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Shell likely Santos suitor – analysts


Thursday March 25, 2010
By Rebecca Le May and Xavier La Canna

Woodside Petroleum Ltd has quashed talk of a $15 billion takeover bid for Santos Ltd as analysts suggest the smaller company is more likely to appeal to other predators.

Royal Dutch Shell or ExxonMobil were more obvious candidates for a takeover of the Adelaide-based company, analysts said on Thursday as Woodside and Santos both denied media reports of a planned takeover.

Woodside chief executive Don Voelte told a conference in Perth the company did not comment on market rumours “but I can also just tell you that there’s nothing to it”.

“It’s news to me,” Mr Voelte said of the speculation Woodside wanted Santos for exposure to the coal seam gas (CSG) sector.

Santos also denied any approach from Woodside in a reply to an Australian Securities Exchange query about its share price rise from $14.37 on Wednesday to a high of $15.05 on Thursday amid the rumours.

Santos shares closed 39 cents, or 2.71 per cent, higher at $14.76.

“Santos has not been approached by, nor is it aware of any potential interest of, Woodside Petroleum Ltd other than the media speculation,” it said in a statement.

Some analysts were surprised by the rumours, saying Santos was likely to be attractive due to its 13.5 per cent stake in the ExxonMobil-led Papua New Guinea liquefied natural gas (LNG) project than its exposure to Queensland’s booming CSG-to-LNG sector.

EL&C Baillieu Stockbroking resources analyst Adrian Prendergast said Shell or, to a lesser degree, ExxonMobil were more likely to target Santos.

“I wouldn’t be surprised to see the likes of Shell pursue it (Santos), instead of Woodside,” Mr Prendergast told AAP.

“PNG LNG is the best asset in the world.

“I think that would be the motivation (for a bid for Santos), to get exposure to that.”

Takeover plays by Shell – in addition to its current multi-billion-dollar joint takeover bid with PetroChina for CSG-to-LNG hopeful Arrow Energy Ltd – certainly seem likely.

Shell chief executive Peter Voser said recently that Australia was central to the energy giant’s plans to increase its LNG capacity by about 40 per cent in the next five years.

Shell was unsuccessful in its bid to takeover its North West Shelf joint venture partner Woodside in 2001 after the federal government rejected the $10 billion foreign bid.

Since then, Shell has maintained its status as Woodside’s largest shareholder with a 34.27 per cent stake.

Woodside itself seems an unlikely entrant to the CSG-to-LNG space, with Mr Voelte repeatedly making it clear the company is focused on its conventional gas resources in Western Australia and in the Timor Sea.

Not only does Mr Voelte believe Woodside has enough of these assets to keep it busy for decades, he has also been sceptical about the value of CSG-to-LNG.

Mine Life resources analyst Gavin Wendt recently said the market had a better appreciation for LNG derived from conventional gas, like Woodside’s, than LNG extracted from CSG.

This was because large-scale CSG-to-LNG production had not yet been demonstrated in Australia.

Mr Wendt also said PNG LNG was more advanced than the Queensland CSG-to-LNG projects.

The buzz around CSG-to-LNG reached new heights on Wednesday when Britain’s BG Group signed a $60 billion sales contract with China National Offshore Oil Corp for product from its Curtis Island CSG-to-LNG project in Queensland.

Santos said its share price rise over the past few days was likely to be related to the BG contract, which was trumpeted as Australia’s largest-ever trade deal between two entities.

Woodside shares reversed earlier losses on Thursday to close six cents higher at $47.48.


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