Woodside proposal dubbed "opportunistic": Oil Search

Oil Search's Kutubu Central Processing Facility in Papua New Guinea

Oil Search's Kutubu Central Processing Facility in Papua New Guinea

After days of speculation, Oil Search has officially rejected Woodside’s $11.65 billion takeover bid, labelling it as “highly opportunistic”, with little merit and grossly undervalued.

A statement issued today states that the company’s board has unanimously decided to reject Woodside’s offer, which was put forward last week.

The proposal offered Oil Search shareholders scrip consideration of 0.25 Woodside shares for every Oil Search share.

“The Proposal would significantly alter the fundamental characteristic of an investment in the Company and dilute the present growth profile available to its shareholders,” today’s statement said.

The company cited its current liquidity of US$1.6 billion, low cost position in the Papua New Guinean LNG market, potential growth opportunities such as the expansion of the PNG LNG Project through debottlenecking, the construction of a third LNG train, and the development of the proposed Papua LNG Project as reasons for substantial growth and the undervaluation.

“In addition, with exposure to oil prices, through both its oil sales and LNG contracts, the Company is in a strong position to capitalise from a recovery in the oil price.”

Woodside, meanwhile, acknowledged Oil Search’s rejection and criticism of the offer today.

In a statement, the company said it was surprised and disappointed that Oil Search snubbed the proposal without meeting with the bidder “to understand the benefits of the opportunity or to negotiate the terms of a possible merger.”

“Woodside believes the proposal would create the regional oil and gas champion for both Papua New Guinea and Australia with a global portfolio of world class assets and development opportunities which would deliver significant benefits to both companies’ shareholders,” Woodside reasoned.

“The proposal implies a material premium to all relevant trading periods prior to initial media speculation of a potential approach by Woodside to Oil Search on 27 August 2015 and compares favourably on a range of measures relative to other recent transactions in the sector.”

But in a conference call with analysts this morning, Oil Search chairman, Rick Lee said remained staunchly opposed to the Woodside proposal saying it presented no “real synergies” for the company.

He added, however, that the firm would entertain proposals from suiters that reflect the company’s growth prospects and true value.

“Let me be clear that we will certainly engage with any party if they present a proposal that reflects compelling value for Oil Search shareholders. But as I have already stated, it was clear that the proposal from Woodside fell well short of that,” he said.

Mr Lee said Woodside’s proposal, which was received ten days ago and assessed by Oil Search, was detailed and there was no “lack of understanding” over what the bid meant for the company.

Oil Search owns a 29 per cent stake in the PNG LNG Project, alongside operator ExxonMobil (33.2 per cent) Santos (16.8 per cent), Nippon OI (4.7 per cent), PNG landowners (2.8 per cent) and the PNG government (16.8 per cent).

According to Mr Lee, all stakeholders in the JV were considered and supportive in its rejection of the Woodside proposal, including the PNG government.

Eddie Morton is associate editor at Gas Today:

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