SYDNEY/PERTH BHP Billiton (BHP.AX) played down speculation it was in talks to acquire a cornerstone stake that could be worth $10.3 billion (A$9.8 billion) in Australia's largest oil and gas firm, Woodside Petroleum (WPL.AX), from Royal Dutch Shell (RDSa.L).
BHP Billiton, widely rumoured to be considering a takeover of Woodside, said in a short statement that there was no basis for the market talk, which has centred on BHP acquiring Shell's 24.3 percent stake as a step toward a full takeover.
Woodside shares surged to a 15-month high of A$50.85 before giving up all their gains on BHP's denial. By 0245 GMT, Woodside
traded at A$47.1 a share, down 0.3 percent on the day, while BHP shares firmed to traded 2.3 percent higher at A$48.8.
At the day's highs, the 24.3 percent stake would be valued at about A$9.8 billion.
"BHP Billiton advises that the market is currently fully informed of all material information and is not aware of any basis for the market speculation," BHP said Monday.
Earlier, Western Australia's state premier said he was aware that talks had been going on concerning BHP's interest in Shell's stake in Woodside but did not elaborate.
Bankers says there are continuous low-level talks between all three parties -- BHP, Shell and Woodside -- and doubt these have yet progressed to the stage where a deal is imminent.
Western Australian Premier Colin Barnett spoke out against any takeover of Woodside.
"Hands-off Woodside," he bluntly told an energy conference in Perth, adding that the industry would lose out if Woodside was taken over though he did not elaborate.
His comments came amid reports that Anglo-Australian miner was in talks with Royal Dutch Shell (RDSa.L) on buying its 24.3 percent stake in Woodside ahead of a potential takeover. The reports had earlier sent Woodside shares up more than 7 percent.
While neither Woodside or BHP have declined to say whether they were in negotiations, Barnett said he was aware of talks.
"I don't care what happens with the 24 percent particularly, but I would just urge you 'hands off Woodside' - not a good move for your industry. There are more important things to do: develop new fields, find gas, find oil, find customers, just keep your hands off Woodside," Barnett said.
Shell's Australian boss was earlier reported to have said that no commercial discussions with BHP were underway.
London's The Sunday Times and The Australian Financial Review both said BHP was pursuing the stake, without citing sources.
The reports further fueled speculation of a deal which surfaced last November when Shell sold a third of its stake in Woodside, and gained further momentum in recent weeks.
Investors pointed out the further Woodside shares rose the more unlikely it was to receive a bid.
"It would be pretty expensive at current prices," said Jason Teh, fund manager at Investors Mutual, which owns shares in BHP.
"I would like to see how BHP could prove how much value this adds to the business. Obviously it adds to the business, but how much value can it create, in terms of boosting its shareholder return?"
The Sunday Times said BHP was talking to Shell about acquiring its Woodside shares in return for some of BHP's assets, and said UBS was advising Shell.
However, Shell Australia country chief Ann Pickard was quoted by local newspapers Monday as saying the there were no "commercial" discussions on its 24 percent stake in Woodside and said there was no hurry to do a deal.
The newspaper also pointed to speculation Shell is considering the sale of its stake to Japanese trading houses Mitsui (8031.T) and Mitsubishi (8058.T) as a potential alternative transaction.
Mitsui said it is not considering acquiring the stake.
(Additional reporting by Sonali Paul and Miranda Maxwell; Editing by Mark Bendeich and Anshuman Daga)