Woodside withdraws $8B bid for Papua New Guinea LNG group Oil Search

By JAMES PATON
Bloomberg

Woodside Petroleum abandoned its $8-billion offer for Papua New Guinea-focused Oil Search almost three months after the bid was rejected, dropping plans for what would have been the biggest energy takeover in Asia.

Oil Search tumbled 16% at the close in Sydney, the most in seven years, while Woodside slumped to the lowest in a decade. Woodside, Australia’s second-largest oil producer, isn’t pursuing any alternative deals to combine the businesses, the Perth-based company said Tuesday in a statement.

Woodside ditched the plan as crude traded near the lowest level in more than six years amid speculation a global glut will persist. Oil has fallen about 40% over the past year as the Organization of Petroleum Exporting Countries boosted supply in a battle for market share with producers outside the group, including Russia and US shale drillers.

“Given the fall-off in crude pricing, it’s difficult to see Woodside raising the offer,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “M&A will come when companies are confident we’re at the bottom of the cycle. This signals that Woodside isn’t confident that we’re quite there yet.”

Oil Search had climbed 12% from the time the bid was announced through Monday, while Woodside had dropped 8.4% over the same period. The offer of one share for every four Oil Search shares, which implied a 14% premium at the time, was too low to win investors’ support, according to Bernstein and UBS Group.

‘Grossly Undervalued’

Oil Search, which owns 29% of Exxon’s PNG LNG project, reiterated on Tuesday the Woodside proposal “grossly undervalued” the company. Oil Search shares closed at A$6.29, valuing the company at A$9.6 billion ($6.9 billion). Woodside fell 4 percent to A$26.89, the lowest since June 2005.

Shares of Santos, the Australian producer that also has a stake in the Exxon development, declined 13% to A$3.31.

Woodside CEO Peter Coleman had sought a stake in Papua New Guinea’s liquefied natural gas (LNG) industry, aiming to create a regional “oil and gas champion.” Papua New Guinea’s LNG projects are seen as lower cost than developments elsewhere in the world and economically viable even after a plunge in oil prices.

“Woodside’s future growth ambitions now rest” on a potential decision in the second half of next year to go ahead with the Browse LNG venture off Western Australia, Kirit Hira, a Sydney-based analyst at Macquarie Group, wrote Tuesday in a note. That project “remains a challenging development with marginal economics,” according to Macquarie.

The partners in the $19-billion Exxon LNG project are considering adding capacity, while Oil Search is also in a venture with Paris-based Total and InterOil Corp. that’s planning the country’s second gas export project.

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