Australia's Woodside courts Oil Search with $8 billion takeover proposal

MELBOURNE (Reuters) - Woodside Petroleum Ltd, Australia’s biggest independent oil and gas producer, has approached rival Oil Search Ltd with an $8 billion all-share takeover plan that would give it stakes in two of the world’s lowest-cost LNG projects.

The Woodside Petroleum Otway Gas Plant in Victoria is seen in this undated handout photograph obtained July 24, 2009. REUTERS/Woodside Petroleum Ltd/Handout

In what would be a record deal for Australia’s energy sector, Woodside would gain a 29 percent stake in Oil Search’s PNG Liquefied Natural Gas project, coveted as a one of the few expandable LNG projects that will be viable in a world of weak oil prices.

ExxonMobil Corp, operator of PNG LNG, France’s Total SA and Asian state oil companies like Malaysia’s Petronas could emerge with rival bids, although Woodside had already started talks with key shareholders, analysts said.

“It makes sense for Woodside - a company that’s ex-growth that’s looking for the next leg,” said Ric Ronge, a portfolio manager at Pengana Capital, which owns stakes in Woodside and Oil Search.

Perth-based Woodside is one of the few oil companies with enough cash to chase acquisitions after a collapse in oil prices to six-year lows. Its move on Sydney-based Oil Search follows Royal Dutch Shell’s push to expand in LNG with a $70 billion bid for BG Group.

If successful, the takeover would fill a gap in Woodside’s growth prospects as the firm has no major new projects due to start producing this decade. In addition to the coveted PNG LNG project, it would gain a 23 percent holding in PNG’s biggest undeveloped gas prospect, the Elk and Antelope fields.

Woodside has offered one of its shares for every four Oil Search shares, worth A$11.6 billion ($8.1 billion) on Monday’s close, subject to gaining a period of exclusivity to look at the company’s books and securing support from key stakeholders.

“Clearly, Oil Search shareholders are entitled to an offer which adequately reflects this value potential,” Oil Search said in a statement to the Australian market.

Investors and analysts considered it a low-ball bid and predicted Oil Search’s top shareholder, the PNG government, would press for more, as it bought into Oil Search last year at A$8.20 a share, well above the value of the proposal.

The premium was 14 percent based on Monday’s close. However based on Oil Search’s and Woodside’s average share prices over the three months before August 27, when rumors of a bid emerged, the premium was 23 percent, a Woodside adviser said.

Energy takeovers typically command premiums of 30 percent to 40 percent, Deutsche Bank analyst John Hirjee said.

A spokesman for PNG Prime Minister Peter O’Neill said the government was waiting for a full briefing on the offer and would make a decision based on the national interest.


Oil Search shares leapt as much 17 percent to A$7.87 after the proposal was announced, trading above the implied value of the offer, suggesting investors expect it will have to raise its bid. Woodside’s shares fell.

“It’s a first shot. The premium being offered looks very modest,” Karara Capital portfolio manager Rohan Walsh said.

A takeover of Oil Search would instantly boost Woodside’s production by about 30 percent and offer low-cost development opportunities in contrast to the two projects it is considering building, Browse floating LNG off Australia and Kitimat LNG in Canada.

PNG LNG can produce and ship a cargo for just under $10 per million barrels of oil equivalent (mmboe), compared with $30 per mmboe for Browse, according to analysts’ estimates.

A senior resources banker not involved played down the prospect of ExxonMobil bidding, given it already has a one-third stake in PNG LNG.

ExxonMobil declined to comment. Petronas did not respond to requests for comment. Total was not immediately available for comment.

“You can’t compete against those,” said Hirjee, referring to the oil majors potentially lined up against Woodside.

Woodside has already started talking to the PNG government, analysts said.

Oil Search is being advised by Morgan Stanley. Woodside is being advised by Bank of America Merrill Lynch and Gresham.

The move on Oil Search boosted other battered energy company shares, notably Santos Ltd, which closed up 5 percent, as it also has a stake in the PNG LNG project and is looking to sell assets.

Reporting by Sonali Paul and Byron Kaye; Editing by Stephen Coates