OIL SEARCH has rejected a takeover proposal made by Australian energy giant Woodside, saying it was “highly opportunistic and grossly undervalues the company.”
Under the proposed offer, Oil Search shareholders were to receive one Woodside share for every four they held, implying an acquisition price of A$7.65 per share, well above the A$6.73 at which Oil Search closed before the offer was announced.
Company chairman Rick Lee said in a teleconference with investment banks that after consulting with its shareholders, Oil Search announced its view that the proposal had little merit.
“Let me be clear that we will certainly engage with any party if they present a proposal that reflects compelling value for Oil Search shareholders, but as I have already stated, it was clear that the proposal from Woodside fell well short of that test,” he said.
“Woodside’s proposal would significantly alter the fundamental characteristic of an investment in Oil Search, diluting the present growth profile available to our shareholders, as well as our pure exposure to PNG.”
“When you look at the synergies that were implied in the proposal beyond head office costs, which are really in the context of the kind of assets and cash flows and values that we’re talking about are really not significant, other than that there were very little benefits,” he said.
“I think from our point of view and from our assessment of our shareholders’ perspectives and confirmed by our consultation with shareholders, the net result for Oil Search shareholders of the Woodside proposal would be a dilution of those shareholders’ interests in our growth projects which we saw as not being in their interests at all.”
Oil Search pointed out the strength of its asset base and the low cost LNG development opportunities that were open to it.
These include a potential third train at the PNG LNG project, a decision which is due by the end of 2017, and planned future development of the Total-operated Papua LNG project, capitalising on the Elk-Antelope field and other assets.
In its announcement, Woodside said it believed the proposal would have created a “regional oil and gas champion for both Papua New Guinea and Australia” that would have benefited the shareholders of both companies.
“Woodside is surprised and disappointed that the Board of Oil Search has rejected the proposal without meeting with Woodside to understand the benefits of the opportunity or to negotiate the terms of a possible merger,” it said.
The news came after Oil Search announced a net profit of US$227.5 million after tax for the first half of the 2015 calendar year, 49% higher than the previous year and the highest half-year profit in the company’s history, despite materially weaker oil and gas prices.
Oil Search said its revenue rose 69% over the period to US$863.8 million, driven by a more than three-fold increase in sales volume from 4.7 million barrels of oil equivalent to 14.5 million barrels, reflecting a full period of production from the PNG LNG project.
Speaking to journalists after the announcement, Oil Search managing director Peter Botten said that with the strong performance of PNG LNG and the company’s mature oilfields, the group was in a strong position to deal with the current low oil and gas prices.
“There will be some pain for Oil Search – we are going to reduce our cost base, but also we are going to be reinvesting in the future through the redevelopment of our staff in PNG and continued social development, which we think is essential for operating stability in that country,” he said.
“We think there is a lot more running room in PNG and we are going to take advantage of the downturn in costbase, the downturn in some of the core operating and capital costs that we are seeing running through into our operations to actually carry out some judicious high value exploration.”
In a presentation to investment analysts following the half year results announcement, Oil Search executive general manager of exploration and new ventures Keiran Wulff said the company had recalibrated its position in PNG over the last eight months.
Oil Search’s exploration program for the next 18 months would see the company target about 7 trillion cubic feet of prospective unrisked resources.
“There would be a balance between three areas, exploration immediately and along trend from existing discoveries at – and LNG developments at Hides and Antelope,” he said.
Oil Search was looking at drilling two wells at the P’nyang project and potentially two exploration wells with Repsol at PPL 269, a Repsol-operated field in which it holds a 10% stake.
The company was also aiming to mobilise equipment in the next few months to the Muruk prospect on PPL 402, on trend from Duha and just west of Hides, ahead of drilling early next year. Muruk is an Oil Search operated project in whichExxonMobil holds a 50% stake.
Oil Search would also drill a well at Barikewa, in PRL 9, during the first quarter – in addition to wells at Kimu, in PRL 8, and Uramu in PRL 10 later on in 2016 – giving all three of those areas firm reserves by the end of that year, Mr Wulff said.
Mr Botten told journalists the company was looking at introducing a slimhole drilling technology to the nation which he said could reduce drilling costs in the nation.
“Obviously, with the number of wells, we are looking at optimising our supply chain network to support those wells to materially bring down the cost of drilling in our operation,” he said.
“So there is a lot of innovation work, a lot of optimisation work going on in the drilling program.”