HDR hardman resources limited

AFR Article Today - WPL Takeover

  1. 145 Posts.

    WPL bid for HDR a "no brainer" ...

    Woodside's worrying ambition
    Sep 30
    Brett Clegg

    John Akehurst has not had a good week. The popular Woodside Petroleum managing director once again faces his relationship with major shareholder and past antagonist Royal Dutch/Shell being put back under the media microscope.

    On Friday, Woodside stock tumbled through $12 to its lowest level for two years.

    This was despite the beating of US war drums towards Iraq, which sent oil prices to more than $US30 a barrel, a fact that should benefit its share price.

    Akehurst's ambitions to grow outside Australia, specifically through acquiring Denver-based Westport Resources Corporation - a tightly held listed E&P player with exposure to the Gulf of Mexico - has created ripples of uncertainty in the marketplace.

    This is not just because there is a legitimate fear that his company will have to raise new funds to finance a purchase.

    Woodside's credentials outside of its home of the North-West Shelf remain the subject of dispute. Certainly the Shell camp does not seem to have complete faith in the Woodside team and frets it will overpay.

    And its view matters.

    With 34 per cent of Woodside, Shell can block any acquisition.

    Even if it did not, without its imprimatur, it remains doubtful that investors would stump up the cash to support Westport, or any other such foreign asset portfolio that Akehurst can get his eager hands on.

    Already he has publicly lost one competitive asset sale process this year, when Petro Canada beat Woodside to the $US2 billion ($3.68 billion) spoils of BP's Veba Oil and Gas.

    The threat that Shell - having been blocked on two occasions from taking control of equity and operation of Australia's largest natural resource project - may just walk away from the Woodside register adds a greater level of intrigue.

    With its shares having slumped $1.24, or 9.2 per cent, in the past fortnight, Woodside is saying privately that any chance of Westport occurring in the near future is on ice. Reports in The Australian Financial Review of the negotiations have blown a hole in the economics of any acquisition.

    Although Westport is a listed company, only 17.4 million of its 52 million issued shares are freely traded. This is because three founding private companies control close to two-thirds of its equity base.

    This week, however, a deal involving Woodside should happen. But it will be on a far smaller scale than Westport.

    Woodside's equity partner in the Mauritania Salt Basin province off the north-west coast of Africa, Hardman Resources, plans to issue up to $30 million in fresh equity through merchant bank Macquarie Equities.

    Woodside already owns 9.92 per cent of Hardman.

    The raising is its junior partner's way of provoking a full takeover offer rather than allowing Woodside to hold off for another couple of months to receive more comprehensive drilling results.

    The jury is out on Mauritania, an undoubtedly extremely exciting oil province. Analysts such as Salomon Smith Barney's Gordon Ramsay are believers and value the "risked potential" of Mauritania at $1.25 a Woodside share. If Ramsay is right, then acquiring Hardman is a no-brainer because it would take Woodside, which already is operator, to more than 50 per cent ownership and full equity control of all three Mauritania permits.

    It is such a diversification away from the North-West Shelf that Akehurst longs for, thereby cutting his Shell apron strings.

    Akehurst's assertion that his stock was worth $17 a share in the heat of the 2001 takeover defence against Shell now seems, if not a gallant ploy, simply wishful thinking. But that is not to say there is no corporate interest in Woodside outside of Shell.

    Nothing could be further from the truth.

    BHP Billiton and its Petroleum division, headed by the able and ambitious Phil Aitken, would tomorrow write the $3.2 billion cheque (using last year's $14.20 takeover offer price as a reference point for valuation) to buy the Dutch stake if they relented to its advances.

    There is much more to a merger of BHP Petroleum and Woodside than emotional patriotism.

    In fact, it is difficult to find a transaction with more economic logic, combining a one-third stake in the North-West Shelf with exposure to the mature Bass Strait and the exciting Gulf of Mexico and West African provinces.

    In what stands as the most comprehensive analysis on a BHPP-Woodside merger, Salomon's Ramsay last June issued a report - "Fire Behind the Smoke?" - in which he concluded that a merger would generate $US100 million in cost synergies worth $1.50 a Woodside share, as well as spark a market rerating.

    It is understood that past merger discussions between the parties, with Shell in attendance, had centred on BHP Billiton injecting its petroleum division into Woodside in return for shares.

    Shell would be diluted to less than 20 per cent or inject other regional assets, specifically the Gorgon field, into the new Woodside to retain its percentage holding.

    BHP Billiton would then distribute its Woodside shares in specie to its own shareholders, as it similarly did with BHP Steel, to ensure adequate liquidity and index weightings.

    That scenario is no longer likely.

    Rather than reduce its exposure to petroleum, BHP Billiton is said to be examining assets such as the $1.8 billion Prussag Energie and the listed $US4.8 billion Kerr McGee to build its energy profile.

    The diversified Anglo-Australian mining giant has discovered energy assets are a helpful differentiator from arch rival Rio Tinto. Oil and gas exposure adds to its base-metal and bulk-commodity portfolio to diversify its earnings stream though the ups and downs of economic cycles.

    But would Shell ever let the Woodside-BHPP dream become a reality? It is not a company known for its corporate generosity, but with any third Woodside takeover attempt destined to fail, the Dutch must ask themselves whether the allure of $3.2 billion in cold cash is, at the least, tempting.


    At this point given all the manipulations with the HDR price - I would probably take $1.25. But maybe a bidding war might commence!

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