Woodside Petroleum Ltd abandoned its US$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 16 percent in Sydney trading yesterday, the stock’s steepest decline in seven years, while Woodside stock slumped to its lowest in a decade.
Woodside, Australia’s second-largest oil producer, is not pursuing any alternative deals to combine the businesses, the Perth-based company yesterday said in a statement.
Woodside ditched the plan as crude traded near the lowest level in more than six years amid speculation a global glut is set to persist. Global crude prices have fallen about 40 percent over the past year as OPEC boosted supply in a battle for market share with producers outside the group — including Russia and shale drillers in the US.
“Given the fall-off in crude pricing, it’s difficult to see Woodside raising the offer,” Sanford C. Bernstein & Co Hong Kong-based analyst Neil Beveridge said by telephone. “M&A [mergers and acquisitions] 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 dropped 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.
Oil Search, which owns 29 percent of ExxonMobil’s Papua New Guinea liquefied natural gas project, yesterday reiterated that the Woodside proposal “grossly undervalued” the company.
Oil Search shares closed at A$6.29 in Sydney trading yesterday, valuing the company at A$9.6 billion (US$6.9 billion), while Woodside shares fell 4 percent to A$26.89, the lowest since June 2005.
Shares of Santos Ltd — the Australian producer that also has a stake in the Exxon development — declined 13 percent to A$3.31 in Sydney trading yesteray.
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 liquefied natural gas project 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 liquefied natural gas project venture off Western Australia, Macquarie Group Ltd Sydney-based analyst Kirit Hira yesterday wrote in a note.
That project “remains a challenging development with marginal economics,” Macquarie wrote.
The partners in the US$19 billion ExxonMobil liquefied natural gas project are considering adding capacity, while Oil Search is also in a venture with Paris-based Total SA and InterOil Corp that is planning the country’s second gas export project.
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