Woodside Says Pluto Cash May Fund Buying Back Shell’s Stake

Woodside Petroleum Ltd., Australia’s second-largest oil producer, is considering buying back Royal Dutch Shell Plc (RDSA)’s holding, valued at $7.7 billion, using cash from its Pluto liquefied natural gas venture.

Purchasing the shares “is an option,” Chief Executive Officer Peter Coleman said in an interview in Sydney today. “Woodside is in a very fortunate position over the next 12 months to 18 months. With Pluto coming online we’re going to start to generate a lot of cash.”

The A$14.9 billion ($15.9 billion) Pluto venture is due to start exporting LNG next month. Woodside has declined 17 percent since Shell sold a 10 percent stake for $3.35 billion in November 2010. Europe’s largest oil company plans to dispose of its remaining 24 percent stake, and a buyback would ease concerns that the stock may slump further.

Shell (RDSA)’s interest is “something that’s overhanging the stock,” Andrew Williams, an analyst with RBC Capital Markets in Melbourne, said today by telephone. Woodside is not going to generate the A$7.2 billion the stake was worth at the close today so might buy shares in tranches, he said.

Woodside rose 3.3 percent to A$38.08 at the close of trade in Sydney, the highest since Aug. 15, while Australia’s benchmark S&P/ASX 200 Index fell 0.2 percent.

‘Talk to Us’

“We’ve had a dialog with Shell,” Coleman said today. “We’ve said to Shell: ‘If or when you dispose of the shares, please come and talk to us,’” he said. “Shell has said: ‘Thanks very much. We’ll let you know when we’re ready.’”

The Hague-based Shell has informed Woodside that it isn’t in a hurry, Coleman said. “Shell isn’t going to sell their stake cheaply,” he said. “They know the value of it. Shell has indicated to us they see Woodside as a value stock.”

Investment in Woodside doesn’t fit with the company’s long- term plans and the stake will be sold at the right price when the time is right, Shell Chief Financial Officer Simon Henry said Feb. 2. “We will manage our stake in Woodside in the context of our global portfolio,” a Shell spokesman said today.

Woodside faces rising costs and competition from future exports from North America as it seeks to develop more than $70 billion in LNG projects. The Pluto venture is among eight LNG projects under development in Australia.

The company is “casting a very broad net” as it considers expansion outside Australia through new partnerships, Coleman said yesterday after Woodside reported a 4 percent drop in full- year profit. While the company is studying shale gas, it intends to keep the focus on LNG and oil, he said.

U.S. Gas Exports

The operator of the North West Shelf LNG development in Western Australia has set up a team to explore the possibility of international deals, including in the U.S. and Africa, Coleman said today. Woodside (WPL) is also evaluating how much LNG the U.S. may export in the future and its likely impact on international energy markets, he said.

“It’s clear to us it’s changing the market,” he said. “It’s providing new opportunities, so at a minimum we need to understand it, not just from an investment point of view but how it’s going to affect potentially the markets we’re in.”

He wouldn’t “underestimate the challenges” facing U.S. LNG projects, Coleman said, raising the prospect of political opposition to significant exports.

Woodside also has said it is considering selling a stake in its proposed Browse LNG project. Shell is a Browse partner, along with Chevron Corp., BP Plc and BHP Billiton Ltd. Woodside may fetch $1.6 billion selling 16 percent of Browse and lowering its holding to 30 percent, Citigroup Inc. said Jan. 27.

‘Long-Term Relationships’

“We didn’t open this up to the broad market and say come one, come all, because it’s not simply about money,” Coleman said today. “It’s about value. We want long-term strategic relationships. That’s why we’ve targeted particular companies and invited them to talk to us about their interest in Browse.”

China National Petroleum Corp., the country’s biggest energy producer, offered to buy a stake in the Browse venture, two people with knowledge of the matter said. CPC Corp., Taiwan’s state-owned oil refiner, said Feb. 8 that it is in talks with Woodside to buy a stake of less than 10 percent in Browse. Mitsui & Co. is also interested in buying a stake, according to a spokesman for the Japanese trading company.

Woodside found more gas at the Ragnar-1 well to support an expansion of Pluto, the company said yesterday. Pluto is nearing completion, with no “material change” to its previous expectation for exports to begin in March, it said.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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