No wonder investors treated with caution yesterday’s announcement from Woodside Petroleum (WPL) that the competition regulator, the ACCC, had given it the go ahead to buy Apache’s WA gas and oil assets.
When announced in December, this seemed an interesting earnings adding deal. Ten weeks on the world oil price remains lower than when the company announced the purchase in mid December, and there are few signs of a rebound back to $US100 a barrel (we saw last June) any time soon.
In fact Goldman Sachs and Exxon Mobil both made it clear yesterday they saw oil prices remaining around the $US60 a barrel level for some time.
They see little chance of oil rebounding strongly and Exxon Mobil reckons that investors and others waiting for US oil production to start peaking and then falling might be waiting for some time.
So far as Woodside investors are concerned, the big imponderable from the deal is the other part of the transaction – whether the purchase of Apache’s stake in a big western Canadian gas/LNG project (to partner with Chevron) is worth being a part of the $US3.75 billion total value of the purchase.
There are signs that Chevron is cooling on the project.
This hesitancy on the part of investors is why the shares only rose 0.4% to $35.20. That’s close to the $35.30 the day of the Apace deal’s announcement last December 16.
The shares actually dropped that day to $34.46, then leapt to $38.70 the following Monday, December 20.
They have since faded, with the oil price and despite a lot of positive talk from the company and analysts about the deal, the market has not responded.
Investors in other words reckon the deal won’t add much value for Woodside for some time.
WPL 1Y – Part of WPL’s Apache deal gets the OK, but, what about Canadian LNG?
And while global oil prices have stopped their plunge of late December/January and seem to have settled in the range of $US50 to $US60 a barrel for US type crude and the Brent crude types from Europe and other markets, they are not going to soar any time soon.
So Woodside is facing weak earnings for all the gains the Apache deal will bring (and the low cost of financing part of the purchase with debt).
ACCC chairman Rod Sims said in approving the deal yesterday that after the purchase, Woodside would still face “strong competition” from other WA gas suppliers, including Apache, Chevron and Santos.
Apache will still be a competitor because it isn’t selling all its gas assets in WA to Woodside and will still supply gas from its Macedon, Varanus Island and Devil Creek projects. Those assets are on the market with talks continuing with an unnamed group said to be advised by Macquarie.
Under the December deal, Woodside is buying Apache’s stake in Chevron’s Wheatstone LNG project under construction in WA, which will also supply users within WA. It will also take over Apache’s holding in the Balnaves oil field in the Carnarvon Basin, and in the proposed Kitimat LNG export project in western Canada.
The ACCC’s Mr Sims yesterday recognised concerns in the WA gas consuming industry that Woodside might have too big a share of the domestic gas market in the state.
"The ACCC will continue to monitor the supply of domestic gas in WA and any future acquisitions in this area will be scrutinised carefully," he said in a statement.
