Oil Search Rejects Woodside Takeover

Oil Search on Monday rebuffed an $8 billion takeover proposal from Woodside Petroleum, saying the all-share proposal was far too cheap, but left the door open to a higher offer.

Woodside, Australia's biggest energy company, last week sought exclusive talks with the Papua New Guinea-focused oil and gas producer on a one-for-four share offer, conditional on support from key stakeholders, including the PNG government.

Oil Search said it was in a strong financial position and highlighted its low-cost operations in PNG, where its output could double in the early 2020s working with giants ExxonMobil Corp and France's Total on two LNG projects.

"Following a detailed evaluation of the proposal, the board has concluded that the proposal is highly opportunistic and grossly undervalues the company," Oil Search said in a statement to the Australian stock exchange.

It said shareholders had overwhelmingly found the proposal unattractive.

"If any proposals are tabled in the future that reflect compelling value for Oil Search shareholders, we will engage on them," Oil Search Chairman Rick Lee said in a statement to the Australian securities exchange.

"Clearly this proposal falls well short of that test."

Oil Search's shares last traded at A$7.45, which was 4.9 percent above the implied value of the proposed offer, suggesting investors expected Woodside would need to pay more to succeed.

Woodside has issued a statement indicating the company 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.

“Under the proposal, Oil Search shareholders would receive all scrip consideration of 0.25 Woodside shares for every Oil Search share and represent a 31.7 percent shareholding in the combined entity. This compares favorably to Oil Search’s relative contribution to the merged group on a range of measures including production, reserves and free cashflow.

“Woodside believes the proposal would create the regional oil and gas champion for both Papua New Guinea and Australia with a global portfolio of world class assets and development opportunities which would deliver significant benefits to both companies’ shareholders.”