Shell to sell most of stake in Australia's Woodside for $5.7 billion

Royal Dutch Shell launched a long-anticipated sale of most of its stake in Australia's Woodside Petroleum Ltd on Tuesday, looking to reap about $5.7 billion as it moves to focus on developing its own gas assets in Australia.

The selldown, which reduces Shell's holding to 4.5 percent from 23.1 percent, removes uncertainty that has weighed on Woodside's share price since Shell sold a third of its stake in 2010 and flagged it was not a long term holder.

As part of the deal, Woodside will buy back and cancel half the shares that Shell is selling, which Australia's top petroleum producer said would effectively boost its earnings per share by 6 percent.

"It's probably good. It removes the overhang and gets rid of a lazy balance sheet and they can get on with life," said Pengana Capital portfolio manager Tim Schroeders.

The reduction in Shell's stake marks a milestone in a long retreat from a company that it had tried to take over in 2001. That deal was ultimately blocked by the Australian government after Woodside argued that Shell may focus on offshore developments at the expense of Australian projects.

The sale, which came the week Woodside's stock hit a three-year high, had been expected this year after Shell Chief Executive Ben van Beurden took the helm in January outlining plans to sell $15 billion worth of assets. Shell said it would focus efforts in Australia on its 25 percent stake in the massive Gorgon liquefied natural gas project and its Prelude floating LNG project, and had options for further LNG growth in Australia, Indonesia and North America. "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," van Beurden said in a statement.

WOODSIDE CONCERNS

Under the deal, Woodside will spend A$2.86 billion to buy back 78.3 million of its shares from Shell for A$36.49 a share, which it was able to fund easily after pulling out of a planned investment in Israel's Leviathan gas project. Shell will also sell a further 78.3 million shares to institutional investors for A$3.24 billion, or A$41.35 a share, a 3.5 percent discount to Woodside's last traded share price.

Woodside's shares were on a trading halt on Tuesday, pending the completion of the share sale to institutions.

Goldman Sachs and Citi won the highly coveted role of running the sale. Woodside was advised by Gresham Partners.

While welcoming the Shell's selldown, investors remained concerned about Woodside's lack of near term growth options, as the company is about a year away from signing off on any new LNG projects, and potential acquisitions are seen as too expensive. 

"On balance it's a pretty good deal, but it doesn't create value or change the value of the company longer term," said an analyst, who declined to be named as he is not authorised to speak to the media. Woodside CEO Peter Coleman said the company was continuing to look for ways to expand its exploration work while also evaluating potential acquisitions, and would have a strong enough balance sheet to pursue growth even after the buyback. "This doesn't in any way affect our capacity to pursue any of those or complete a transaction if one was attractive," he told analysts and reporters on a conference call.

($1 = 1.0639 Australian Dollars)