Both companies are due to front investors to hand down their annual results this week, and are likely to be asked by fund managers and analysts to explain the potential move.

Sources said the talks were ongoing, and nothing had been agreed. The companies declined to comment.

Analysts have spent the past few weeks running numbers on potential deal scenarios, as speculation spread about a potential tie-up between the pair. That speculation intensified over the weekend, when it was revealed BHP’s global petroleum chief Geraldine Slattery had flown to Perth, where Woodside is based.

The talks come as Woodside is on the lookout for a permanent CEO, after Peter Coleman finished his 10-year stint in June. Meg O’Neill, a former ExxonMobil executive who heads up Woodside’s development and marketing arm, is acting CEO, while the board finalised its search.

All the reviews and shareholder pressure at BHP, along with the petroleum unit’s immaterial contribution to earnings, have analysts expecting the Big Australian will divest or spin off the business to shareholders in coming years.

For Woodside, analysts reckon acquiring BHP’s assets could increase its scale and ability to fund expansion projects, including Scarborough, in the near term.

“BHP Petroleum simply no longer fits within BHP’s portfolio or future-facing strategy,” Credit Suisse energy analyst Saul Kavonic said.

He said that while BHP could find a reasonable buyer pool for its Gulf of Mexico and Trinidad petroleum assets, Woodside would be the primary and perhaps the only credible buyer for BHP’s Australian oil and gas assets, which would likely factor in Woodside’s thinking.

“A Think Big Woodside, merged with BHP Petroleum, would present a globally significant LNG-weighted company, with a diversity of low-risk geographic exposure and growth options, including derisked Scarborough, Atlantic LNG options in Trinidad and the US, and various Gulf of Mexico growth options,” he said.

“We could expect ample synergies on cost, LNG marketing, portfolio funding and JV alignment fronts.”

Citi analysts told clients in early August that a deal would provide Woodside with additional near-term free cash flow from the Bass Strait, while it said the company would also be interested in doubling its position in the North West Shelf project.

The big question, for analysts, is how Woodside would fund any offer, in light of a large near-term development program and selldowns already under way at a handful of its assets.

A scrip deal could see Woodside issue shares to BHP as consideration. The company already has 964 million shares on issue, for a $21.38 billion market capitalisation. A $20 billion-odd all-scrip deal would approximately double its shares on issue.