficiency and productivity and will enable expansion into new markets for the Merged Group.

6.4 Integration planning and business continuity

Woodside and BHP have established a joint integration team that has commenced integration planning activities across key business areas.

The joint integration team is led by a senior executive representative from each of Woodside and BHP.

The objectives of this joint integration team are to:

 

 

Develop a detailed integration plan which identifies activities necessary to separate BHP Petroleum from BHP and bring together the operation of the BHP Petroleum business and Woodside business on and from Implementation

 

 

Identify the short-term transition services that will be required immediately after Implementation, and

 

 

Combine the respective oil and gas businesses of Woodside and BHP while minimising disruption to the business of the Merged Group.

The final integration plan will set out the key activities to achieve integration of the Woodside Group and BHP Petroleum (including organisational design, regulatory management, stakeholder engagement, and systems and operations transfer).

 

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Following Implementation, the joint integration team will endeavour to ensure that the identified synergies of the Merger are actioned, monitored and realised as planned.

The Woodside Board is confident that separation of BHP Petroleum from BHP and the subsequent integration of the Woodside Group and BHP Petroleum can be achieved with minimal impact to conducting the Merged Group business safely and efficiently.

6.5 Potential synergies and value creation

6.5.1       Overview

Woodside has undertaken a review of costs for the Merged Group (benchmarked against industry peer performance) and produced a comprehensive list of synergy opportunities subject to and following Implementation. These opportunities are expected to deliver annual savings in excess of $400 million per annum (pre-tax 100% basis) comprising approximately $120 million of corporate savings, $80 million of cost savings related to operations of the business, $150 million in exploration expenditure reduction and $50 million of execution costs savings associated with future growth opportunities. These synergies are expected to be realised progressively and to be implemented by early 2024.52

The organisation structure and operating model for the Merged Group is being designed and will be progressively implemented following Implementation. The new operating model will include structural and sustainable changes which will reflect a more cost-efficient operating model and reflect synergies from the combination of the two businesses. The new organisation design will feature a significant reduction in executive level positions, a reduction in management layers and an overall increase in the breadth of each manager’s area of responsibility and accountability. In addition to the structural and operating model improvements there will be organisational synergies arising from the removal of duplicative or overlapping staffing levels which exist across corporate areas, support functions, commercial and technical functions, and asset support.

 

52 There is no guarantee or assurance given that some or all of these synergies will be achieved or that any assumptions underlying them are correct. Please refer to the “Disclaimer and important notices” section (including under the heading “Forward-looking statements”) for important cautionary information relating to forward-looking statements.

 

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Figure 24

Approximate Annual Synergies and Value Creation Categories (US$ million real term 2022)

 

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Key areas of the business where these synergies are expected to be achieved are set out in the following sections. As part of the integration process, Woodside is aiming to identify further synergies and value creation opportunities.

6.5.2       Corporate

This category refers to those costs incurred in supporting the Operations, Exploration, Development and Growth activities of the Merged Group.

In addition to the savings to be derived from the improvements in organisation structure and operating model referred to above, Woodside also expects to be able to reduce costs by consolidating third party spend, by removing processes across corporate functions and overlapping assets and rationalising information technology applications, licences and subscriptions.

Examples are outlined below:

 

   

Implementing a consolidated Enterprise Resource Planning System to enable integrated cost reporting and control and reducing the ongoing cost of maintaining duplicate systems.

 

   

Combining or rationalising legal entities

 

   

Consolidating corporate consultant costs

 

   

Consolidating and renegotiating enterprise-wide arrangements with key vendors for software and services

 

   

Consolidation of Marketing information systems and data providers

 

   

Rationalising licences and subscriptions for various marketing services, and

 

   

Consolidation of teams and office space to reduce property costs

The synergies under this category account for approximately 30% of the overall synergies estimate of approximately $400 million.

6.5.3       Operations

Prior to Implementation, Woodside has commenced programs to improve operational efficiency and reduce costs across its assets. Following Implementation, the Merged Group will continue this work and will further consolidate operations and execute efficient practices across the portfolio which is intended to deliver further cost reductions.

Examples are outlined below:

 

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Operating and maintenance cost:

 

   

Leveraging systems and digital solutions to reduce operating and maintenance costs across all assets for sustained cost reduction

 

   

Sequencing maintenance programs across certain assets to optimise workforce access to reduce cost and execution risk

 

   

Digitising maintenance strategies across all assets to reduce spend on planning, logistics and materials, and

 

   

Reducing the cost of production maintenance through volume consolidation of maintenance repairs and operations, chemicals, and other goods to be implemented across the assets progressively.

Supply chain and procurement:

 

   

Leveraging long-term relationships with key contractors and improved purchasing power due to economies of scale to secure better service and pricing

 

   

Unifying and streamlining inventory management systems

 

   

Consolidating the Australian logistics and material network; especially ground, air and vessel transportation support for Western Australian assets, and

 

   

Consolidating supply base operations.

