The Wall Street Journal: Woodside’s Energy Partners Bid Shows Allure of Gulf of Mexico

By RUSSELL GOLD and IAN PEMBERTON
August 29, 2006; Page A12

Woodside Petroleum Ltd.’s $883.1 million takeover bid for Energy Partners Ltd., based in New Orleans, underscores the industry’s continued interest in the Gulf of Mexico despite recent hurricane activity and the challenge in finding lucrative new deposits in the well-explored area.

The bid by Australia’s Woodside, if successful, would foil Energy Partners’ agreement in June to acquire Stone Energy Corp. of Lafayette, La., for $1.4 billion. Energy Partners yesterday said its board will discuss Woodside’s unsolicited proposal and “in due course” advise stockholders of its position. Stone Energy said it will evaluate the move but still planned on moving forward with the Energy Partners deal.

Energy Partners shares had surged 31% to $24.14 at 4 p.m. in New York Stock Exchange composite trading, while Stone Energy was down 6.8% to $44.35 in Big Board composite trading.

Woodside said its ATS unit already has a stake of about 4.5% in Energy Partners, acquired in the open market in recent weeks. “We are building a significant presence in the Gulf, and the acquisition of EPL would be a valuable addition to what is already an important business for us,” said Woodside Chief Executive Don Voelte.

The Gulf has become a magnet in recent years for energy investment, particularly from foreign companies, as new discoveries have energized the region and the U.S.’s predictable tax and regulatory system have contrasted favorably with the changing fiscal regimes of foreign governments controlling promising fields elsewhere.

In December, Norway’s Norsk Hydro ASA closed its $2.5 billion acquisition of Spinnaker Exploration Co., a Gulf exploration specialist, and said it intended to make the waters off Texas and Louisiana a core area. And Brazilian state oil company Petróleo Brasileiro SA, or Petrobras, has become very active there, outspending rivals to secure additional leases offered by the U.S. government this month.

“You’ve got high energy prices, a good infrastructure, a stable regulatory environment and government incentives. It’s a relatively easy place to operate,” says David Dismukes, associate director of the Louisiana State University Center for Energy Studies. The federal government provides royalty relief to encourage both deep-water exploration and deep gas wells in the shallower waters.

Woodside is offering $23 a share for Energy Partners, a 25% premium to Energy Partners’ closing price Friday. The Australian company also would take on $257 million of debt.

Woodside said the offer is conditional on Energy Partners’ shareholders’ voting down the pending merger with Stone Energy. Also, it said it would increase its bid if two termination fees linked to the Stone Energy merger are scrapped. Woodside would boost the offer price to $23.50 a share from the current $23 if either fee is terminated, and would increase its offer to $24 a share if both fees are invalidated.

At the end of 2005, Energy Partners had proved reserves of 59.3 million barrels of oil equivalent consisting of 53.1% oil and 46.9% gas. Royal Dutch Shell PLC owns about 34% of Woodside.

Write to Russell Gold at [email protected] and Ian Pemberton at [email protected]

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