Reuters: ANALYSIS: Shell Ripe for Woodside Stake Sale to CNOOC: “Shell's $3.5 billion stake in Australia's top oil firm, Woodside, could be up for grabs, and bankers see China's CNOOC as a likely buyer in a deal sweetened by more access for Shell to Chinese natural gas markets. Royal Dutch/Shell has said it wants to raise up to $12 billion from asset sales over the next two years to focus on major exploration and production projects -- part of its bid to recover investor confidence knocked by January's scandal over inflated reserves bookings.” (ShellNews.net) Posted 20 Nov 04
By Charlie Zhu
SINGAPORE (Reuters) - Shell's $3.5 billion stake in Australia's top oil firm, Woodside, could be up for grabs, and bankers see China's CNOOC as a likely buyer in a deal sweetened by more access for Shell to Chinese natural gas markets.
Royal Dutch/Shell has said it wants to raise up to $12 billion from asset sales over the next two years to focus on major exploration and production projects -- part of its bid to recover investor confidence knocked by January's scandal over inflated reserves bookings.
It is also in a race with rivals to sell its giant gas projects into booming China.
Shell would be better off if it cashed in its 34 percent stake in Woodside Petroleum and got more access to booming Chinese gas demand in the process, four investment bankers told Reuters.
Peter de Wit, a Shell executive who sits on Woodside's board, said the world number-three oil firm had abandoned ambitions to acquire the whole of Woodside since it was blocked from doing so by the Australian government in 2001.
"We went through the phase where we were interested in taking all of the shareholding in Woodside. But those days are gone. Now we co-exist," de Wit told Reuters on Thursday.
But de Wit, president of Shell's Asia Pacific gas and power division, declined to comment on any possible sale of the holding.
Bankers see Shell's acquisitive Chinese joint venture partner, CNOOC Ltd., as a likely buyer.
For state-owned CNOOC, China's number three oil company and the energy-hungry nation's top offshore producer, buying into Woodside would boost its projected 2004 output of 140-145 million barrels of oil equivalent (boe) by as much as 14 percent. It already has ties with the Anglo-Dutch giant through building a $4.3 billion joint venture petrochemical complex.
"Strategically, it sort of makes a lot of sense," one banking source said of the prospect.
Large oil companies like Shell tend to avoid holding minority equity stakes without a strategic reason, preferring to focus on assets they can exploit and control.
The Woodside stake looks small in Shell's portfolio, and Shell, like its giant peers, is trying to maximize returns by homing in on a handful of giant projects.
Shell's 19 million boe share of Woodside's projected 57 million boe of 2004 output represents 1.4 percent of its own total production, while by value, the stake represents 1.8 percent of Shell's market capitalization.
"It would make sense if Shell swaps the stake with some natural gas business in China," said a second banking source.
China, the world's second-largest energy consumer, aims to boost gas use to 10 percent of its total energy mix in 2020 from less than 3 percent now, sending global oil majors scrambling to secure gas supply contracts.
Beijing has already inked deals to import tens of billions of dollars worth of natural gas from Australia's North West Shelf and Gorgon gas projects -- in which Shell has stakes -- and the BP-led Tangguh project in Indonesia.
In return, CNOOC purchased stakes in the gas projects.
Shell is competing to sell gas to China from its $10 billion Sakhalin 2 project in Russia, and the Greater Sunrise gas project in the Timor Sea.
On Thursday, Dominique Gardy, Singapore-based head of Shell's Asia Pacific Exploration and Production, identified Shell's top 10 E&P projects in the region, including North West Shelf, Gorgon and Sunrise, as well as several projects in Malaysia and the Changbei gas project in China.
MONEY AND DESIRE
Shell's relationship with Woodside, which also has stakes in North West Shelf and Sunrise, has soured since the Shell takeover move was blocked.
Since then, a number of firms, including cash-rich CNOOC, have looked at Shell's stake, a third banking source said.
It is kind of a not very well kept secret in the oil and gas industry that Woodside has been quietly shopped," he said. But those talks did not go anywhere due to disparity over pricing and Shell was in no hurry to raise funds.
Now, with Woodside shares trading at near record highs on strong oil prices, it should be time for Shell to consider a sale, the banking sources said.
Woodside shares have fallen slightly from their record high of A$20.45 last month because of recent oil price weakness. The stock was trading at 18.1 times its forecast earnings on Friday, compared to 12.2 times for CNOOC.
CNOOC Chief Financial Officer, Mark Qiu, declined to comment, but said CNOOC kept a cautious spending policy.
Deal-hungry investment banks have been knocking on the doors of Chinese oil firms such as CNOOC and PetroChina, but not many transactions have been done in recent years as high oil prices have inflated oil assets.
Nevertheless, industry sources say Chinese oil firms are gearing up for a more acquisitive strategy -- such as buying overseas listed oil and gas companies rather than just oil and gas fields -- to boost their reserves at a faster pace.
"They have the money and the desire -- which will make things happen," a fourth banking source said.