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Forbes: Shell Still Burning For Woodside?

06.20.07, 2:45 PM ET

LONDON – Royal Dutch Shell has had a rough time abroad over the past six months, from losing the controlling stake in a $20 billion Russian gas project to cutting $100 million in Nigerian investments.

But Australia could be a hot spot for the London-based energy company, as market watchers wondered Wednesday whether Woodside Petroleum would once again attract a bid down under.

The Australian government tried to snuff out Shell (nyse: RDSA – news – people )’s flame for Melbourne-based Woodside Petroleum back in 2001, when Treasurer Peter Costello blocked the Anglo-Dutch group’s $10 billion bid on grounds that it went against national interest. Although Shell owns 34% of Woodside, political forces have so far obstructed it from getting a controlling stake.

But the winds could change: last week, Santos, another Australian oil and gas producer, urged South Australia’s state government to lift a 15% shareholding cap imposed in 1979. Along with the general election expected later this year, this could be a political twist in Shell’s favor.

Investors sent Woodside’s share price soaring to a one-year high on Tuesday after analyst comments boosted talk of a bid, and on Wednesday it climbed even higher. Shares closed up 35 Australian cents (30 cents), or 0.8%, to 47.20 Australian dollars ($39.92). Royal Dutch Shell A shares closed down 7 pence (14 cents), or 0.35%, to £19.86 ($39.60); B shares closed up 17 pence (34 cents), or 0.8%, to £20.36 ($40.59).

So what makes Woodside such a burning issue for Shell? Although the Australian company has made much of its offshore crude oil operations, spending $100 million off the coast of Kenya since last year, so far the wells have not yielded a drop. It is the natural gas front, however, that could be more promising.

“Woodside has a number of attractive gas assets at play,” said Steven Knell. “They would be a source of revenue streams in the future.” These include a North-West Shelf project expected to yield 16.3 million tons of natural gas. But capital costs are mounting, up $175 million in 10 months to $2.6 billion, and such hurdles could invite offers.

“Woodside is facing some considerable burdens, financially,” said Knell. “And that fact may well lead to perhaps a greater sensitivity to any takeover bids that may be forthcoming.”

http://www.forbes.com/markets/2007/06/20/shell-woodside-gas-markets-equity-cx_ll_0620markets24.html

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