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What you need to Know About the Sale of BHP's Oil Business

BHP is one of the biggest names in the oil business, and to this end, the announcement that a trade deal has possibly been reached for its purchase is undeniably massive news. Indeed, the sale of BHP’s oil and gas company would also lead to developing a brand new “super independent” oil business between BHP and its purchaser, Woodside Petroleum Ltd.

BHP is an Anglo-Australian group that has its headquarters in Melbourne, and the company has been trading in oil and gas for over 60 years since the 1960s. It is likely that future attention will be turned to high-profit returns to recoup the initial investment. Some such examples of these high-margin short and medium turn focuses could include deepwater oil.

After the announcement of the sale, BHP’s share price fell by around 6%. However, the cause for this drop was less to do with the announcement of the sale and more due to the company’s choice to bring to a close U.K. dual listing. This decision was made as BHP’s shares have traditionally performed poorly here, but this still impacted the company’s share price all the same.

However, more concerning is the sudden fall in Woodside Petroleum’s share price, which suffered a 4% drop after the deal's announcement. Indeed, shareholders and investors seem less thrilled by the announcement.

Of course, one of the biggest concerns raised by shareholders is for the risk associated with investing in the oil and gas industries now. Indeed, the oil and gas industries are currently facing a challenging situation, with the rollout of renewable energy options placing a great deal of pressure on the industry.

In fact, the industry is widely taking the stance that this pressure, coupled with the extensive liability held by one of BHP’s New South Wales mines, is what has triggered the trade deal in the first place. It seems that Woodside’s investors, too, are concerned about the potential riskiness of this move to invest so heavily in oil and gas at a time when the reputation of such is low and sustainable alternatives are becoming ever more available and affordable.

In addition to this, shareholders’ have also questioned whether Woodside Petroleum Ltd. will actually be able to handle a deal of this manner, with its current reputation making it one of the poorest performing post-Covid energy industries. Moreover, Woodside would also have to fund the Scarborough project; shareholders are further concerned about the company’s financial position to accomplish this.

To this end, it is hence understandable that BHP would conclude now to be the ideal time to sell the oil and gas share of their firm to balance the profitability of the sale with the successes of the business.

The announcement for sale was made on the 16th of August and is one that is likely to grow and develop over time. Indeed, while there are currently no set in stone dates, it is believed that the transaction will likely go ahead sometime around the middle of 2022, and the progress of this deal is sure to be followed with the petroleum industry’s great interest.

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Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.

California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.

The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.