Asset productivity:

 

   

The Merged Group will also seek to improve the production performance of its upstream assets, sharing experience and technology solutions to improve uptime and lower unit-production costs.

The synergies under this category account for approximately 20% of the overall synergies estimate of approximately $400 million.

6.5.4       Exploration

Woodside has identified opportunities to reduce exploration expenditure to be pursued and implemented following Implementation. This saving will be achieved by reducing headcount across the function and technical support functions, high-grading the combined exploration portfolio and focusing on progressing high-quality prospects that have a clear path to commercialisation.

Opportunities have also been identified to make the delivery of exploration services more efficient including:

 

   

Rationalising licences, data subscriptions and applications, and

 

   

Consolidation of seismic campaigns.

The synergies under this category account for approximately 40% of the overall synergies estimate of approximately $400 million.

6.5.5       Growth opportunities

The combined portfolio will allow the Merged Group to high-grade investment opportunities and improve phasing of the enlarged opportunity set. Opportunities have also been identified which have the potential to reduce execution costs. Examples are outlined below:

 

   

Inventory optimisation by region and for exploration, decommissioning and development programs.

 

   

Sharing global inventory and regional backup.

 

   

Standardisation of casing, wellheads and trees and work with suppliers to maintain sufficient inventory to purchase on consignment.

 

   

Consolidation of rig schedules to provide larger work scope, longer contracts and increased learning curve efficiencies, and

 

   

Scale up purchasing power with major vendors engaged to deliver key projects.

 

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The synergies under this category account for approximately 10% of the overall synergies estimate of approximately $400 million.

6.5.6       Marketing

The Merged Group’s increased scale and existing LNG shipping capability will help to improve shipping utilisation and reduce transportation and delivery unit costs. Woodside expects to determine the magnitude of the synergies in this category post Implementation.

6.5.7       Cost of attainment of synergies

Woodside estimates that the implementation of the potential synergies would give rise to one-off costs of approximately $500 – 600 million,53 anticipated to be incurred in the first two years following Implementation. This estimate includes provisions for digital integration and severance costs, and consultant and team costs necessary to complete the synergy attainment work.

6.5.8       Independent Expert comments

The Independent Expert Report comments that while there is a clear logic and basis for the level of synergies identified by Woodside, it is important to note that the realisation and final quantum of any benefit is not assured and will depend upon Woodside’s ability to integrate the two businesses successfully. After assessing the risk that the cost savings and synergies may not emerge to the extent anticipated, the timing for realisation may take longer than planned and that additional unanticipated costs of realisation may emerge, the Independent Expert adopts a range of $2,364 million to $3,599 million in relation to the post-tax net present value of annual cost savings and synergies for the purpose of its assessed values of the Merged Group rather than a single point estimate. This equates to a value per Woodside Share in the Merged Group of approximately A$1.67 to A$2.54. See section 3.1 of the Independent Expert’s Report.

6.6 Corporate structure of the Merged Group

The subsidiaries of the Merged Group will comprise all of the subsidiaries of Woodside along with all of the subsidiaries of BHP Petroleum set out in Section 5.6. The list of subsidiaries contains all group members with the exception of certain entities in which BHP Petroleum holds, and Woodside will hold, an insignificant minority shareholding.

Set out below is the corporate group structure and list of subsidiaries of the Merged Group. The corporate group structure is a simplified corporate structure chart of the significant Merged Group members at Implementation and the list of subsidiaries contains all group members with the exception of certain entities in which BHP Petroleum holds, and Woodside will hold, an insignificant minority shareholding. Under the Share Sale Agreement Woodside or its nominee will acquire the shares in BHP Petroleum International Pty Ltd. The charts below assumes that the acquiror will be Woodside.

 

 

53 The estimate excludes costs to implement marketing synergies discussed in Section 6.5.6, which Woodside expects to determine post Implementation.

 

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Please note that Woodside holds a 1/6 interest only in the China Administration Company Pty Ltd.

6.7 Board, Executive Leadership Team and KMPs

6.7.1       Board and Executive Leadership Team profiles

The expected composition of each of the Woodside Board and the Executive Leadership Team upon Implementation is outlined on the following pages. It includes a brief biography for each individual, including details of his or her proposed functions within the Merged Group and details of the names of companies and partnerships (excluding directorships in the Group or the BHP Group) of which the individual is or has been a member of the administrative, management or supervisory bodies or partners at any time in the five years preceding the date of this Merger Explanatory Memorandum.

 

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  Executive Director
  Name   Position and Profile

  Meg O’Neill

 

BSc (Ocean Engineering), BSc (Chemical Engineering), MSc (Ocean Systems Management)

 

Chief Executive Officer and Managing Director

 

Term of office: Director since August 2021

 

Independent: No

 

Joined Woodside: 2018