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THE WALL STREET JOURNAL: Australia's Woodside Driven By Renewed Takeover Talk: “Driven by rumors that Royal Dutch/Shell Group (RD) may quit its one-third stake in Woodside Petroleum Ltd. (WPL.AU), analysts speculated Wednesday that a A$16 billion bid for Australia's biggest energy company could be looming.” ( 1 Dec 04



December 1, 2004


PERTH -- Driven by rumors that Royal Dutch/Shell Group (RD) may quit its one-third stake in Woodside Petroleum Ltd. (WPL.AU), analysts speculated Wednesday that a A$16 billion bid for Australia's biggest energy company could be looming.


Chinese energy group CNOOC Ltd. (CEO) has been named as a potential buyer of Shell's stake, a move that would give it more leverage over Woodside's vast natural gas reserves as China prepares to begin liquefied natural gas imports.


"The market seems to expect that RD/Shell will sell down its 34.3% stake, raising around US$4 billion to invest in other exploration and production assets," Citigroup Smith Barney said.


The speculated sale may "prompt a predator to make a full bid", it added.


Takeover talk helped push Woodside's shares to a record high of A$21.48 on Nov. 29, up nearly 16% in two weeks. Over the same period the S&P ASX 200 Energy Index rose 10%. Speculation cooled slightly Wednesday as the shares closed down 3.2% to A$20.19 amid a broadly weaker market.


Yet Australian analysts are divided on whether the rumors have any basis. "It is speculation and there is an absence of facts or logic," Morgan Stanley energy analyst Stuart Baker told Dow Jones Newswires this week.


Shell Australia chairman Tim Warren has chosen not to comment on the speculation, allowing analysts' theories to flourish. Privately, however, local Shell officials point to the company's strategy review statement in September.


Under pressure to resolve ongoing problems with its reserve base, Shell said that it will sell around US$5 billion of "limited growth potential" assets over the next two years. The assets are in Angola, Thailand, Bangladesh and Egypt, it said.


Shell did not flag any sale of Australian assets and some analysts argue that Woodside - which plans to double its annual production to about 140 million barrels of oil equivalent by 2010 - fits into Shell 's strategy of boosting oil and gas reserves and production.


Woodside recently discovered new oil fields in Mauritania. It also operates the core North West Shelf gas venture off the coast of Western Australia. This venture mainly exports LNG to Japan and Korea, although shipments to China are due to begin in 2006.


The other side of the coin is that Shell already has a direct one-sixth stake in the Shelf. And, following its failed A$10 billion bid in 2000, Shell has little influence over the management of an increasingly independent Woodside.


"We don't comment on market speculation," a Woodside spokesman told Dow Jones Newswires, when asked whether the company is aware of Shell's intentions.


But Citigroup said that Woodside has "emerged from the shadow of Shell ", in reference to the Australian company's diversification into oil projects in Australia and offshore.


Woodside is now a "major oil and gas company in its own right, not just the local branch of a major," Citigroup said.


CNOOC is the "market favorite" to buy the Shell stake, if a deal eventuates, it added.


Just a few days ago, CNOOC unveiled a US$850 million convertible bond sale, further fueling talk that it may use a growing war chest to buy into Woodside.


Under Australian takeover laws, CNOOC would normally need to make a full takeover bid for Woodside if it buys Shell's stake. However, analysts say that a full takeover would likely be blocked by Australia's government on similar national interest grounds to its rejection of Shell three years ago.


"The downside from a CNOOC offer to buy the RD/Shell stake would be that it could trigger a full bid from another source," Citigroup said. Anglo-Australian resources group BHP Billiton (BHP), a one-sixth owner of the Shelf, is often touted as a potential buyer of Woodside.


Assuming a similar bid premium to Shell's 2000 offer, Citigroup estimates a "potential bid price" of A$24.76 a share, which would value Woodside at A$16.5 billion.


Broker CSFB also takes the rumors seriously. "We believe there is some merit in the reports as we do not consider Shell to be a long-term holder of the stake anymore, particularly after being rebuffed twice in takeover attempts," it said.


Although attention has focused on the North West Shelf and new oil projects, Woodside's Browse gas project offshore Western Australia could be "the big prize for the Chinese," said a person familiar with the asset.


"Eventually there could be another North West Shelf on the Browse and Woodside owns half of it," the person said. "So the Chinese may decide to buy into Woodside now rather than having to pay more for Browse gas later on."


Earlier this month Woodside said that it will accelerate work on Browse as it targets a 2011 project exporting LNG to China and potentially the U.S. West Coast.


Woodside is operator of Browse, which contains 20.5 trillion cubic feet of gas. The other Browse owners are Chevron Texaco Corp. (CVX) with 16.67%, BP PLC (BP) 16.67%, Royal Dutch/Shell Group (RD) with 8.33% and BHP Billiton Ltd. (BHP) 8.33% - all part owners of the North West Shelf.


   -By Stephen Bell, Dow Jones Newswires; 61-8-9245-5120


-Edited by Ian Pemberton

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