BHP Group Limited (BHP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Woodside Petroleum Limited Investor Update. [Operator Instructions] I would now like to hand the conference over to Mr. Richard Goyder, Chairman. Please go ahead.

Thank you. Well, good afternoon, everyone. Thanks for joining us at short notice, and apologies for the short delay. But I'm here in Perth with our Chief Executive Officer and Managing Director, Meg O'Neill, and Chief Financial Officer, Sherry Duhe. This is an important day for Woodside. And on this day, I do want to acknowledge the traditional custodians of the land upon which we are presenting today, the NongaWajak people, I pay my respects to their elders, both past and present and I also extend my respect to all other aboriginal nations, the future generations and their continued connection to country. Can I also -- before I begin, can I just say we are mindful that many of you are being impacted by COVID-19 lockdowns in the line. We generally have that you, your families, colleagues and friends are safe and stay safe and healthy as we move forward. Today, we've announced Meg O'Neill's appointment as Woodside's CEO, Managing Director, and I want to say a few words about this before moving on to other matters. Speaking for the Board, we're delighted that Meg is our new CEO and Managing Director. In making our decision Meg's unique combination of skills and accomplishments exemplified in recent months set her apart as the Board's top candidate. Meg brings with her a huge amount of international industry knowledge accumulated across her 27-year career. She is an experienced business leader with a strong track record of delivery across the oil and gas value chain, making here, as I said, the ideal candidate to lead Woodside going forward. I want to thank Meg for doing an outstanding job leading Woodside over recent months. Meg from me personally and from the Board, congratulations. It's going to be a pleasure working with you and your team as Woodside takes on the opportunities in front of us. As we announced earlier this afternoon, Woodside and BHP have entered into a merger commitment deed to combine BHP's oil and gas portfolio with Woodside through an all-stock merger. Put simply, BHP's global petroleum business will be merged with Woodside creating a larger, more resilient Woodside with the financial strength to fund growth and thrive through the energy transition. The combined oil and gas portfolio transforms Woodside by doubling production, diversifying the portfolio and offering multiple growth opportunities. This would create a top 10 independent energy company by production. We will have the balance sheet cash flow and financial strength to fund planned develops in the near term and low-carbon opportunities into the future. The proposal represents long-term value for Woodside and BHP shareholders, delivering a geographically diverse and balanced portfolio, while combining the global experience, proven management and technical expertise of Woodside and BHP Petroleum. BHP Petroleum's technical capability in oil and gas is well known to Woodside as long-term partners in the North West Shelf Project and in Scarborough. The Woodside Board believes this will be positive for all our stakeholders as it brings together our complementary assets and capabilities, which will provide a strong base to deliver enduring shareholder returns. It will enable us to invest in those existing and new assets, our people and our communities. Importantly, Woodside's existing emissions reduction targets to reduce net emissions by 15% by 2025 and 30% by 2030 will be extended to the enlarged portfolio. Meg will discuss this in more detail shortly. Please take the time to read the disclaimer, notes and assumptions on Slides 2 and 3. These contain important information about the presentation and transaction. Unless indicated otherwise, all dollar figures are in U.S. dollars, and we'll be discussing a potential transaction that is subject to the satisfaction of certain conditions. The Board is confident in the strong rationale for the deal, and we're working closely with BHP. But of course, there is no guarantee that the trading action will proceed. I'll now hand over to Meg, who will talk you through the details of the merger.

