Shell's Woodside sell-off overdue

The writing was on the wall, and has been for more than a decade. Royal Dutch Shell’s divestment of most of its 23 per cent stake in Woodside Petroleum last week surprised few in the business community.

The Dutch company became logged with a third of Woodside’s issued capital after (then) treasurer Peter Costello knocked back a takeover bid in December 2000.

Any chance of a renewed takeover bid under a more favourable government was quashed when Shell offloaded a 10 per cent stake in Woodside in 2010.

Under Shell’s recent divestment drive, in which it has sold Australian refineries and petrol stations during the past year, selling its Woodside stake was just a matter of timing.

Miro Advisors managing director Tim Woodall said for a company the size of Shell, a shareholding in Woodside wouldn’t deliver a suitable return compared with an interest in a tier-one oil or gas field around the world.

Clayton Utz partner Heath Lewis said the divestment would be mutually beneficial for Shell and Woodside.

He said Shell would be happy with the price and Woodside would be happy that a large portion of its shares, which had effectively been sitting idle, would be released.

“Investors might have be circumspect about buying (Woodside) shares knowing that there is a big seller out there – that could adversely impact the share price at any time,” Mr Lewis said.

Under the divestment, Shell will sell a 19 per cent stake in Woodside, with half being bought back by the Western Australia-headquartered company for $36.49 per share.

The remaining 9.5 per cent will be sold to institutional investors at $41.35.

Under the deal, Shell will receive about $6 billion and be left with just a 4.5 per cent stake in Woodside.

It is one of the largest deals in recent years by an oil and gas major with assets in WA (see table).

There was a flurry of deals in 2012 involving minority stakes in the major liquefied natural gas projects.

Gilbert + Tobin partner Justin Little said the string of deals in 2012 was driven by companies seeking to balance their portfolios.

He said that, as the capital expenditure to develop the multi-billion projects became apparent, some energy companies repositioned themselves by selling their minority stakes to focus on their core assets.

“They can’t afford to have too much exposure across too many projects, it’s just too expensive,” Mr Little said.