Woodside makes bid for Oil Search

MELBOURNE, Australia-Two of Australia’s largest oil-and-gas companies could join forces amid the slump in global oil prices, after Woodside Petroleum Ltd. made an all-stock offer for Oil Search Ltd. that values the company at around 11.64 billion Australian dollars (US$8.06 billion).

The merger proposal would be subject to Papua New Guinea regulatory approval, due diligence and other customary conditions, Woodside said. This year the company said it would be looking to capitalise on the low oil price environment to acquire quality assets. It is listed in New York and to the distant south in Houston oil analyst Tudor Pickering Holt called Woodside’s play a “validation” of the gas discovery that fuels InterOil’s aspirations for LNG development in PNG.

“Clearly, Oil Search shareholders are entitled to an offer which adequately reflects this value potential”, Oil Search said in a statement to the Australian market.

The deal put forward by Woodside, would give all Oil Search shareholders the equivalent of 1 share in the merged enterprise in exchange for four Oil Search shares.

The premium offered by Woodside is probably too low, and the bid faces a number of hurdles, Nik Burns, a Melbourne-based analyst at UBS Group AG, wrote in a research note.

Oil Search’s share price surged 17.38 percent to close at Aus$7.90, while stocks in Woodside slipped 3.01 percent to end the day’s trade at Aus$29.66. Woodside’s shares fell. “The premium being offered looks very modest”, said Rohan Walsh, a portfolio manager at Karara Capital.

One of the largest obstacles to the deal is the PNG government itself.

It is an emerging LNG producer, with a 29% stake in the 6.9 million mt/year PNG LNG project, operated by ExxonMobil. Petronas did not respond to requests for comment.

Woodside is being advised by Merrill Lynch, Gresham and Herbert Smith Freehills.

Mr Coleman is also expected to meet PNG Prime Minister Peter O’Neill during his visit given the government holds a coveted 10 per cent stake in Oil Search and is not previously thought to have been open to the idea of selling.