MELBOURNE Aug 29, 2006 (Dow Jones Newswires)
Woodside Petroleum Ltd.'s (WPL.AU) US$883 million bid for Energy Partners Ltd. (EPL) will likely be a drawn out affair with an increased offer a possibility.
If the deal goes ahead it will be a major boost to the Australian oil and gas producer's presence in the Gulf of Mexico, taking its production there from 8,000 barrels of oil equivalent a day to 36,000 BOE.
However Woodside will first have to convince New Orleans-based Energy Partners and its shareholders to abandon the proposed US$1.4 billion friendly takeover of Stone Energy Corp. (SGY).
The bid has already hit the courtroom, with Woodside seeking to have break fees on the Stone Energy deal terminated.
Macquarie analyst Andrew Blakely said Woodside was offering a fair but full price for the assets but the Stone Energy deal could slow the bid down.
"It's certainly not a done deal," he said.
Patersons Securities analyst David Johnson also said it looked like there could be a "long way to run" before the deal was closed.
"It is a three cornered fight and it could become four cornered because somebody cold come in over the top and bid for the whole lot," he said.
Woodside, through its subsidiary ATS Inc., is offering US$23 per share, a 25% premium to Energy Partners' closing price on Friday.
It is also offering to boost this to US$23.50 a share if one of two termination fees is waived and US$24 if both are dropped.
Johnson says investors look like they are punting on an increased offer by Woodside or a counter-bid as Energy Partners shares closed above the offer price Monday, up US$5.74 at US$24.14.
"The market is assuming this is not a one-off offer," he said.
Woodside chief executive Don Voelte made a courtesy call to Energy Partners boss Richard Bachmann just before the bid was lodged Monday with the conversation described by a Woodside spokesman as professional, polite and brief.
But there are no hints yet as to what the response will be, with Energy Partners acknowledging the offer and advising its shareholders to take no action while it considers its response.
Stone Energy said it was reviewing the ATS announcement but intends to move forward with the proposed combination with Energy Partners.
Woodside expects to tender an offer document within the next week or so and, if all goes to plan, says it could complete the deal by the end of 2006 or in early 2007.
Voelte is keen to boost Woodside's presence in the Gulf, where profit margins are high thanks to good infrastructure and the large ready-made market on the doorstep.
Woodside believes players in the Gulf need size to be taken seriously and began muscling up with the US$287 million acquisition of Houston-based Gryphon Exploration Co. last year.
Fitch Ratings placed Woodside on "rating watch negative" after the announcement of the bid, stating that the company's rating may deteriorate by "up to one notch" depending on funding arrangements.
Some analysts think Woodside would be willing to stretch the balance sheet even further and go ahead with a bid for an enlarged Energy Partners if the Stone Energy deal goes ahead.
But Blakely said Energy Partners alone was a big bite compared to the Gryphon acquisition and it didn't look like Woodside was interested in both companies.
"It certainly doesn't seem as though they have the appetite for the post-merged entity," he said.
Energy Partners has interests in 120 blocks in the Gulf and has proven reserves of 59.3 million BOE, with 53.1% in oil and 46.9% in gas.
Woodside shares fell 27 cents, or 0.6%, to close at A$41.78 Tuesday.
Copyright (c) 2006 Dow Jones & Company, Inc.
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