“I have grave concerns about Woodside shareholders being left holding the can, literally,” he said.

Credit Suisse oil and gas analyst Saul Kavonic said a tie-up between Woodside and BHP’s petroleum business would present a “globally significant” company weighted towards LNG with low-risk geographic exposure and growth options.

But the important question now for investors, he added, would “revolve around price and how Woodside could pay”.

“A cash deal could leave Woodside still dependent on sell-downs or an equity raise,” he said. “A scrip deal would leave Woodside with a very strong balance sheet to fund growth without sell-downs, but could leave a stock overhang as some BHP investors may not have a long-term mandate to hold Woodside shares.”

The sale of BHP’s petroleum assets, which account for about 10 per cent of its core earnings, could fetch up to $20 billion, according to some estimates. BHP and Woodside are already joint-venture partners in two WA projects: the North West Shelf and the $16 billion Scarborough liquefied natural gas (LNG) project which they hope to green-light this year.

BHP also owns a 50 per cent interest in the ExxonMobil-operated Bass Strait oil and gas fields off Victoria, and oil and gas interests in the Gulf of Mexico, Trinidad and Tobago and Algeria.

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For Woodside, acquiring BHP’s petroleum assets would retain the company’s position as Australia’s largest independent oil and gas producer after two of its ASX-listed rivals – Santos and Oil Search – agreed to a $22 billion merger earlier this month.

While discussions are ongoing and no deal yet reached, industry insiders anticipate further details to be made public within days when BHP and Woodside face investors to report their full-year profit results.

Since Mr Henry took the reins at BHP last year, the world’s biggest miner has been seeking to clean up its portfolio and image. BHP is in the process of quitting thermal coal, with NSW’s Mt Arthur mine its last remaining thermal asset, and is lifting exposure to so-called “future-facing” commodities copper and nickel that will be increasingly required to make electric batteries.

Credit Suisse, which has long-considered Woodside to be the most likely contender to buy BHP’s petroleum assets, said petroleum “simply no longer fits” within BHP’s portfolio.

“After having waited too long to divest thermal coal, and now having to resort to selling for cents on the dollar, BHP should know it’s better to exit petroleum sooner rather than later,” Mr Kavonic said.