Woodside Abandons $8 Billion Takeover Bid for Oil Search

  • Woodside isn't pursuing any alternatives to combine operations
  • Oil Search drops by most in seven years after announcement

Woodside Petroleum Ltd. abandoned its $8 billion offer for Papua New Guinea-focused Oil Search Ltd. almost three months after the bid was rejected, dropping plans for what would have been the biggest energy takeover in Asia. 

Oil Search tumbled 16 percent at the close in Sydney, the most in seven years, while Woodside slumped to the lowest in a decade. Woodside, Australia’s second-largest oil producer, isn’t pursuing any alternative deals to combine the businesses, the Perth-based company said Tuesday in a statement.

Woodside ditched the plan as crude traded near the lowest level in more than six years amid speculation a global glut will persist. Oil has fallen about 40 percent over the past year as the Organization of Petroleum Exporting Countries boosted supply in a battle for market share with producers outside the group, including Russia and U.S. shale drillers.

“Given the fall-off in crude pricing, it’s difficult to see Woodside raising the offer,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “M&A will come when companies are confident we’re at the bottom of the cycle. This signals that Woodside isn’t confident that we’re quite there yet.”

Oil Search had climbed 12 percent from the time the bid was announced through Monday, while Woodside had dropped 8.4 percent over the same period. The offer of one share for every four Oil Search shares, which implied a 14 percent premium at the time, was too low to win investors’ support, according to Bernstein and UBS Group AG.

‘Grossly Undervalued’

Oil Search, which owns 29 percent of Exxon’s PNG LNG project, reiterated on Tuesday the Woodside proposal “grossly undervalued” the company. Oil Search shares closed at A$6.29, valuing the company at A$9.6 billion ($6.9 billion). Woodside fell 4 percent to A$26.89, the lowest since June 2005.

Shares of Santos Ltd., the Australian producer that also has a stake in the Exxon development, declined 13 percent to A$3.31.

Woodside Chief Executive Officer Peter Coleman had sought a stake in Papua New Guinea’s liquefied natural gas industry, aiming to create a regional “oil and gas champion.” Papua New Guinea’s LNG projects are seen as lower cost than developments elsewhere in the world and economically viable even after a plunge in oil prices.

“Woodside’s future growth ambitions now rest” on a potential decision in the second half of next year to go ahead with the Browse LNG venture off Western Australia, Kirit Hira, a Sydney-based analyst at Macquarie Group Ltd., wrote Tuesday in a note.  That project “remains a challenging development with marginal economics,” according to Macquarie.

The partners in the $19 billion Exxon LNG project are considering adding capacity, while Oil Search is also in a venture with Paris-based Total SA and InterOil Corp. that’s planning the country’s second gas export project.

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