There are very few chief executives who get to announce a company defining multi-billion deal on their first day in the job. That’s what Meg O'Neill did last week.
The merger of Woodside Petroleum and BHP’s petroleum business will reshape two of the biggest companies in WA.
There are very few chief executives who get to announce a company defining multi-billion deal on their first day in the job.
That’s what Meg O'Neill did last week, when she was confirmed as Woodside Petroleum chief executive on the same day the merger with BHP’s petroleum business was unveiled.
“It sets the bar pretty high for day two,” Ms O'Neill said when Business News asked about her first day in the role.
Ms O’Neill had an unusual audition for the top job, as Woodside’s board was finalising its assessment of candidates while she was looking to finalise the BHP deal in her capacity as acting chief executive.
“I’m just thrilled that both were able to come together on the same day,” she said.
Chairman Richard Goyder said Ms O’Neill’s impeccable credentials and proven leadership capabilities, exemplified in recent months, set her apart as the board’s top candidate.
US-born Ms O’Neill’s new role confirms her as one of the top business executives in Perth.
She brings 27 years’ experience in oil and gas to the role, including the last three in Perth.
Woodside is already one of WA’s largest companies and will double in value when the merger is completed in middle of next year.
The deal also represents a big shift for BHP, which is moving out of fossil fuels as it focuses on what it calls ‘future facing’ commodities such as iron ore, copper, and nickel.
Potash can be added to that list after the mining giant approved a $US5.7 billion investment in the Jansen stage one project in Canada.
In what was a momentous day for BHP, it also confirmed plans to unify its dual-listed company structure under its existing Australian parent company.
That was the big story in London, where the disappearance of BHP plc is seen as a blow to the city’s status as a global financial centre.
All this news came against a backdrop of falling iron ore prices, which will dent the profitability of BHP’s powerhouse iron ore business.
BHP’s share price was battered during the past week, falling 16 per cent to about $45 on Thursday, with the London delisting and the lower iron ore price seen as the main drivers.
Over the same period, Woodside’s share price has dropped about 11 per cent to just under $20, valuing the company at $19.5 billion.
It’s hardly the response the two companies were hoping for when they announced their petroleum merger, which will be implemented through an issue of Woodside shares to BHP shareholders.
The combined company will be worth about $39 billion and owned 52 per cent by existing Woodside shareholders and 48 per cent by existing BHP shareholders.
There has already been considerable debate about which company got the better deal, with no clear answer.
Looking longer term, it’s a deal that redefines both companies, with Woodside becoming a global top 10 energy producer.
Its operations will extend from the North West Shelf in WA to Bass Strait, the Gulf of Mexico, and Trinidad and Tobago.
Ms O’Neill said the deal delivered multiple benefits: a stronger balance sheet, increased cash flow, and capacity to fund planned developments, led by the Scarborough gas project.
She told Business News the final negotiation was straightforward.
The two companies already had a close working relationship through their interests in the North West Shelf project.
“Once we bought into Scarborough, that enabled us to strengthen that working relationship,” Ms O’Neill said.
“As both companies were looking at where do we go from here, earlier this year it was pretty clear that it was time to see if there was an opportunity to have a serious discussion about a merger.
“We rolled up our sleeves and started doing due diligence.”
Ms O’Neill said her team did a ground-floor valuation of BHP’s petroleum business and applied the same methodology to the Woodside business.
“We had very close engagement during due diligence,” she said.
“At the end of the day, it made the negotiation pretty straightforward because we had a high degree of visibility and transparency over the contents of the business.”
While the merger has set Woodside up for growth, Ms O’Neill said the company would continue to focus on cutting its operating costs, which would likely mean more job losses in WA.
“We operate in a very competitive industry,” she said.
“We want to ensure the business is nimble and agile.”
The cost cutting drive started last year when the company set a goal of chopping 30 per cent of the costs out of its operating business over three years.
Ms O’Neill has been credited with pushing cultural change at Woodside since starting as acting chief executive in April.
Asked about this process, she was coy on details, instead giving credit to her predecessor, Peter Coleman, for his achievements in safety, reliability, business improvement, diversity, and inclusion.
“The things I’ve been trying to do are building on that foundation and help Woodside move to the next level,” Ms O’Neill said.
“That focus on low cost and low carbon needs to be top-of-mind for everybody here.”
Ms O’Neill leads a company that has a strong female representation in its senior ranks.
Its 11-member board of directors has four women while its eight-member executive committee also has four women.
As well as Ms O’Neill, this group includes chief financial officer Sherry Duhe and executive vice-president operations Fiona Hick.
“I’m pleased to have been chosen on my merits and I’m very pleased to work for a company that really walks the talk when it comes to inclusion,” Ms O’Neill said.
“I’m very pleased that we have a culture where people can thrive regardless of race, gender, national origin or sexual orientation.”
One of the big challenges facing Ms O’Neill will be managing the energy transition from fossil fuels to renewables.
She insists Woodside has a positive contribution to make, particularly through its $US12 billion Scarborough project, which it is aiming to approve later this year.
Scarborough has been vigorously attacked by environmental groups, but Woodside emphasises it will be one of the world’s cleanest sources of liquefied natural gas (LNG).
“As an energy supplier, we recognise we have a very important role to play on the world’s decarbonisation journey,” Ms O’Neill said.
“The product that we produce is one that the world needs.
“Many of our customers in north Asia are still heavily dependent on coal.
“Our product is safe and affordable as well as lower-carbon than some of the alternatives.”
Woodside will aim to complete further M&A deals this year to help it fund Scarborough.
It is testing the market for opportunities to cut its interest in the Scarborough gas fields and has formally launched a sell-down process for up to 49 per cent of the Pluto Train 2 processing plant.
The latter process is likely to attract interest from big institutional investors that will look at Pluto as an infrastructure asset with a steady income from production of LNG.
Scarborough will be on top of several projects already under way, including three oil field developments that BHP initiated and the Sangomar field development in Senegal initiated by Woodside.
Woodside has also identified several longer-term growth options, including the Wildling (US), Trion (Mexico), and Calypso (Trinidad and Tobago) fields.
Its Browse gas project off the Kimberley coast was also listed as a long-term growth option but did not attract special mention, perhaps a signal of its diminishing appeal from both a financial and environmental perspective.
In addition, Woodside is aiming to develop new energy products and low-carbon solutions including hydrogen, ammonia and carbon capture and storage.
Woodside will be seeking to fit its growth projects within its goal of reducing net emissions by 30 per cent by 2030, on the path to net zero by 2050.
BHP chief executive Mike Henry emphasised that his company was not selling out of fossil fuels to help reach its own emissions targets.
He said BHP would reset its emissions measures to adjust for any asset sales.
Mike Henry says the petroleum sale was driven by shareholder returns.
“This is no grand statement about oil and gas, it is all about driving greater value for shareholders,” Mr Henry said.
Mr Henry indicated that BHP was reluctant to make the big investments its petroleum business would need, preferring to invest in other commodities.
It has made substantial investments in its Nickel West operation in recent years, highlighting its role as a supplier to battery manufacturers.
BHP has also announced a bid for Canadian nickel stock Noront Resources and has farmed into several copper projects.
Rio Tinto has made similar moves, most notably committing last month to develop the Jadar lithium mine in Serbia while also progressing plans for its Winu copper mine in WA’s north.
Both companies hope their investments in battery metals will help to offset the inevitable decline in earnings from the iron ore operations, which have recently delivered record profits.
