Woodside will offer 1 share of its own stock for every 4 shares of Oil Search stock. Based on trading before the bid, this values Oil Search at about $11.65 billion (Aus.) and is only a moderate premium. Oil Search is valued at $10.2 billion (Aus).
The Woodside proposal is a merger through a scheme of arrangement and is conditional on the granting of a mutually acceptable confidentiality agreement, an agreed period of exclusivity plus secure support from Oil Search’s main stakeholders. Specifically, Woodside wants to be satisfied that the transaction is likely to be supported by the Papua New Guinea government, which has a 10% shareholding in Oil Search.
Oil Search has given a cautious reply, saying that it would review the proposal without giving any guarantee that a binding agreement can be reached.
Oil Search said it did not need Woodside given its high equity position (29%) in the world-class Papua New Guinea LNG project, operated by ExxonMobil Corp., plus attractive low-cost ongoing LNG development opportunities, reserves upside, and extensive high-quality exploration acreage.
Peter Botten, Oil Search managing director, said Oil Search shareholders are entitled to an offer that adequately reflects this value potential.
The implication is that the Woodside bid is too low and does not reflect Oil Search’s true value.
Oil Search recently posted the highest half-year profit in its 86-year history with production up 50%. The company’s net profit after tax for the first 6 months of 2015 was $227.5 million (US) with revenue up 69% to $863.8 million driven by a marked increase in oil, condensate and LNG sales to 14.5 million boe from 4.7 million boe. The company’s share price has been robust.
In contrast, Woodside’s share price is close to a 52-week low and has been eroded recently by low LNG prices and its 19.9% gearing.