The Courier-Mail



WOODSIDE Petroleum will need to sweeten the pot if it wants to win its mega play for smaller rival Oil Search, analysts say.

And Woodside’s proposed $11.6 billion buyout of the Papua New Guinea-focused group could spark a flurry of deals in the energy sector, which has been hard hit by falling oil and gas prices, they say.

Woodside yesterday confirmed it had launched a bid for Oil Search, which is a key investor in the $27 billion PNG liquefied natural gas project.

The deal would be the big- gest takeover of an Australian­listed company since brewing titan SABMiller splashed $12.3 billion on Foster’s in 2011.

Perth-based Woodside, the nation’s biggest oil and gas pure play, is offering one of its shares for every four Oil Search shares in an all-scrip bid.

The offer values Oil Search at $7.65 a share based on Monday’s closing price – a 13.5 per cent premium.

UBS analyst Nick Burns said although the bid represente­d a 27 per cent premium on Oil Search’s share price two weeks ago, Woodside would need to increase its offer if it wanted to get a deal over the line. “We don’t see Oil Search accepting an offer at this level, given the quality of its growth portfolio and value potential,” Mr Burns said.

Oil Search shares soared $1.17 or 17.4 per cent to $7.90 yesterday, finishing the day above Woodside’s offer value.

“That is a pretty clear indication that the market is telling Woodside that this offer is not sufficient at the moment,” IG market strategist Angus Nicholson said.

“You would think they (Woodside) would have something more up their sleeve. It seems they lowballed it to get it into play.”

He said the PNG LNG project, in which Oil Search has a stake, is one of the most competitiv­e LNG investment­s in the whole Asia Pacific region .

Shares in Woodside and Oil Search had slumped about 30 per cent over the past year.

Woodside’s revelation yesterday sent energy stocks higher across the board amid speculatio­n the move could spark a flurry of buyout activity in a sector where valuations have been crunched by a slump in oil prices.

Shares in Santos – itself a mooted takeover target – rose 5.15 per cent to $4.41, AWE gained 8.3 per cent to 72 , Beach Energy 2.6 per cent to 59.5 and Origin 3.2 per cent to $7.72. Woodside lost 92 to $29.66.

Oil Search managing director Peter Botten said the board would review the offer but cautioned any bid needed to reflect the growth potential for the company’s assets.

“Shareholde­rs are entitled to an offer which adequately reflects this value potential,” he said.

Any deal must also be approved by the Pagua New Guinea government, which holds a 10 per cent stake in Oil Search – a hurdle that UBS cautioned should not be underestim­ated.

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