The board of Oil Search Ltd. has unanimously rejected Woodside Petroleum Ltd.’s takeover bid for the company, calling Woodside’s move highly opportunistic and one that grossly undervalues Oil Search (OGJ Online, Sept. 8, 2015).
Oil Search Chairman Rick Lee added that the bid had little merit and offered no compelling value. “Perhaps we see the world a little differently that Woodside does,” he said.
Lee went on to say that the board had listened to its shareholders, which includes the Papua New Guinea government. The overwhelming view was that the Woodside proposal was not only on the cheap side, but it also changed Oil Search’s value proposition too much.
Lee said that Oil Search is a pure Papua New Guinea oil and gas play with clear growth opportunities. The proposal would alter the fundamental characteristic of an investment in the company and dilute the present growth profile available to its shareholders, he said.
“The board of Oil Search believes our company is in a very strong position, both operationally and financially. We have a low-cost, high-quality production base, which is generating strong cash flows and excellent growth opportunities with the proposed PNG-LNG Train 3 and Papua LNG (Elk-Antelope) projects among the most competitive new developments in the world,” Lee said.
“Oil Search provides its shareholders with a pure exposure to [Papua New Guinea] and is fully committed to [Papua New Guinea],” Lee said.
Lee did, however, leave the door ajar by pointing out that if any proposals are tabled in the future that reflect compelling value for Oil Search shareholders, the board will engage on them. “Clearly, this [the Woodside] proposal falls well short of that test,” he said.
For its part Woodside expressed disappointment that Oil Search had rejected the proposal without at least meeting with it to understand the benefits of the opportunity or to negotiate the terms of a possible merger.
Interestingly Woodside is no stranger to Oil Search. During the mid-1990s Woodside joined Oil Search and Ampolex (the latter now part of ExxonMobil Corp.) in a regional geological study of the Papuan basin. Then, in May 1999 Oil Search made a placement of 56.4 million shares (at that time representing 13% of Oil Search capital) to Woodside for that company to take up what was regarded as a friendly, non-threatening stake in Oil Search.
At that stage the proposed Papua New Guinea-Queensland gas pipeline project (in which Oil Search was one of the main proponents) was very much in vogue and Woodside was keen to gain an entry into Australia’s East Coast gas market, having already secured a major place in the West Coast gas development. Woodside’s then-Managing Director John Akehurst joined Oil Search’s board.
As the pipeline project began to fall away, however, Woodside’s interest also faded and the company sold its Oil Search shares in 2002 for a loss on the whole deal. Akehurst resigned from the Oil Search board shortly afterwards.
Last week’s bid from Woodside was anything but friendly. Nevertheless, following the bid rejection, there was no indication if Woodside will return with a higher offer. Woodside would only say that it will continue to maintain a disciplined approach in relation to business development opportunities.
Meanwhile, the rumor mill has been working overtime with some seeing Oil Search’s Papua New Guinea-LNG partner ExxonMobil possibly playing the role of white knight in any further moves on Oil Search. French major Total SA also is seen as another possible suitor for Oil Search because it operates the Papua New Guinea-LNG project in which Oil Search is a joint-venture partner.