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Asia Pulse: SHELL MAY SELL STAKE IN AUSTRALIA'S WOODSIDE PETROLEUM: "The sting would be a third party bid for the whole of Woodside, and RD/Shell cannot be ruled out as a bidder," Citigroup said. ( 1 Dec 04


Dec 01, 2004


PERTH, Dec 1 Asia Pulse - The prospect that Royal Dutch/Shell's 34 per cent stake in Woodside Petroleum Ltd (ASX:WPL) could be sold may prompt a predator to make a full bid for the company one analyst maintains.


Rumours that Shell has added its Woodside interest to a list of assets targeted for divestment have been rife in recent weeks.


Topping the list of speculated buyers is the Chinese oil giant CNOOC (SEHK:0883os), which recently announced it would issue a US$850 million convertible bond to help fund acquisitions.


Shell's Woodside exit would signal the final chapter in the break-up with Australia's largest listed oil and gas producer that began with an unsuccessful bid for Woodside in November 2000, Citigroup Smith Barney said in a research report.


"The sting would be a third party bid for the whole of Woodside, and RD/Shell cannot be ruled out as a bidder," Citigroup said.


Although CNOOC has the cash and a desire to expand overseas, buying the Shell stake would only secure it some board representation and annual dividends, but would not give it access to cash flow and it would not own the Woodside oil and gas reserves, Citigroup said.


"What CNOOC would get is exposure to the US, Mauritania and North Africa and the two companies, working in tandem, could become a significant entity in world exploration and production terms," the analysts said.


"However, CNOOC would not pay a full bid price."


Woodside is a different company from when Shell launched its A$14.80 (US$11.51) a share bid in 2000, changing a declining production outlook to a sharply rising production profile.


It has the potential to upgrade reserves amidst a markedly improved oil price outlook, the report said.


Citigroup said the Shell bid was a 14.88 per cent premium over its valuation of Woodside at the time, so attaching the same premium to its 2004 valuation would give a potential price for a full bid of A$24.76 per share.


Using an 80 US cent exchange rate to the Australian dollar it would reduce to A$23.21 a share which compares with today's closing price of A$20.19.


"These projected bid prices could be higher if the bidder believes that the development of the LNG industry raises the value of some of the scope for recovery gas reserves," Citigroup said.


The prospect of CNOOC sitting heavily on its register would have several benefits for Woodside, Citigroup added.


It would make Woodside virtually takeover proof as long as CNOOC held the stake, assuming the state-owned Chinese group would not be allowed to launch a full bid.


Woodside would also have a position of strength in the race to supply LNG to China, and it might be given access to exploration in offshore China.


Meanwhile, UBS has downgraded its target share price for Woodside's joint venture partner Hardman Resources Ltd to A$1.82 from A$2.30 to reflect lower exploration upside in Mauritania.


After starting out with a relatively high exploration success rate at the Chinguetti, Banda, Tiof and Tevet fields off the coast of the West African country, UBS said recent drilling at Merou, Capitaine and Dorade have all failed to deliver.


"We now expect a two to three month exploration hiatus as the Woodside joint venture decides what exploration targets to possibly drill in 2005," it said.


Hardman shares closed down 18 cents Wednesday at A$1.61.



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