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Financial Times: Woodside lifted by talk of Shell bid

By Raphael Minder in Sydney
Published: June 19 2007 11:13 | Last updated: June 19 2007 11:13

The share price of Woodside Petroleum on Tuesday rose to a one-year-high on speculation that Australia’s biggest energy company could receive another takeover offer from Royal Dutch Shell, which holds a 34 per cent stake.

Neither company would comment on Tuesday after the share price closed at A$46.84, a rise of 2 per cent. Woodside said: ”We don’t comment on market speculation.”

Shell was prevented from buying Woodside in 2001 by Peter Costello, the Australian treasurer, on grounds of national interest. However, analysts have fuelled speculation that Woodside could be a takeover target because of its plans to become a world leader in liquefied natural gas (LNG) and its promising projects off the coast of Western Australia.

BG, the UK energy group, was also cited as a possible tie-up partner in a recent report from broker Cazenove.

However, some analysts were sceptical about the possibility of a politically-sensitive takeover attempt ahead of Australian federal elections later this year.

Mr Costello is believed to be unlikely to change his stance towards Woodside, even though Canberra earlier this year cleared an attempted A$11.1bn buy-out of Qantas, the national airline, which eventually failed because of opposition from some leading institutional shareholders.

In a note to investors, Stuart Barker of Morgan Stanley said: ”The Treasurer back then, Peter Costello, is still in office. I doubt Shell would attempt anything unless their was a new regime in power.” Mr Barker also noted the ”value hurdle’’ created by the rally in the Woodside share price since 2001, when Shell was willing to pay about A$15 a share.

Shell has made repeated attempts to increase its control over Woodside, after an initial investment in 1976. Shell reduced its holding in 1994 from 40 per cent to 34 per cent.

Meanwhile, Woodside has set itself the ambitious target of becoming the world’s largest supplier of LNG by 2015, ahead of Shell and ExxonMobil.

The most promising LNG project for Woodside is arguably Pluto, which is off Australia’s north-western coast. It is fully-owned by Woodside, unlike the company’s other major liquid gas projects. The field is scheduled to require between A$6bn and A$10bn of capital expenditure to develop but the current timetable – from discovery in 2005 to the first delivery to customers before the end of 2010 – would make it the fastest ever LNG project in terms of development.

Browse, another significant Australian project that is 50 per cent owned by Woodside, is due to start between 2012 and 2014.

Adding Pluto and Browse would also considerably boost Woodside’s clout as a pricing negotiator in what is still a nascent LNG trading market. However, both projects still require a final investment decision to proceed.

On a recent trip to Europe, Don Voelte, the chief executive of Woodside, hinted that Woodside might consider an asset swap, possibly involving Pluto.

A Sydney-based analyst said Tuesday night: ”Swapping assets would certainly seem a more likely scenario than a full merger. Woodside could really benefit from having more American LNG while it is in a pretty unique position in Asia-Pacific and a lot to offer there.”

Copyright The Financial Times Limited 2007

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