Thank you, Richard, and good afternoon to everyone participating in this call. It's a pleasure to be discussing today a merger that will transform Woodside by delivering a large scale and differentiated global portfolio, meaningful development options and compelling and enduring returns to shareholders. Let's start with an overview of the proposed transaction on Slide 4. The scope of the merger is BHP's entire petroleum business, including its international portfolio of producing assets and growth opportunities. On completion, Woodside would issue new shares that would be distributed to BHP shareholders. The expanded Woodside would then be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders through the newly issued shares. Pro forma ownership reflects the net asset value contributed by each party with no premium paid. After completion and using Woodside's current share price, the market capitalization of the enlarged Woodside would be around AUD 40 billion. The combined production portfolio will deliver a significant increase in operating cash flow. On a per share basis, we expect the transaction to be cash flow accretive from the commencement of 2023 and is the first year after completion in 2022. Further upside will be realized through capturing the synergies and cost savings that come from combining our complementary businesses, with savings anticipated to be more than $400 million per year from 2023 onwards. Importantly, our enhanced cash flow will support an ongoing attractive dividend to our shareholders. On completion, it is intended that the Woodside Board will appoint a current BHP Director as a Woodside Director. We'll be headquartered here in Perth, Western Australia with a significant presence in Houston to run our North American business. We will also consider whether it makes sense to have other aspects of the combined portfolio managed by our team in Houston. Woodside will retain its primary listing on the Australian Securities Exchange with Woodside Petroleum Limited remaining the corporate vehicle for the expanded business. We will consider secondary listings in other jurisdictions, including New York and London as we work towards completion. As Richard mentioned, Woodside's corporate emissions reduction targets, which we announced in November last year, will apply to the combined portfolio. Over the coming months, we will finalize our due diligence as we work towards executing sale agreements. Approval by Woodside shareholders of the issue of new shares to deliver the transaction will be sought in the second quarter of 2022 ahead of completion. On to Slide 5, where the rationale for the merger is outlined. The logic is simple and compelling delivering value for both Woodside and BHP shareholders. Both the Woodside and BHP portfolios are of similar size, featuring high-quality Tier 1 assets. The 2 companies have been partners for decades in the North West Shelf. And of course, we've been working together on Scarborough. The combined portfolio is more diversified by product splits and more diversified by geography. The enlarged and diversified portfolio of producing assets will support significantly increased and enduring cash flows. Woodside's already strong balance sheet will be further improved by the addition of unlevered BHP assets. Increased cash flows will support our ability to deliver superior returns to shareholders while also providing additional funding for our development pipeline. We will continue to apply our prudent and disciplined approach to capital management to make best use of this increased cash. The increased portfolio of growth opportunities, increased cash flow and stronger balance sheet together provide greater flexibility and capital allocation. We will have more optionality in where we invest and can prioritize the highest return opportunities. And we'll have the balance sheet capacity to deliver growth while maintaining an investment-grade credit rating. All of our investment decisions will be made through the lens of the energy transition. The enlarged portfolio delivers the cash flow and resilience to fund our evolution through the transition, investing in the right new energy opportunities in support of our aspiration to be net zero by 2050. Our 2 portfolios are stronger combined. This is a benefit of bringing BHP's petroleum business together with Woodside. We can be more efficient together than apart. The scale and quality of the combined portfolio is shown on Slide 6, demonstrating the production and earnings delivered in the 12 months to the 30th of June 2021 on a combined basis. Western Australia remains a primary hub with production from Pluto LNG, the North West Shelf, Pernis, Macedon and Wheatstone. On the East Coast of Australia are the Bass trade operations. In the Gulf of Mexico, there is a suite of large producing assets comprising Shenzi, Atlantis and Mad Dog. There's also production offshore Trinidad and Tobago. Together, the portfolio produced almost 200 million barrels of oil equivalent on a combined basis for the 12 months to 30th June 2021, which would rank as a top 10 independent oil and gas producer by production. LNG production was 10.6 million tonnes should rank in the top 10 LNG producers globally. The average unit production cost across the combined portfolio was competitive at approximately $8 per barrel of oil equivalent, delivering combined EBITDA of around $4.7 billion. This number is before the $400 million per annum of synergies that we expect to realize from the combined portfolios from 2023 onwards. There are several high-quality near-term growth opportunities, which will contribute to production in coming years. Mad Dog Phase 2 in the Gulf of Mexico is underway and expected to come online in 2022. Attractive tieback opportunities exist in the Gulf of Mexico, including Shenzi North, which BHP sanctioned earlier this month. The Sangomar Field Development Phase 1 offshore Senegal is in construction with first oil targeted for 2023. Altogether, there are over 10 billion barrels of oil equivalent of reserves and resources for the combined entity. And of course, through Scarborough, the largest and most significant growth opportunity in the portfolio. Significantly the merger of BHP's portfolio with Woodside derisks and supports Scarborough