Woodside tumbles most in 16 months after Shell to sell stake

By Perry Williams on 11/14/2017

SYDNEY (Bloomberg) -- Woodside Petroleum Ltd. fell the most in 16 months after Europe’s biggest oil company, Royal Dutch Shell Plc, said it would offloaded its entire holding in the Australian liquefied natural gas producer for $2.7 billion.

Woodside shares fell 3.2%, the biggest drop since June 2016, to close at A$31.20 in Sydney. Shell said it would sell an 8.5% stake in Woodside at A$31.10 a share, a 3.5% discount to Woodside’s closing price on Monday. The Anglo-Dutch company then expanded that sale overnight to exit its remaining 4.8% holding.

Woodside shareholder Allan Gray Australia, which has A$5 billion of funds under management, said it boosted its stake on Monday in the Perth-based company and continues to see strong opportunities in the under-valued energy sector.

“The energy sector is one of the very few asset classes that remains very depressed relative to history,” said Simon Mawhinney, chief investment officer of Allan Gray. “In an environment where all other sectors have experienced significant price inflation, it’s this sector where we see the best relative value.”

The sale price represents a 20% premium to its A$26 a share discounted cash flow valuation for Woodside, RBC Capital Markets said in a research note. “We therefore consider the sale price to be a strong result for Shell,” RBC analyst Ben Wilson said.

'Economic interest'

Others including Credit Suisse questioned the value of the block trade. The share sale at A$31.10 assumes oil at $70/bbl, according to an email from Credit Suisse Group AG analyst Mark Samter, who said buyers of Woodside shares from previous stake sales by Shell hadn’t been “enormously well rewarded.”

Shell became a shareholder in Woodside following a joint investment in the North West Shelf consortium in the early 1960s. In 2000, it sought to take over the entire company, a move that was blocked by the Australian government the next year. At the time, Woodside ran Australia’s only LNG plant, the North-West Shelf, and the government was concerned Shell would slow Woodside’s expansion by prioritizing other investments in Asia.

With the overhang of Shell as its largest shareholder now removed, Woodside may be in a stronger position to boost its stake in the Browse gas venture it operates where Shell is also an owner, according to Allan Gray’s Mawhinney.

“You should expect Woodside’s economic interest in the venture to increase and others to decrease,” he said. The West Australian producer hopes to use gas from Browse as one of several potential supply options to extend the life of the North-West Shelf project, which is expected to have s

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