Woodside Shares Set to Extend Gains on BHP Takeover Speculation

Woodside Petroleum Ltd. (WPL) is poised to extend the past month’s 11 percent gain in Sydney trading on speculation BHP Billiton Ltd. (BHP) will make a A$46 billion ($48.5 billion) bid for the Australian oil and gas producer.

BHP is in talks to buy Royal Dutch Shell Plc (RDSA)’s 24 percent stake in Woodside and make a full takeover offer, the Sunday Times reported in London yesterday, saying that UBS AG is advising Shell on its options. BHP would swap some of Woodside’s assets, including the Sunrise natural-gas field, for Shell’s holding, the newspaper said, citing people it didn’t identify.

Woodside shares have risen from this year’s March 15 low to A$47.26 on April 8 on speculation of a bid from BHP and an increase in gas demand following Japan’s nuclear crisis. BHP and Tokyo-based Mitsui & Co. and Mitsubishi Corp. (8058) may be potential buyers of Shell’s stake or of the entire company, Credit Suisse Group AG said in an April 7 report.

“If BHP buy the whole of Woodside and bolt it together with their own assets, I think they could look to make $3 or $4 billion worth of synergies out of this deal,” John Meyer, an analyst at Fairfax IS in London, said yesterday in a Bloomberg Television interview. “There is a lot to be gained here for shareholders of BHP, and in fact on both sides. I think it’s very likely.”

Photographer: Ron D'Raine/Bloomberg

Woodside Petroleum Chief Executive Officer Don Voelte. Close

Woodside Petroleum Chief Executive Officer Don Voelte.

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Photographer: Ron D'Raine/Bloomberg

Woodside Petroleum Chief Executive Officer Don Voelte.

Amanda Buckley, a spokeswoman for Melbourne-based BHP, declined to comment, and London-based spokesman Ruban Yogarajah didn’t return calls. Linda Hammer, a spokeswoman for Perth-based Woodside, and spokeswomen for Shell in Perth and London declined to comment. A spokesman for UBS couldn’t be reached.

Deal Premium

A A$46 billion bid would represent a 23 percent premium to Woodside’s value, in line with the average premium paid for oil and gas assets worldwide in deals announced in the past 12 months, according to data compiled by Bloomberg.

“It looks like a good price, and I think it’s a deal that the Australian government is going to support,” Meyer said.

Opposition from regulators and investors has led BHP to abandon bids for Potash Corp. of Saskatchewan Inc. and Rio Tinto Group, as well as a planned iron-ore venture with Rio, costing the company at least $800 million since Chief Executive Officer Marius Kloppers was appointed in May 2007.

While talks on Woodside have intensified in recent weeks, BHP, the world’s biggest mining company, is concerned that securing the support of Woodside’s management may be too costly, the Sunday Times said.

Weighing Acquisitions

More than half of BHP’s assets are in Australia, where the resources industry is undergoing its biggest boom in a century as Chinese demand for coal and iron ore climbs. Kloppers said in February he’s still considering acquisitions after completed takeovers in the mining industry reached $80.7 billion in 2010, according to data compiled by Bloomberg.

Woodside could exchange stakes in liquefied natural gas projects for Shell’s remaining shares in the company, Bank of America Merrill Lynch wrote in a March 18 report. Under such a deal, Woodside might swap a 30 percent interest in the Pluto LNG project, an 18.5 percent stake in the Browse venture and 20.7 percent of the Sunrise development, according to the report.

“Asian LNG prices are the highest in the world, and Australia, being in relatively close proximity to Asia, is well positioned to sell to that market,” said Jason Teh, who helps manage A$3 billion, including BHP shares, at Investors Mutual Ltd. in Sydney. “It comes down to price, but broadly, Woodside would be a good fit.”

Chevron, Shell

Chevron Corp., the second-largest U.S. energy company, said yesterday that Shell had agreed to acquire a stake in its proposed A$20 billion Wheatstone gas project in Western Australia. Shell will gain 6.4 percent of the LNG plants and 8 percent of the fields off northwest Australia that will supply the Wheatstone development, Chevron said in a statement, without disclosing financial terms.

Surging prices for iron ore, copper and oil have left BHP with $16 billion of cash, the Times said. The Standard & Poor’s GSCI spot index of 24 commodities rose 20 percent last year and has increased another 20 percent this year.

“BHP’s balance sheet now is in the best shape it’s ever been in,” said Chris Weston, an institutional trader at IG Markets in Melbourne. “Woodside is reasonably expensive and the price BHP pays would be high. But the market would like to see the tie-up. The market’s hoping to see A$3 billion-plus worth of synergies to justify it, and given the size of the two companies, it’s achievable.”

Woodside ‘Proactive’

Woodside, Australia’s second-biggest oil and gas producer, is being “proactive” with Shell about the remaining shares after The Hague-based Shell sold a 10 percent stake in November, Woodside Chief Executive Officer Don Voelte said in February. Shell sold the stock for about $3.3 billion and its remaining holding was worth about A$9 billion at the close on April 8, when the market value was A$37.5 billion, Bloomberg data show.

Woodside may sell stakes in its Australian gas ventures to Japanese companies and use the proceeds to buy back Shell’s portion, Credit Suisse said April 7. It’s doubtful companies would be willing to acquire Shell’s holding as a “passive investment,” and Asian buyers would rather have LNG asset stakes than an interest in the company, the analysts said.

BHP’s dual listing in Sydney and London would mean the company would probably need the approval of Australia’s Foreign Investment Review Board for its offer to be successful, the Sunday Times said.

“That could be a pretty big issue,” IG Markets’ Weston said. “It’s going to be a very long and drawn-out process.”

To contact the reporters on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net; Amanda Jordan in London at ajordan11@bloomberg.net.

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net.

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