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Woodside Petroleum: To Shell or Not to Shell?

NOVEMBER 8, 2011

By Gillian Tan

It’s been a year to the day since Royal Dutch Shell blindsided Australia’s largest oil and gas company Woodside Petroleum by selling down a 10% stake for A$3.3 billion (US$3.4 billion).

Appeasing Woodside, Shell promised to hold onto its remaining 24.27% interest for a year unless a takeover offer or a strategic buyer surfaced.

Given that no industry interest arose even when stock fell to a three-year low below A$30 (US$31.08), analysts believe the only way Shell can divest is to return to the market.

Apart from the fact that the stock has lost a fifth of its value since Nov. 8, 2010, the timing seems a little off too.

“There’s no liquidity in Woodside at the moment, it’s not the right environment to be dumping stock,” Macquarie analyst Adrian Wood told Deal Journal.

Wood shut down the possibility that Shell could swap its A$6.9 billion stake for equity stakes in Woodside’s various liquefied natural gas projects.

“An asset swap could have happened at any time in the past 12 months, and I think it is unlikely Woodside would give up growth projects and cancel shares given it’s the only stock in its sector that needs to justify the fact it is trading at a growth premium,” he said.

Shell — which failed in its attempt to take over Woodside in 2000 — is focusing on solidifying an Australian presence through direct interests in assets and joint ventures.

These include a 25% stake in the A$43 billion Chevron-operated Gorgon LNG project and a 50% stake in Arrow Energy, which it owns with PetroChina.

Woodside Petroleum chief executive Peter Coleman last month told reporters Shell had not flagged any urgency to sell its stake and that Woodside had offered its services to help market it.

BHP Billiton, rumored to be interested in Woodside earlier this year, instead spent US$17 billion on North American shale gas, buying assets from Chesapeake Energy and acquiring Petrohawk Energy.

For now, it seems Woodside is stuck in a classic catch-22. The very presence of Shell on the register is likely to continue weighing on the stock, but the depressed share price means Shell is unlikely to sell out.

A white knight in the form of a takeover could be its only method of rescue.


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