Woodside Sale by Shell May Spark Interest in Takeover

Don Voelte, CEO of Woodside Petroleum Ltd.
Don Voelte, chief executive officer of Woodside Petroleum Ltd. Photographer: Ian Waldie/Bloomberg

Woodside Petroleum Ltd. may become a takeover target after Royal Dutch Shell Plc cut its stake in Australia’s second-largest oil and gas producer.

Shell, planning a sixfold increase in Australian gas production, completed the sale of a 10 percent holding in Woodside for about $3.3 billion, The Hague-based company said today. Europe’s largest oil company may eventually sell its remaining 24.27 percent stake as it focuses on developing Australian liquefied natural gas projects, analysts said.

“The big question, with Shell reducing its stake, is if another company will come in and make a bid for Woodside,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “Given the strategic value of these assets it would be difficult for a foreign company to bid. A more likely bidder would be an Australian major such as BHP Billiton.”

Woodside declined the most in Sydney trading in 23 months after Shell said it was selling the stock at A$42.23 a share, a discount of about 8 percent below yesterday’s close. UBS AG arranged the transaction. The Perth-based company fell 6.3 percent to A$42.99 at the 4:10 p.m. close, the most since December 2008. The benchmark S&P/ASX 200 Index lost 0.8 percent.

Woodside, whose Chief Executive Officer Don Voelte plans to retire in the second half of next year, may be an acquisition target for BHP Billiton Ltd., UBS AG analysts said Nov. 4. BHP, the world’s largest mining company and Australia’s biggest oil and gas producer, has room for acquisitions after Canada blocked its $40 billion offer for Potash Corp. of Saskatchewan Inc.

Takeover Deterrent

BHP Billiton spokeswoman Amanda Buckley declined to comment on Shell’s sale. Roger Martin, a spokesman for Woodside, also declined to comment.

“A whole lot of companies around the world will be dusting off the files and thinking about it,” Woodside Chairman Michael Chaney told reporters in Perth today, when asked about a potential offer from BHP Billiton. “That doesn’t mean they will” bid. Shell’s shares were sold to institutional investors, Chaney said.

Shell’s holding in Woodside was seen as a deterrent to taking over the $34 billion company, which produced about 222,000 barrels a day of oil and gas last year. Woodside operates the North West Shelf Project, responsible for 40 percent of Australia’s oil and gas, according to its website.

Voelte, 57, will step down after the A$13 billion Pluto liquefied natural gas project begins production. Pluto is set to become the fastest LNG venture developed, with the initial discovery of the field in 2005. The company has delayed a decision to expand the project until 2011 after its exploration campaign progressed more slowly than expected.

‘Take the Bait’

“It’s an invitation to BHP, the big question is whether BHP will take the bait,” said Johan Hedstrom, an analyst at Southern Cross Equities in Sydney. “It would be easier for BHP to buy a stake in Woodside than any other company, especially where the Foreign Investment Review Board is concerned.”

Shell said it will keep its remaining Woodside holding for at least one year, “with limited exceptions,” including a potential takeover offer by another company for Woodside.

Shell is selling as much as $8 billion in assets this year and next, cutting 7,000 jobs and reducing the less profitable refinery business. Shell aims to spend as much as $50 billion in Australia over the next decade, more than in any other region, as the company shifts to producing natural gas instead of oil. Shell and PetroChina Co. in August completed a A$3.5 billion purchase of Arrow Energy Ltd. to develop a liquefied natural gas venture in Queensland fed by fuel extracted from coal seams.

Northwest Coast

“With Shell’s recent portfolio progress in Australia, our world-wide push to simplify the company and to improve our capital efficiency, we will increasingly focus our investment in Australia through direct interests in assets and joint ventures, rather than indirect stakes,” Voser said in a statement.

Shell’s first involvement with Woodside was in 1963 when it joined forces to explore for oil and gas off the remote northwest coast of Australia. In 1985 it raised its stake in Woodside from 21.34 percent to 40.04 percent before cutting back the stake to 34.27 percent in 1994. Shell tried to take over Woodside in 2000 and was blocked by the Australian government.

Shell is a partner in Chevron Corp.’s Gorgon LNG venture in Western Australia and with Woodside in the North West Shelf. The company also aims to pioneer the use of a floating LNG plant with the proposed Prelude venture off the northwest coast.

While the move has prompted takeover speculation, JPMorgan Chase & Co. analysts in Sydney said they are skeptical offers will arise. Shell may have “exhausted all other options with strategic suitors” and decided to take advantage of a stronger oil price and a surging Australian dollar, they said.

Strategic Buyer

“If there was currently a willing strategic buyer of Woodside, with a realistic chance of government approval, we believe Shell would have shopped its stake to that party -- and sold at greater than or equal to the spot share price,” the analysts, including Benjamin Wilson, wrote yesterday.

Shell’s directly owned LNG capacity in Australia is 2.7 million metric tons a year and is forecast to more than double to 6.5 million tons by 2015, Australia country chair Ann Pickard said in the statement. That could increase by a further 10 million tons beyond 2015, she said.

“Its importance to Shell is now less, given that Shell has developed a strong portfolio of direct interest in Australia gas,” David Cline, a London-based analyst at Royal Bank of Scotland Group Plc, said. “An eventual exit from Woodside will further simplify Shell’s portfolio.”

Australia is set to underpin Shell’s next tranche of LNG expansion, aimed at growth markets in Asia Pacific, the company said today. Shell has a 25 percent interest in Gorgon, where Exxon Mobil Corp. is also a partner.