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TheAge.com.au: Woodside to buy Shell’s Cossack stake for $441m

Barry FitzGerald
February 12, 2008

WOODSIDE has cosied up to major shareholder Shell to strike a deal to acquire Shell’s 16.7% equity share in the Cossack Pioneer and associated oil projects on the North-West Shelf for $US398.5 million ($A441 million).

While the deal was said to represent pretty good value for Woodside, its shares dived 2.1% to $43.92 because of fretting about the long-term impact of the failed coup in East Timor on Woodside’s ambitions to confirm the development credentials of its Sunrise liquefied natural gas project in the Timor Sea.

The Sunrise joint venture (Woodside is operator and a 33.44% partner) recently re-established a development team for the project after the February 2007 ratification of an agreement between Australia and East Timor.

Meanwhile, Woodside’s oil deal with Shell had a certain back-to-the-future appeal as Shell’s Australian oil assets were part of Shell’s failed attempt in 2000 to move to outright control of Woodside in a cash and asset injection deal that the federal government ultimately banned on national interest grounds.

The relationship between Woodside and its 34% shareholder has improved greatly since, with the Cossack Pioneer deal allowing Woodside to plug the oil reserves gap caused by the sale of its overseas oil interests while allowing Shell to focus on its main game in the Asia-Pacific region — capturing its full share of the forecast boom in liquefied natural gas demand.

The oil deal between the pair covers estimated (proved and probable) reserves of 21.3 million barrels of oil equivalent, plus 9.3 million barrels of contingent resources. That translates to an equivalent acquisition cost to Woodside of $US18.71 a boe for proved and probable reserves.

Analysts said that looked to be a pretty good price, the key being what sort of capital expenditure requirements lay ahead to extract full value from the oil reserves. Woodside is the operator and is in the best position to know what a good price for the reserves are. The deal is nevertheless subject to approval by Woodside’s non-Shell shareholders, as well as the other partners in the assets. Shell has been given a potential sweetener by Woodside, in that part of the deal involves Shell now having the right of final offer for Woodside’s assets in Libya, which Woodside has said it plans to sell.

Shell’s North-West Shelf oil assets include its share in the Cossack, Wanaea, Lambert and Hermes oilfields (including the Cossack Pioneer production facility), the Egret oil discovery and remaining active oil exploration portfolio within a tieback distance to the Cossack Pioneer.

The deal will increase Woodside’s participating interest in the Cossack, Wanaea, Lambert and Hermes fields to 33.33% and the company’s interests in the Egret oil discovery area and remaining active oil exploration portfolio within a tieback distance to the Cossack Pioneer to 50%.

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http://business.theage.com.au/woodside-to-buy-shells-cossack-stake-for-441m/20080211-1rla.html

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