Dec. 16 (Bloomberg) -- Royal Dutch Shell Plc’s long-awaited
sale of its $6.4 billion stake in Woodside Petroleum Ltd. may
open the door for Asian buyers to grab a slice of Australia’s
second-largest oil and gas producer, or even the whole company.
Shell, which said last month it was entering “a divestment
phase,” may exit its 23 percent holding in Woodside as soon as
2014 as its importance to Europe’s largest oil company fades,
said Nomura Holdings Inc. While Shell may opt to sell the stock
back to Woodside and institutional investors, China’s Cnooc Ltd.
and China Petroleum & Chemical Corp. might pursue the stake or a
full takeover, Morningstar Inc. said.
Woodside, which has a market value of $28 billion, offers
buyers six of Australia’s seven LNG processing plants as China-
led demand for liquefied natural gas is forecast to almost
double worldwide by 2030. Government opposition to a foreign
takeover may have eased since Shell was blocked in 2001, said
E.I.M. Capital Managers Pty. The company also is more affordable
after its multiple to cash flow more than halved since 2011,
according to data compiled by Bloomberg.
A sale of Shell’s stake in Woodside “opens it up for
somebody,” John Robertson, a Melbourne-based investor at E.I.M.
Capital who owns shares in Woodside, said in a phone interview.
“There’s going to be rising energy demand throughout Asia,
particularly in China.”
Not Strategic
Shell, Woodside’s largest shareholder, said last year the
asset didn’t fit into The Hague-based company’s long-term plans.
Then, in May, Shell Chief Financial Officer Simon Henry said the
company “eventually would sell the stake,” describing the
investment as “no longer strategic.”
The stake is “increasingly non-core” to Shell as Perth,
Australia-based Woodside expands overseas, Theepan Jothilingam,
a London-based analyst at Nomura, said in a Dec. 3 report.
Woodside today fell 1.4 percent to A$37.22 at the close in
Sydney, trimming this year’s gain to 9.9 percent.
As Shell cuts costs, selling the Woodside stake would free
up cash for incoming Chief Executive Officer Ben van Beurden,
who replaces Peter Voser in January, said Evan Lucas, Melbourne-
based strategist at IG Markets Ltd. Institutional investors, as
well as Chinese, Japanese or South Korean companies, may be
interested in buying the shares, Lucas said by phone.
Woodside would be “very interesting” to Cnooc, China’s
biggest offshore oil and gas producer, and China Petroleum &
Chemical, better known as Sinopec, said Mark Taylor, an analyst
at Morningstar in Sydney. Neither is likely to be blocked by the
Australian government, Taylor said.
Blocked Bid
“Woodside is not the only LNG exporter,” he said in a
phone interview. “It doesn’t have the same national
significance anymore.”
In April 2001, then-Australian Treasurer Peter Costello
blocked Shell’s bid for Woodside. At the time, Woodside ran
Australia’s only liquefied natural gas plant and the government
was concerned Shell would slow Woodside’s expansion by
prioritizing other investments in Asia.
A logical domestic acquirer, Melbourne-based BHP Billiton
Ltd., the world’s biggest mining company, is now more focused on
cutting costs than takeovers, said Taylor.
Kate Gauntlett, a spokeswoman for Woodside, declined to
comment on Shell’s stake or potential buyers, and Sarah Bradley,
a spokeswoman for Shell, also wouldn’t comment. Michelle Zhang,
a spokeswoman for Cnooc, declined to comment. Calls to Sinopec’s
Beijing-based spokesman Lv Dapeng weren’t answered during normal
business hours.
Profit Growth
Formed in 1954, Woodside endured a decade of fruitless
exploration in southern Australia before discovering gas off the
west coast, according to the company’s website.
Woodside’s Pluto project, which started in 2012, and its
North West Shelf development in Western Australia will help
boost profit 14 percent to $2.16 billion next year, according to
analysts’ estimates compiled by Bloomberg. Woodside plans to
expand in Israel and expects to decide in 2015 whether to
develop the Browse LNG project off Western Australia with Shell.
Woodside closed last week at A$37.75 a share, leaving the
A$31 billion ($28 billion) company trading at about 8 times its
cash flow, according to data compiled by Bloomberg. That’s less
than half the figure in April 2011.
Shell already sold 10 percent of Woodside stock for A$42.23
a share in November 2010. The shares haven’t traded higher than
A$40 since 2011.
Gas Demand
The price has sagged partly due to expectations of a
pending sale by Shell, said Lucas at IG. Should that take place,
there would be fresh demand for the stock, he said.
“It makes your big hedge funds wake up to the fact that
Woodside is clear,” he said.
Central to Woodside’s appeal to a corporate buyer is rising
demand for gas throughout Asia, said Robertson, the fund manager
at E.I.M. Capital. Chinese or Japanese energy companies might
attempt to buy a stake as a path toward a takeover, a move that
may not be opposed by Treasurer Joe Hockey, he said.
“Right now the government is going through some soul-
searching about what its view is toward national assets,”
Robertson said. “There have been some interesting decisions
which throw up the question as to whether the same decision
Costello took more than 10 years ago would be taken today.”
Australia ruled this month that China’s state-controlled
Yanzhou Coal Mining Co. didn’t need to cut its stake in its
Australian business to less than 70 percent, instead allowing it
to move toward full ownership.
And even as Hockey blocked Archer-Daniels-Midland Co.’s $2
billion takeover of GrainCorp Ltd. last month, he said he would
allow the U.S. company to raise its stake to almost 25 percent
to work toward “potentially greater participation.”
Shell is still more likely to sell its Woodside shares to
institutional investors or to Woodside itself, said Vincent
Pisani, a Melbourne-based analyst at Shaw Stockbroking Ltd.
That may not deter foreign suitors from trying to buy the
stake, said Robertson at E.I.M. Capital.
“Someone might say, ‘OK, if we bought the Shell stake,
that might be a stepping stone to going the whole way,’” he
said.