Woodside makes Oil Search takeover bid

PNG LNG Hide Gas Conditioning Plant April 2014

PNG LNG Hide Gas Conditioning Plant April 2014

Woodside has made a bid to buyout Oil Search Limited, an oil and gas exploration firm with assets largely in Papua New Guinea, for an estimated $11.6 billion.

An announcement to the Australian Stock Exchange today states that Woodside has proposed to trade one share for four Oil Search shares.

The proposal remains subject to Woodside’s completion of due diligence, a mutually accepted confidentiality agreement, likely approval from the PNG government, Oil Search Limited allowed a period of exclusivity and receiving the green light from its shareholders.

Oil Search Limited has a 29 per cent stake in the PNG LNG Project, which is operated by ExxonMobil, includes fellow stakeholders such as Santos, and produces some 6.9 million tonnes of LNG per annum.

The company also owns a 22.8 per cent stake in the Papua LNG Project, which is at appraisal stage, and exploration permits in Iraq and Tunisia.

Oil Search Limited stock has eased from a ten-year high of $9.7 per share in May last year, to $6.7 per share this week.

“Oil Search Board intends to review the proposal and will update shareholders and the market in due course. The company wishes to emphasise that there is no guarantee that the binding proposal can be agreed between the parties,” today’s statement to the bourse said.

“While Oil Search will consider the proposal, it should be noted that Oil Search has a material equity position in the world class PNG LNG Project and attractive, low cost, LNG development opportunities, including the PNG LNG Train 3 expansion and the Papua LNG Project.”

The company added that with the above in mind, shareholders should be entitled to an offer that reflects the company’s potential.

Woodside confirmed the proposal in a statement, saying that under the proposal, Oil Search shareholders would receive all scrip consideration of 0.25 Woodside shares for every Oil Search share and become shareholders in the combined entity.

A tilt at Santos’ PNG crown jewel

However the news could illuminate Woodside Petroleum’s tilt at claiming an even larger slice of the PNG LNG pie, with part-owner of the project, Santos in the midst of a widely reported assets selloff.

Woodside has been on the lookout for M&A opportunities with the company’s recent results statement revealing $3.2 billion in undrawn debt and cashflow, and after the firm earlier this year backed out of the US$2.5 deal to buy into the Israeli Leviathan gas project.

Santos’ strategic review of its assets, announced in the wake of an 82 per cent fall in profits for the 2014-15 financial year, has brought speculation over how much, if not all, of the company’s assets are up for grabs.

Morgan Stanley estimates that Santos’s 13.5 per cent stake in the PNG LNG Project is valued at US$5.17 billion – the largest is the company’s current portfolio.

Reports in today’s The Australian newspapers suggest Santos is ramping up its efforts to offload non-core assets in a bid to repay some $9.4 billion in debt and replenish its share price, which hit another new low at yesterday’s close of $4.19 per share.

“Since informing investors of a strategic review on August 21 in a bid to restore shareholder value, many tentative offers are believed to have been made for assets spanning areas including the Cooper Basin, McArthur Basin and Papua New Guinea,” The Australian reported today.

Santos is yet to respond to Gas Today’s requests for comment.

Eddie Morton is the associate editor at Gas Today:

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