Royal Dutch Shell sells Woodside shares, about 19% of the Australia’s largest oil and gas company, for an expected $5 billion on an after-tax basis. When the sale is complete, Shell’s stake in Woodside will go down from 23.1% to 4.5%.
A number of fund managers had been selected and asked to submit bids on Monday ahead of the selldown on Tuesday.
Shell, which is ranked among the oil & gas supermajors, had flagged in 2013 that it would eventually sell its Woodside shares because it was no longer part of the company’s strategy.
Woodside had been urging Shell to take action on the stake, commenting that investors disliked the prolonged uncertainty.
According to Woodside, the move involves:
- an underwritten institutional sell-down by Shell of 78.3 million shares (9.5% of Woodside’s issued capital), which is expected to be completed by June 18th, and
- a selective buy-back by Woodside of 78.3 million shares, or 9.5% of Woodside’s issued capital ($2,680 million). This is subject to approval by Woodside shareholders (75% in favor needed) and an Independent Expert opinion.
Removes uncertainty for Woodside investors
The combined transaction has material benefits for Woodside shareholders, its board said. It removes uncertainty regarding Shell’s shareholding, optimizes capital structure, and improves dividends per share, cash flow per share and earning per share.
Regarding the sale, Shell’s Chief Executive Officer Ben van Beurden, said:
“Today’s announcement is part of our drive to improve Shell’s capital efficiency and to focus our Australia growth in directly owned assets. It doesn’t change our view of Australia as an important player on the global energy stage, or Shell’s central role in the country’s energy industry.”
Shell says it plans to concentrate its Australian efforts on its 25% stake in the huge Gorgon liquefied natural gas (LNG) and its Prelude floating LNG project. It added that there are further LNG growth options in North America, Indonesia and Australia.
Shell’s profits down
Shell’s Q1 2014 profits had declined by 44% compared to Q1 2013, after the value of refineries in Europe and Asia had been written down. Its earnings for 2013 dropped 38% (compared to 2012) to $16.8 billion, while capital spending at $46 billion was 15% over initial forecasts.
It is not the only oil & gas company to post disappointing Q1 profits. Those of Exxon Mobil and Chevron were also down.
Mr. van Beurden, who became CEO at the beginning of this year, had said he planned to make the world’s third biggest oil and gas company leaner, with a focus on accelerating asset disposals and building up cash, after years of high spending.
The Anglo-Dutch oil & gas giant plans to dispose of approximately $15 billion’s worth of assets by the end of 2015. It has already managed to sell $2.6 billion after selling an Australian refinery and a chain of filling stations.
Shell’s shift in focus has involved the sale of refineries in Europe and minority stakes in Brazilian and Australian natural gas projects. It has also cancelled major projects in Alaska and Louisiana, and moved to get rid of unprofitable shale properties in the US.
In November 2010, Shell had sold one third of its stake in Woodside for $3.3 billion.
Shell had tried to acquire Woodside
In 2001, Shell had attempted to acquire Woodside, but was blocked by the Australian government after Woodside argued that Shell would likely prioritize offshore developments while scaling down its Australian projects.
Woodside investors are concerned about the company’s prospects over the next few years. In May, it abandoned a planned investment of $2.5 billion in the Leviathan natural gas find in offshore Israel. Add this to the two-year delay in the Western Australian Browse gas-export project, and there are few opportunities to raise production over the medium-term.
With few existing growth options, analysts believe Woodside will turn to M&A (mergers and acquisitions).
However, since the Pluto LNG project in Western Australia started shipping to customers, Woodside has become cash-rich.
Woodside’s share trading was halted today. At close of business yesterday, its shares traded at a 3-year high of A$42.85 (US$40.09) per share. It has a stock market value of approximately A$35.3 billion (US$33.3 billion).
Standard & Poor’s maintained its BBB+ credit rating for Woodside, but downgraded its outlook after news of the deal from “positive” to “stable”. The rating agency said it revised the outlook because it believes Woodside’s credit metrics will not stay at current levels after the buyback, which is partly funded by debt.
