Woodside Abandons $8B Takeover Bid for Oil Search

Woodside Abandons $8B Takeover Bid for Oil Search
Woodside abandons its $8 billion offer for PNG-focused Oil Search almost three months after the bid was rejected, dropping plans for what would have been the biggest energy takeover in Asia.

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

Oil Search shares tumbled as much as 18 percent in Sydney trading, the most in seven years. Woodside, Australia’s second- largest oil producer, isn’t pursuing any alternative transactions 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 tumbled about 40 percent 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 U.S. shale drillers.

“Given the fall-off in crude pricing, it’s difficult to see Woodside raising the offer in this environment,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “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 percent from the time the bid was announced through Monday, while Woodside had fallen 8.4 percent over the same period. The offer of one share for every four Oil Search shares, which implied a 14 percent premium at the time, was too low to win investors’ support, according to Bernstein and UBS Group AG.

'Grossly Undervalued'

Oil Search, which owns 29 percent of Exxon’s PNG LNG project, reiterated on Tuesday the Woodside proposal “grossly undervalued” the company. Oil Search shares slumped to A$6.32 as of 1:43 p.m. in Sydney, while Woodside fell as much as 4.5 percent to A$26.75 and traded at A$27.05.

Shares of Santos Ltd., the Australian producer that also has a stake in the Exxon development, declined as much as 15 percent to A$3.24.

Woodside Chief Executive Officer Peter Coleman had sought a stake in Papua New Guinea’s liquefied natural gas 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 Ltd., 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 SA and InterOil Corp. that’s planning the country’s second gas export project.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Indranil Ghosh, Keith Gosman.

Copyright 2016 Bloomberg News.

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