The 16% plunge in global oil prices since early September has forced Woodside Petroleum to shelve its ambitious $11 billion plus paper bid for Oil Search.
Woodside revealed its decision yesterday – it had been anticipated for a couple of weeks as global oil prices continued their steady fall to new near seven year lows on Monday.
Woodside shares dropped 8.4% since the offer was made public three months ago, but Oil Search shares gained 11.7% – that was despite the 16% slide in the US and Brent marker crude prices since early September, when the offer was revealed.
But with the bid off, Oil Search shares plunged 17% in early trading to $6.24, and stayed around that level for most of the day to end at $6.29 (down 16.3%).
Woodside shares closed down nearly 4% at $26.89.
Oil Search shares are now under the $6.73 level they were trading at before the Woodside offer appeared in early September.
Last week’s plunge in oil prices probably drove home the futility of Woodside bidding for Oil Search in the present weak price environment. US crude futures fell sharply Monday to well under $US40 a barrel. Brent crude is on the verge of going under that important price level in the next day or so.
Woodside formally withdrew its merger proposal three months after tossing the $11.7 billion all-scrip offer for Oil Search, whose board rejected the deal several times and made it clear they just were not interested.
Woodside made it clear yesterday it wasn’t looking at any other transactions to combine its business with Oil Search.
Oil Search CEO Peter Botten welcomed the Woodside announcement, saying in a statement “As previously advised, the Oil Search board concluded that the indicative Woodside proposal grossly undervalued the Company".
“Oil Search remains focused on delivering value for its shareholders, by continuing to produce from its low cost assets and progressing the development of its world class growth projects,” he said.
Oil Search owns 30% of the $US19 billion PNG LNG project. But Oil Search in turn is owned 10% by the PNG Government, which also owns just over 16% of the LNG project, meaning that without its approval, Woodside’s bid was doomed.
The project started production in April 2014 and has been building output, boosting Oil Search’s revenue and profits, although those will now start coming under pressure from the first half of 2016 onwards as the impact of the slide in global oil and gas prices hits home.
Investors now wonder what Woodside will do – sit and wait for Oil search, or make a move elsewhere?