FID this year. Slide 7 shows how we intend to meet our emissions reduction targets with the combined portfolio. Last year, we announced targets of 15% emissions reductions by 2025 and 30% by 2030 on a pathway to net zero by 2050. And these targets will remain unchanged as we integrate the 2 businesses. Our commitment to increase transparency and reporting is also unchanged, and we will report all equity emissions for both operated and nonoperated assets. It is important to note that while this merger results in more emissions being counted on Woodside's account, there is no increase in actual global emissions due to this transaction. The merger consolidates the ownership of existing assets, which will benefit from application of Woodside's carbon management capabilities across the combined portfolio. The merger increases the size of Woodside's abatement commitments. The chart on the right demonstrates the pathway to meeting our 2030 target with the combined portfolio. Net reductions are expected to be delivered through designing new facilities to run more efficiently, operating existing facilities more efficiently and offsetting the remainder. We currently have access to enough offsets to meet the 2025 target for the combined portfolio. On Slide 8, I want to say a bit more about the Gulf of Mexico assets. They are offshore, deepwater, conventional assets, primarily producing oil. The Gulf of Mexico assets combined -- contained combined reserves and resources of over [ 1 billion ] barrels, and there are multiple attractive tieback opportunities to extend production. The merger of Woodside's and BHP's oil and gas portfolios creates a better business. Slide 9 presents a view of the combined portfolio, which really sets it apart from international peers. The chart on the right plots the percentage of production in OECD nations on the X-axis. This gives an indication of country risk to production and revenue. The Y-axis shows the percentage of conventional production. A benefit of conventional production is that it tends to have lower operating costs and sustaining CapEx, indicating greater resilience through the commodity price cycle. The combined Woodside portfolio occupies a unique position amongst our competitors, providing a lower risk and more resilient proposition. The charts on the left demonstrate the high level of diversification by product and geography, further reducing risk at a portfolio level. Moving to Slide 10, which demonstrates the sustained production profile with opportunities for growth. Two key features of the production portfolio are high-return oil and long life LNG. The strong oil production is expected to generate significant cash in the coming years and help fund future growth and Woodside's investment in the energy transition. Long Life LNG will become a larger portion of the portfolio in the future, particularly when Scarborough starts producing, which puts Woodside in an advantaged position as the energy transition progresses. The 2C resources, which indicate potential future growth are heavily weighted towards gas. The chart on the bottom left indicates the size and significance of Scarborough. It represents over 2 billion barrels of oil equivalent and would effectively double our booked 2P reserves when sanctioned. Slide 11 presents another view of the attractiveness of the combined portfolio. The X-axis indicates EBITDAX margin. The Y-axis represents production growth from 2021 to 2027 and the size of the bubble represents reserves life. Again, the combined portfolio provides a differentiated offering, with an appealing combination of margin growth and longevity as compared to international peers. The reserves life of around 20 years is another demonstration of the value to be realized by delivering the Scarborough development. The next few slides from Slide 12 demonstrate the impact of the merger and expanded portfolio on cash generation and our balance sheet. One of the truly exciting aspects of this transaction is the anticipated strong and sustained cash generation. I've mentioned the significant growth in cash flow several times already, and these charts show why. The top chart shows the magnitude of operating cash flow that could be achieved from the current portfolio in the coming years, assuming we take FID on Scarborough this year. The bottom chart shows free cash flow, which deducts investment expenditure. This indicates the important contribution operating cash flow will make to the funding of Scarborough and other growth projects. Looking to 2026 and 2027 and once Scarborough is producing, the portfolio is generating significant free cash flow that can be used to support continued shareholder returns or the developments of other opportunities. Slide 13 shows the pro forma liquidity and gearing position as at 30 June. A feature of the transaction is that the BHP assets are coming to Woodside with no cash and no debt. As an all script deal, there is no impact on Woodside's liquidity or debt profile, although the asset base of the combined Woodside approximately doubles. This makes Woodside's strong balance sheet even stronger. The merged company would have gearing of around 12%, providing significant flexibility with how we choose to fund future growth. Our capital management work is on Slide 14. Both Woodside's and BHP's oil and gas portfolios are characterized by low-cost, high-margin operations. These operations generate enduring cash flow, made more resilience by the increased diversification of the combined group. The generated cash can be either returned to shareholders or reinvested in value-accretive opportunities that further contributes to our low-cost, high-margin operations. Woodside has long maintained a focus on returning strong franked dividends to shareholders and expect this to continue with enhanced cash flows from the combined portfolio. Following the merger, our investment opportunities will have increased to include attractive oil tiebacks in the Gulf of Mexico, long-term LNG and investment in new commodities that can help shape the energy transition, including in hydrogen and ammonia. In the near term, our focus will be on making sure we are in a robust position to fund Scarborough along with other commitments. Selling down Pluto Train 2 to around 51% is