Merger and acquisition (M&A) activity is shaking up the Australian oil and gas sector.

In two proposed all-share deals, four of the region’s largest players are becoming two: Oil Search is being acquired by Santos’ and BHP’s substantial oil and gas assets would come by Woodside.

This flash note looks to cover portfolio alignment and emissions targets issues. The purpose is to understand whether investors, and the climate, are better off after these large deals conclude.

Key Findings

  • The mergers between Woodside and BHP Petroleum, as well as Santos and Oil Search, show significant shortcomings in the acquiring companies’ transition planning.
  • Through these deals, Woodside and Santos would acquire major project options that our modelling suggest are at risk of stranding in a low-carbon world. Woodside’s Pluto Train 2, one of the major push factors supposedly underlying the deal and which it can unilaterally progress post-merger, is not even financially competitive in a 2.7°C world.
  • The deals will also bring significant GHG emissions under the umbrellas of Woodside’s and Santos’ weak emissions targets. Neither cover scope 3 emissions and assume significant use of offsets and carbon capture and storage, in turn implying weak incentives to address transition risk.
  • Investors should seriously question whether oil and gas companies can justify major external growth at this juncture in the energy transition, and push for increased emissions targets ambitions.