Near perfect trading conditions for M&A activity could see the Australian share market (ASX) shed even more of its fast-vanishing blue-chip stocks to would-be offshore acquirers.
With the consolidation narrative playing out strongly within the oil and gas industry, global heavyweights may conclude that the stars currently present mouthwatering takeover conditions for Australia’s 15th largest stock Woodside (ASX: WDS).
Share price aside ($19.47), currently trading at around half where it was in September 2023, recent offshore acquisitions by Woodside – partly triggered by its impatience with Australia’s deathly slow regulatory environment – should make Woodside even more attractive to global suitors.
The quest for all-important global scale underpinned a 2023 merger between Woodside and Santos which fell over due to differing shareholder views around value.
While a former bid by Shell for Woodside over two decades was rejected by then Treasurer, Peter Costello, today’s political climate may have a differing perspective.
Fast forward 20-odd years and it’s evident that Woodside is no longer enjoying lofty status as Australia's ‘oil and gas champion’. If the regulatory delays confronting the LNG sector are any proxy for the Federal Government’s ambivalence towards the sector, a future takeover may be more likely to succeed now than ever before.
Quest for global scale
Having gobbled up all the smaller fish closer to home, U.S.-based oil majors are now having to move further up the food chain to find potential stocks to acquire.
France-based TotalEnergies (TTE) and Texas-based Chevron (NYSE: CVX) are among global suitors with deep enough pockets to potentially pick up Woodside.
Woodside and Chevron are by no means strangers to each other, with both companies reengineering a multibillion-dollar reshuffle of their oil and gas interests in WA last year.
The asset swap saw Woodside buy Chevron’s longstanding one-sixth interest in the North West Shelf venture, while Chevron acquired Woodside’s stake in its US$34 billion Wheatstone LNG project and a related gas production project.
Chevron also paid Woodside up to US$400 million in cash.
As well as better aligning the North West Shelf venture's ownership with that of the Browse gas field that may supply its LNG plant, the deals should also make it easier for the venture to bring in third-party gas for processing.
“This is a big moment for Australia’s LNG sector as the wave of M&A finally gets underway to enable alignment at joint ventures so that the next phase of backfill developments can progress,” said MST Marquee energy analyst Saul Kavonic.
“This kind of M&A, in addition to an enabling policy environment for approvals, is key to Australia being able to maintain a leading position as LNG exporter longer term.”
Consistent policy
However, the very reason Woodside is struggling to justify investing more in Australia, could the same reason that keeps potential acquirers from putting a bid on the table for either the company or smaller players in this space.
Due to major hurdles in securing environmental approvals and significant cost challenges, it’s hardly surprising that Chevron has fallen in behind Shell in walking away from the proposed $30 billion-plus Browse venture.
Equally unappealing to potential acquirers is the need to include carbon capture and storage to reduce emissions.
Based on Woodside’s current market cap of $38 billion, a targeted takeover would be big by ASX standards.
Early in 2023, Newmont Corporation paid $24 million for Newcrest Corporation (NYSE: NEM), and since then takeovers of a similar magnitude have been thin on the ground.
Recent deals
Last month we saw Nasdaq-listed CoStar Group make $2.7 billion for real estate classified stock, Domain (ASX: DHG). But even this deal pales compared to major global deals in the oil and gas space.
Recent major deals include ExxonMobil’s US$60 billion acquisition of Pioneer Natural Resources, Chevron’s acquisition of Hess for US5.3 billion, and Diamondback Energy’s US$26 billion acquisition of Endeavour Energy Resources.
What could make Woodside an even more compelling takeover target is the recent selldown of sell a 40% stake in its Louisiana LNG export terminal in the U.S. which further de-risks the stock’s balance sheet.
Louisiana LNG
Louisiana LNG is one of two major acquisitions on the U.S. Gulf coast made by the Perth-based oil and gas producer last year.
“We will continue advancing discussions with additional potential partners targeting an equity sell-down of around 50% in the integrated project,” said Woodside CEO Meg O’Neill.
The proposed first stage of the Louisiana LNG project is expected to cost between US$14.85 billion and US$15.84 billion, based on the 16.5 million tonnes per year capacity provided by Woodside last Monday.
While costs per tonne of installed capacity remains at between $US900 and $US960 per tonne, this will fall if other sell-down transactions are also agreed upon.
Woodside's value, like many of its peers outside of the US, has been languishing in recent years. While the quest for scale, through the merging of BHP’s oil and gas portfolio with Woodside’s mid-2022 was supposed to attract institutional investors, the share price has continued to languish.
Institutional investors aside, Woodside has received a shoulder from local investors for causing greenhouse gas emissions.
Woodside shares appear to be in a long-term bearish trend confirmed by multiple indicators.
Consensus is Moderate Buy.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