a key enabler in this. This process is already underway with good early interest from prospective partners. And of course, carbon management will continue to be a key consideration as we make decisions on where to deploy capital. Slide 15 summarizes the typical project characteristics of oil, gas and new energy developments as our portfolio evolves in the coming decades. Oil investments tend to be quick to develop with a shorter payback period. Oil developments are a core competency for both Woodside and BHP Petroleum, and oil is likely to be a feature of the portfolio in the coming decade as it generates the cash to fund other developments. Gas developments provide a different value proposition to oil. LNG when produced from conventional gas fields tends to be capital intensive upfront, but with low ongoing cost and a long production life. LNG as a fuel expected to play a key role in meeting the energy needs of economies, particularly in Asia. Gas is the lowest carbon hydrocarbon and LNG helps customers meet their decarbonization goals, for example, as they reduce use of coal or oil for power generation, which is a major priority for emission reduction in coal-dependent Asian economies. The current market for new energy commodities is relatively small today, but is expected to grow significantly over time. And so our investment in these technologies will be customer-driven. We possess complementary skills from our core business that will help us succeed as we invest in these new areas. You can see on Slide 16, another view of the portfolio of producing assets and development opportunities. The area of each bubble represents the indicative size of the resource or potential market, and you can see why we're keen to sanction Scarborough. Beyond Scarborough, we have credible growth options. There are several subsea tieback opportunities to existing infrastructure, including in the Gulf of Mexico. Tiebacks of this nature tend to deliver high returns. The potential for hydrogen and ammonia is large. And while the markets develop, we are looking for opportunities to develop our capability by investing in value-accretive scalable projects. On Slide 17. A key feature of this merger is the alignment it builds for a final investment decision on Scarborough and Pluto Train 2 later [indiscernible]. While many of you listening today will be very familiar with Scarborough, I'm conscious that for others, it will be new. Scarborough was a large gas field off the Western Australian coast that we are proposing to develop through expanded facilities at the Pluto LNG facility. BHP and Woodside are the 2 participants in the Scarborough joint venture, so this merger will bring the joint venture under a single owner in Woodside, with approximately 0.1% carbon dioxide in the reservoir and a new efficient LNG train at Pluto, it will be one of the lowest carbon intensity sources of LNG delivered into Asia. Slide 18 summarizes the main benefits of the merger to the Scarborough development. First, the increased cash flows from the combined portfolio strongly support the Scarborough funding requirements. Secondly, we anticipate the joint venture still being able to take the final investment decision targeted for later this year, even though the merger transaction is not expected to complete until the second quarter of next year. We have previously said that we would like to sell down Pluto Train 2 before FID. We still intend to do this and thereby release in excess of $3 billion of capital. Slide 19 provides some information from BHP on Mad Dog in the Gulf of Mexico, which is currently undergoing expansion with Phase 2 of the development. The gold assets will continue to deliver significant production and revenue to the combined portfolio for many years to come. Moving to our decarbonization strategy on Slide 20. Woodside's emissions targets were set anticipating that our production portfolio could grow and we set up a scalable emissions management framework to accommodate increases in our portfolio. Emissions management is a core part of what we do embedded across the business. We are committed to transparent reporting. Our carbon business is experienced in both generating our own offsets and acquiring offsets from domestic and international markets. We are targeting an average carbon cost of under $20 per tonne. The combined production portfolio generates cash to fund our investment in the energy transition, including the development of new energy production. On to Slide 21. A benefit of merging 2 complementary businesses is that things can be run more efficiently, realizing enduring benefits for shareholders. Our current expectation is that we should be able to realize synergies of over $400 million per year, with savings coming from across the business. As we realize efficiencies at a corporate level and high-grade exploration and development opportunities, we expect to see cost savings of this magnitude from 2023. On Slide 22, we've outlined the approximate time line to completion. To get to this point, we have performed a significant amount of due diligence on BHP's petroleum business and assets. BHP has likewise performed detailed due diligence on Woodside. A key area of focus has been understanding and valuing the decommissioning liabilities associated with BHP's asset. The next major milestone will be the execution of a full form sale agreement and transition agreements, which are targeted for October. We'll then work on closing out all required consents and approvals. I expect we will put the question of new shares to enable the merger to a shareholder vote in the second quarter next year with completion to follow shortly after. That brings us to the end of the presentation. I'm delighted to have had the opportunity to make this announcement today. We are looking forward to ongoing collaboration with BHP as we work towards completion of this transaction. Throughout this period, we will continue our focus on our priorities for 2021. Cost and efficiency transformation of our base business, achieving targeted FID for Scarborough this year, delivering Sangomar Phase 1 and continuing to build our low-cost, low-carbon future. I look forward to talking with many of you in the coming weeks. With that, I'd like to open the line to questions.

