11/11/2010 - 00:00

Shell sale a reality check

11/11/2010 - 00:00

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ENERGY giant Shell’s $3.3 billion sale of a 10 per cent stake in Woodside has opened a Pandora’s box of speculation about how long Australia’s home-grown oil and gas champion can survive alone.

Shell sale a reality check

ENERGY giant Shell’s $3.3 billion sale of a 10 per cent stake in Woodside has opened a Pandora’s box of speculation about how long Australia’s home-grown oil and gas champion can survive alone.

Shell this week auctioned off almost a third of its 34 per cent holding to institutions for $42.23 a share and said its remaining 24 per cent stake would be escrowed only for the next 12 months, in a clear sign it is a willing seller.

But despite the clear attraction of owning one of the world’s fastest growing LNG producers, a third-party bid for Woodside is not inevitable.

Shell pursued control of Woodside several times during the past 30 years, most notably in 2001 when then federal treasurer Peter Costello blocked its bid on national interest grounds.

But its sell down has terminated any lingering suspicion that it still covets the now fiercely independent Perth-based company.

One of the key drivers of Shell’s decision was clearly the realisation that government unease about any foreign takeover of Woodside has, if anything, hardened since its last tilt a decade ago.

In 2001, Woodside’s only real asset was its operating one-sixth stake in the North West Shelf.

Today, it also boasts a suite of world-class LNG development opportunities, including the near-complete Pluto development and operating stakes in the massive Browse and Sunrise projects off the Western Australian coastline.

Premier Colin Barnett implied as much this week when asked for his views, saying Woodside was “a very important Australian and West Australian company”.

While such issues have left BHP as the only bidder considered likely to win Canberra’s approval, even it could face a hostile response from parochial politicians and investors given its predominantly foreign investor base and international management team.

Shell’s decision also reflects the divergence of the two companies’ commercial interests in recent years and the recognition it can get better returns by investing in its own development opportunities, especially given its big stake no longer affords it any real influence over Woodside’s strategy.

If it did, Woodside would not have grown to become a direct competitor to Shell in the Asian LNG market, where Shell has its own growth options such as the Prelude and Gladstone LNG projects in Australia.

Conversely, Woodside sources claim to be happy to have the “Shell monkey” off their back, potentially giving the company even greater commercial freedom.

The first test of that could well be how long Shell retains its right to nominate three directors to the Woodside board.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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