MELBOURNE, Australia—Oil Search Ltd. rejected an all-stock offer
from Woodside Petroleum Ltd. that valued the company at about 11.64
billion Australian dollars (US$8.26 billion), derailing a bid to
form a regional oil-and-gas champion.
Oil Search in a statement Monday said that after a detailed
evaluation of the offer, its board concluded the offer was "highly
opportunistic and grossly undervalues" a company with clear growth
opportunities and a track record of delivery.
Had it gone ahead, the deal would have been one of the biggest
in the oil-and-gas industry since Royal Dutch Shell PLC signed a
US$70 billion deal to buy BG Group PLC in April. It might also have
kickstarted further mergers and acquisitions in the sector, where
many financially-stretched companies are viewed as possible sellers
or targets following a more than 50% drop in oil prices since last
summer.
Still, Oil Search held the door open to a higher offer, saying
it would engage with any proposal that reflected compelling value
for shareholders.
Woodside in response said it was disappointed its nonbinding
offer had been rejected without Oil Search meeting with the larger
Australian oil-and-gas producer to negotiate terms of a possible
deal.
For Woodside, which has struggled in recent years to pin down
opportunities to continue growing its production, the deal would
have increased its bet on natural gas and the continuing growth in
Asia's appetite for cleaner-burning fuels at a time of low
prices.
Oil Search's main asset is a 29% stake in a US$19 billion
liquefied natural gas project in Papua New Guinea known as PNG LNG,
which is being led by Exxon Mobil Corp. It also is involved in
other gas fields in the poor South Pacific nation, including a
large project being developed in partnership with France's Total
SA.
The company said its growth opportunities in Papua New Guinea,
including the planned expansion of the PNG LNG project, have the
scope to double production from current levels by the early 2020s.
It added it is well placed to fund these developments, with access
to competitively priced project financing from Exxon Mobil, Total
and other venture partners.
"We have a low cost, high quality, production base which is
generating strong cash flows and excellent growth opportunities,"
Oil Search Chairman Rick Lee said.
Woodside's offer, comprising one of its shares for every four of
Oil Search's, represented a 14% premium to Oil Search's closing
share-price the day before the offer was announced last Monday,
although shares in both companies had dropped nearly 30% up to that
point in 2015. Woodside said that Oil Search's investors, which
include Papua New Guinea's government with an almost 10% stake,
would have held almost 32% in the merged company.
Several analysts said the approach on its rival highlights
Woodside's apparent need to add growth projects to its portfolio of
assets, which are largely focused on Australia's west coast.
Woodside has repeatedly delayed an investment decision on the
massive Browse LNG project off Western Australia, while last year
it abandoned a planned US$2.5 billion investment in the Leviathan
natural-gas discovery off Israel's coast.
In Australia alone, companies have invested more than US$200
billion in recent years on vast LNG developments that chill gas
into a liquid for export. As they begin to export fuel, at prices
linked to crude-oil prices, it is adding to the current supply-glut
in global gas-markets and adding further stress to some companies'
balance sheets despite expectations countries like China will
continue to increase demand over the coming years.
Santos Ltd., Australia's fourth-largest oil-and-gas company
which has a 13.5% stake in the PNG LNG project, recently said it
would consider offers for its assets following a 70% share-price
slump. Another Australian company, Origin Energy Ltd., in August
unloaded a majority stake in New Zealand power company Contact
Energy Ltd. for about US$1.13 billion to cut debt after it borrowed
heavily to fund a major LNG project on Australia's east coast.
Oil Search last month reported a record half-year profit,
boosted by increased production from the PNG LNG project. It
expects output this year of 27 million to 29 million barrels of oil
equivalent, while Woodside has forecast output of 86 million to 94
million barrels of oil equivalent this year against 95.1 million in
2014.
Write to Robb M. Stewart at robb.stewart@wsj.com
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(END) Dow Jones Newswires
September 13, 2015 21:25 ET (01:25 GMT)
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