[Operator Instructions] Your first question comes from Adam Martin with Morgan Stanley.

Congratulations, Meg, on your appointments. First question, Meg, just regarding Gulf of Mexico assets. Is Woodside sort of a long-term holder of those assets? Or could you look to sell some of those time and recycle capital? Just wondering on your thoughts on the Gulf of Mexico, please?

Yes. Good question, Adam. So BHP's Gulf of Mexico assets bring high-margin oil to the portfolio that generate very significant near-term cash flows, which will enable us to deliver on our substantial development portfolio and return value to our shareholders.

Okay. And second question, Woodside's historically talked about sort of selling the infrastructure put train to a sort of like a condition precedent of moving forward on Scarborough. So it sort of has to happen. Is that the same view going forward with this merger just given that improved balance sheet?

Yes, it's a great question, Adam. So we do prioritize the sell-down of Pluto Train 2. We think that is an important part of our capital management plan. I'm very pleased to say that the data room is open, and we're seeing great interest from a number of prospective partners. So we expect that process to proceed very smoothly and successfully.

And the final question for me is just on the right debt level within the business. I mean, Woodside's traditionally talked about 10% to 30% gearing. We've obviously got energy transition. This deal puts gearing down at the low end of that level? I mean what do you think is the right level of gearing for the business going forward?

Look, we've historically said that our target gearing range is 15% to 35%. Combining with BHP's portfolio, brings our gearing down to 12%. That gives us tremendous flexibility. So with low gearing, high liquidity and strong cash flow, it gives us great flexibility to fund future growth.

Our next question comes from Mark Wiseman with Macquarie.

Congratulations, Meg, on the appointment. Just a few questions for me. Firstly, just on the decommissioning liabilities. I think BHP carried about USD 9 billion for the entire company, but we've never been able to work at how much of that was Petroleum. Are you able to just confirm how much DCOM you're taking on here?

Look, Mark, what we've done as we've put together the offer is we've done a very deep dive in our due diligence process to understand the decommissioning obligations. That is fully valued in the 48-52 merger ratio. I guess you need to ask BHP as to how much they plan to adjust their books with this transaction.

