Australia’s Woodside Energy entered the new year on a high after closing out 2021 with final investment decisions for the Scarborough and Pluto Train 2 projects and the unveiling of a new strategy to invest billions in emerging energy markets by 2030.
Even more momentous was Woodside's acquisition of compatriot BHP's oil and gas portfolio in an all-stock merger that will create a company with a combined market capitalisation of close to US$29.9 billion upon its completion in the second quarter.
Woodside chief executive Meg O’Neill tells Upstream during an interview with Upstream in Houston that she sees the merger as an opportunity to “really transform” the company, not least because the deal “financially puts us in a strong position, strengthens the cash flow, and reduces the gearing”.
The combined business of the merged company will have a conventional asset base producing about 200 million barrels of oil equivalent per year.
Merger synergies
O'Neill says the merger offers a combination of strengths but adds that the company "will need to be focused on delivering those synergies”.
She has challenged the integration team to find a way for “one plus one to equal three”, explaining that the goal is to make the new Woodside "even better than the sum of the parts”.
O'Neill says Woodside brings to the table its position as Australia’s leading natural gas producer, an understanding of developing offshore projects and a pioneering approach to applying digital technologies.
In its turn, BHP brings what she calls an "opportunity space" that includes different basins and a mix of oil and gas assets and what she describes as diversification in both regions and products.
“When we look at the BHP portfolio, obviously we know the Australian assets quite well — North West Shelf, Scarborough, Bass Strait — which are largely gas assets,” O'Neill says.
“Its Gulf of Mexico portfolio is exciting, with a number of top-tier, deep-water assets: Mad Dog, Atlantis, and Shenzi. There’s growth potential in those assets."
BHP’s Trinidad & Tobago and Mexico offshore assets offer further diversification and what O'Neill deemed "attractive" growth options.
Portfolio shift
Natural gas represents about 85% of Woodside’s current portfolio, a share that will drop to about 70% when the merger is complete, O'Neill points out.
“As we think about the future business of the company, we're running through ways of looking at the business to understand what it means in terms of diversification and resilience to the energy transition,” she says.
Diversification is expected to increase resilience in other ways, taking into account the “extraordinary” volatility of pricing in the last two years, but there will also be a learning process, O’Neill acknowledges. “We want to understand how resilient the business will be to volatility,” she says.
Harnessing capabilities
O'Neill highlights Woodside's investment in seismic capabilities as a factor that provides a differential for the company, with future growth opportunities in deep-water areas targeted. She cites the company’s work with full waveform seismic inversion and faster data processing through its work with Amazon Web Services.
“We’ve got cutting-edge seismic capability, and we look forward to bringing that capability to those data sets that exist in the Gulf of Mexico,” she says.
“We're keen to see how we can bring these capabilities together and hopefully that'll help us see the resource a little bit better than we could have seen it previously.”
Joining company workforces is a challenge in any merger but O’Neill strikes a positive note.
“The teams have grown up with different experience sets and different perspectives,” she says.
“I’m excited about the opportunity to bring our technical experts together and our operational experts together and figure out ways to do things better than either company could have done it independently.
"We're absolutely keen to roll up our sleeves, bring the companies together, and figure out where we go from here."
Energy transition
In December, Woodside unveiled low-carbon transition plans that include an investment of US$5 billion in new energy markets this decade.
“To spend US$5 billion in eight years, we need to start building momentum today,” she says. “And we think we can invest that five billion on programmes that will be profitable for Woodside, but we’ve got to get momentum.
"For us to transition the energy system, it is going to take time and it is going to take significant investments. And I think we need to be pragmatic about the pace of change and about how fast we can grow some of these lower carbon energy sources."
Woodside has also made clear that it expects liquefied natural gas to remain a significant part of its business for decades to come, as shown recently with the final investment decisions on the Scarborough and Pluto Train 2 projects in Australia.
O'Neill notes that the Asian countries that make up the bulk of Woodside's overseas market have all set out ambitious emissions-reduction targets but she predicts that LNG will be a significant part of the mix as they work to decarbonise.
"While we certainly recognise that we need to move with pace and we need to get carbon out of the system at pace, I think it's also important that the transition be done in an orderly manner," O'Neill says.
"Because otherwise we risk the disruptions that we saw in Texas last February, or in Europe that we're seeing today, where you've got unevenness that is causing pretty negative consequences for a lot of people."