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Merger: Is the Woodside Petroleum (ASX:WPL) share price a buy?

Is the Woodside Petroleum Limited (ASX: WPL) share price a buy after the business announced it was going to merge with the oil business of BHP Group Ltd (ASX: BHP)?

What’s happening with a merger?

Woodside has agreed to merge with the oil business of BHP.

On completion of the deal, Woodside will issue new shares to be distributed to BHP shareholders. The bigger Woodside business would be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.

The merger of these two businesses will create a global top 10 independent energy company in production terms of the LNG industry.

It hasn’t happened yet, there are still a number of stages that need to be finished including due diligence, shareholder approval, regulatory approval etc.

Is the Woodside share price worth looking at?

In terms of the deal, there are potential estimated synergies of more than US$400 million per year from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.

But there is more to consider about Woodside than just the deal, as good as it seemingly is.

Woodside is a resources business. That means the commodity price plays a big factor on the profit year to year.

Most resource prices go through a cycle. I believe it’s better to buy a resource business when that commodity is near the bottom of the cycle rather than the top.

The oil price is a harder one to gauge these days. The huge impacts of COVID-19 caused a lot of uncertainty.

In the coming years, I expect there will be a continuing shift away from oil and towards vehicles and machines that use less oil or no oil at all (such as electric vehicles).

The oil price has recovered significantly since the worst of the oil crash during the early part of the COVID-19 crisis. But I don’t think the oil price will ever go back to its former all-time highs either.

The Woodside share price often reflects a good dividend. I suspect the business will continue to pay a good dividend after the merger with the BHP oil business. CommSec numbers suggest Woodside will pay a fully franked dividend yield of 5% in FY23.

Woodside shares have been drifting lower this year. It may turn out to be an opportunistic low price right now, but I don’t think it will be a strong long-term performer because of the likely reduction of oil demand over time. But a shift to new resources could help things.

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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