Yes. Okay. Okay. And do you have a sense of what the dividend payout policy might be? I know historically, the minimum for Woodside has been 50%. But the setting has been a lot higher over the last number of years. Are you able to give some sense on how that might change?

So Mark, our dividend policy is to pay out 50% of underlying NPATs. In recent years, we've been paying out at about 80%. We do recognize that strong dividends are very much appreciated by our shareholders and our Australian shareholders, particularly value the franking credits. One of the great benefits of the transaction is it generates the cash flow through the investment cycle that will enable us to continue delivering strong dividends to our shareholders.

Okay. Great. And just the last 1 for me, just on Scarborough. Can I just clarify that this transaction might have been voted on until the second quarter of 2022. But your intention is to take FID on Scarborough at potentially 100% equity level later this year before this transaction is really known whether it would complete or not. I'm just wondering how do the rating agencies and your finances sort of consider that?

Look, let me answer the first part of the question, we are absolutely committed to Scarborough -- being ready to take the Scarborough investment decision this year. We think the time is right in the market when we look at LNG demand in the back half of 2020s, we do see need for the product. We see an opportune time in the market in terms of attractive pricing with the contractors. And with this merger, we've clearly got a strong alignment with our partner to take that decision. We do plan to progress the sell-down of Pluto Train 2, as I mentioned, to ensure we've got the capital management and the flexibility to use that -- those funds elsewhere. And we'll be having very active discussions with the rating agencies over the ensuing months.

Your next question comes from Mark Samter with MST.

Congratulations, Meg. I've got 3 questions, if I can. Can you just provide a bit more. I'm massively confused and I'm sure it's because I'm a simpleton on this Scarborough-contingent billion payment. Can you just confirm that as to BHP rather than BHP Petroleum, which you then inherit. And I'm really confused by the 15th of December drop dead date on that. Why would you not just FID on the 16th and so to save billion dollars. Can you give us a bit more [indiscernible] cash? Or is it script. Can you just give us more clarity on that, please?

Yes. Look, let me try to clarify that, Mark. So this is an option that we are providing to BHP Petroleum. So if we take a Scarborough FID before the 5th of December, it can only be exercised in the second half of 2022. The merger is expected to complete before that, at which point, the option becomes a bit of a moot point. And so the option really is included to allow BHP to take the project to FID. So they will make a major investment decision in an environment where BHP may not be wanting to invest significant capital in the BHP Petroleum portfolio. Now the project, of course, still meets our economic return hurdles with or without the exercise of the option.

Okay. Okay. So it's not an incremental cost to you as Woodside is just to ensure its policy the BHP...

And just to be clear, Mark, if that happens, for the $1 billion, we get the 26% that BHP Petroleum currently holds in Scarborough. So it would enable the project to proceed. We would have a greater equity stake. And of course, we've got a data room open now, which will allow us to test the interest of other potential investors in the upstream.

Yes. Okay. Got it. Then the next question, I'm sorry, on that I'm going to push you on the remediation cost because I mean I think just to give some base on alone, it could be a couple of million dollars, and it's -- I appreciate you said that's an issue for BHP, what reduces by. But I guess I need to ask you the question, what does Woodside increase by because frankly, I don't see how anyone can remotely process to make a call on the valuation of this transaction without knowing the remediation number given it is -- given the nature of these assets, such a disproportionate number. So is there any like rather than a BHP question. Can you shed any light on the remediation costs you expect to come on to your balance sheet when the deal completes?

So look, Mark, we've had very extensive due diligence. We do decommissioning ourselves, so we understand what that sort of work should cost. We've Doug Devin to BHP's work, we've been able to review the operators work. So the cost of decommissioning has been fully accounted for in the value of the transaction. It would probably be premature for us to comment as to how much of that will go on to our books. So that will work that will progress over the coming months. But the costs, we think we have a good assessment of the cost and decommissioning and it is accounted for in the transaction.

