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Potential for BHP Billiton and Shell to finally resolve the Woodside question

PetroleumNews.net: BHP ponders shopping trip, Woodside share price rockets

Tuesday, 20 May 2008

GROWTH through acquisition, that’s our goal, says the boss of BHP Billiton Petroleum, Mike Yeager – which prompts Slugcatcher to ask “acquisition of what, Mike?”

Naturally Mike, if anybody ever bothers to ask him that question, will give the usual well-rehearsed reply along the lines of “couldn’t possibly comment”.

The trouble with that sort of response, which is a speciality of American businessmen (and politicians) trained in the dark arts of public relations spin, is that so much is left unsaid.

The Slug, fearless or foolish, has a few ideas about what might be occupying the mind of Mike, and a lot revolves around the potential for BHP Billiton and Shell to finally resolve the Woodside question – and perhaps we’re even seeing the start of something today.

On the stock market Woodside, fresh from its monstering at the hands of the Australian Government in the shape of a tax hit on condensate production, has gone for a powerful upward share price run.

At last glance the stock was up more than 7%, or around $4.60, setting a new record price of $67.80.

Put another way, more than $3 billion has been added to the value of Woodside in a matter of hours.

There are a number of reasons why this might have happened. The oil price is certainly a driver, as is Woodside’s ambitious LNG production plans.

But none of that explains a 7% price hike in a matter of hours. A move of that magnitude smells of corporate buying, and among the likely suspects are BHP Billiton or one of China’s state-owned businesses.

If it’s a Chinese buyer then that would be in line with an emerging policy of China buying into the companies which supply its vital raw materials. It already has a 9% stake in Rio Tinto and is rumoured to be looking for a similar stake in BHP Billiton.

But there is also a chance it’s the beginning of the end of a game that started several years ago when takeover moves by Shell for Woodside were knocked back on the grounds of Australian national interest.

It was that government action in thwarting Shell which sparked earlier speculation that a big asset-swap could resolve the issue, with Shell selling its controlling 34% to BHP Billiton in exchange for other assets or cash.

Talk of something fresh happening in the Shell/Woodside/BHP space started to circulate late last year when BHP Billiton launched its takeover bid for Rio Tinto.

Back then there was plenty of market chatter about a possible float or sale of BHP Billiton’s petroleum division, a deal which could facilitate a Shell move to sell its Woodside shares into the new vehicle.

What is new in all this is Yeager’s comments about acquisition being a preferred growth route for the BHP Billiton petroleum division.

For a person in his position such a statement is highly unusual and potentially inflammatory – not to mention that it is also not something dropped into a conversation on the spur of the moment.

It remains to be seen whether Yeager was letting the cat out of the bag, or just opening the flap of the bag a little so we could see the size of his cat.

Whatever the rationale behind it, there is every likelihood that what’s happening today on the Woodside share register is a result of his remarks because a new entity bringing together the petroleum division of BHP Billiton, Shell’s 34% in Woodside, and perhaps some other assets would represent the creation of major new Australian business.

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