Yes. Okay. I know I'm being unfair Meg on your first day as full CEO, but I think it's really hard but you guys might feel comfortable, but I don't know how the market does, without information. And then just my last question for now. I hope on the back of the queue some more. But you've talked about $400 million a year of synergies, and I noticed exploration spend is listed as one of those. Now I could be [indiscernible], but the predecessors at Woodside and say we spend $400 million a year on exploration and achieve nothing whether it's removing that is technically a $400 million synergy but achieves no value creation. Can you give us some disclosure on how much of the $400 million a year you see coming from exploration savings?

Look, Mark, it's probably premature to comment on the specifics. When we look at the combined businesses, we see opportunities in the corporate space. We see opportunities in the assets. When we look at the growth hopper, there's going to be synergies and there's going to be projects and investments that we deprioritize. And of course, exploration, we'll be taking a look and asking ourselves, how do we identify future investment opportunities? And what's the right mix of exploration for hydrocarbon opportunities versus other sorts of work that we might do to bring new energy investments into the portfolio.

Your next question comes from Tom Allen with UBS.

Meg, Congratulations again on your appointment. Just following up a couple of questions again on remediation obligations. It is obviously a very important question for equity markets. Just can I just add on, will BHP retain any liability for decommissioning as part of this arrangement?

So the way the transaction is structured, Tom, is it is a merger between Woodside and BHP Petroleum. So we're taking everything that BHP Petroleum is responsible for today.

Okay. Okay. And just being crystal clear that you've -- you're saying today also in regards to your Scarborough FID that recognizing you'd have pro forma much lower gearing. You're saying that the Board might be willing to take an FID on Scarborough this calendar year with 100% exposure to the upstream?

Look, Tom, we've got a data room underway. And we've got a number of very interested parties in there. What we've said all along is we view selling down Pluto Train 2 as a condition precedent to a final investment decision, but we will be opportunistic on selling down Scarborough if it delivers value to our shareholders. And we've got the number of players in the data room as we speak. We'll wait and see what the offers look like, but I'm cautiously optimistic that we'll find some good partners there.

Okay. Okay. And then just regarding your commitment to maintain the same emissions reduction targets on the new broader business, I saw there on Slide 7, you're suggesting that you'll need to procure quite a few offsets. Can you share some detail on what offsets you'll see there from what markets and what it might cost in order to make that significant offset commitment?

Yes. So we actually stood up a carbon business in 2018 to really build our capability, both in generating offsets ourselves as well as acquiring offsets. And we've got a long history in this space as part of the Pluto development. We made a commitment to invest in offset programs. So we've, over the last decade, spent more than $100 million across Australia and a variety of tree planting programs. So we've really built out our capability, particularly over the last couple of years. And as I said, we've got enough offsets in our accounts to cover the needs of the shared portfolio to 2025.

Your next question comes from Dale Koenders with Darren Gee.

Congratulations Meg on your appointment and congratulations to Rick, you and the Board on a transformational transaction. I was hoping you can provide a little bit more color on the merger ratio, the 52-48? And how this has impacted you or all by Woodside's price performance over the next 12 months, i.e., the merger based on fixed value for the petroleum assets? Or is it now fixed relative to Woodside? And cash flows from BHP Petroleum as well as Woodside dividends given the effective date of July 21 versus closing second quarter '22?

Yes. So that's a great question, Dale. One of the fundamental principles of this transaction is that the merger ratio was based on a fair value assessment of the 2 portfolios. So we've done on ground floor work to really understand the business, the BHP business and to understand the Woodside business. We've set the ratio based on those fundamental principles. And the real view it is that you think about the commodity we're producing as the price moves up and down the relative weighting of the 2 portfolios really is pretty close to constant. So the 48-52 is fixed. And as our share price floats with commodity pricing, that merger ratio stays firm.

Okay. And how does cash flow adjustments from effective date to close impact?

Yes. So the effective date is the 1st of July this year. So obviously, cash is being generated in the BHP portfolio that's going to be transfer across to us at the time of close.

Okay. And then just finally, pushing on Mark Sander's question on the $400 million of synergies. Can you give us a fear of the percentage that's actually going through the P&L versus that will drive earnings accretion versus -- there's obviously exploration, which may or may not be expensed at some point in the future.