By Ross Kelly
SYDNEY-- Royal Dutch Shell PLC is selling a major stake in
Australia's second-largest oil and gas producer for $5.7 billion,
in the latest move by new chief executive Ben van Beurden to boost
profits after years of heavy spending.
The sale of most of Shell's shares in Woodside Petroleum Ltd. is
the biggest deal orchestrated by Mr. van Beurden since he took the
reins in January. The Anglo-Dutch company aims to sell about $15
billion in assets globally by the end of next year, and has already
raised $2.6 billion from the sale of an Australian refinery and
network of filling stations.
Woodside was once the centerpiece of a strategy that would have
given Shell an advantage over rivals scrambling to meet Asian
demand for clean-burning fuels. In 2001, Shell launched a full
takeover of the Perth-based company, but its ambitions were
thwarted by Australian lawmakers who vetoed a deal on national
interest grounds.
In more than a decade since then, Shell has spent billions of
dollars on new Australian projects that will ship cargoes of
natural gas to Asian customers with plans for several more. These
include the 52 billion Australian dollar (US$49 billion) Gorgon
project and its majority owned Prelude project, which aims to be
the world's first using technology that can process natural gas for
export at sea.
On Tuesday, Shell said it would sell a 9.5% stake to
institutional investors at a small discount to Woodside's closing
share price on Monday. Shell has also agreed to sell a further 9.5%
interest back to Woodside.
"Today's announcement is part of our drive to improve Shell's
capital efficiency and to focus our Australia growth in directly
owned assets," Mr. van Beurden said in a statement.
Shell is overhauling its strategy after cost blowouts at larger
projects and low natural-gas prices in the U.S. forced it to issue
its first profit warning in a decade. Shell's 2013 earnings fell
38% from a year earlier to $16.8 billion, while its capital
spending was 15% over initial projections, at $46 billion.
This strategic shift has involved the sale of refining assets in
Europe and minority stakes in Australian and Brazilian natural-gas
projects. Shell has also halted major projects in Louisiana and
Alaska and moved to sell unprofitable U.S. shale properties.
Shell said it would bank $5 billion from the sale of the
Woodside shares after tax. It will continue to hold up to 4.5% of
the company's stock once the deals are completed, and has agreed
not to sell this remaining interest for a further 90 days.
For Woodside, uncertainty over Shell's intentions had long
weighed on its stock and worried senior management. Shell sold a
10% stake in Woodside in late 2010, raising questions about how
quickly it would look to dispose of the remaining batch of
shares.
"Shell's stock overhang was always there and from that
perspective it's a positive," said Paul Xiradis, director of
Sydney-based fund manager Ausbil Dexia. "There's still some issues
around Woodside's long-term growth and that hasn't been addressed,
but in the short-term this deal is earnings per share
enhancing."
Woodside has lots of spare cash after its Pluto liquefied
natural gas project in Western Australia state began shipping to
customers in 2012. But last month's decision to abandon a planned
$2.5 billion investment in the Leviathan natural gas discovery
offshore Israel, coupled with a two-year delay in the Browse
gas-export project in Western Australia, have left it with few
opportunities to increase production over the next few years.
"Shell's exit at an inferior price compared to its previous
sell-down price paints a grim picture for Woodside's future growth
prospects," analysts at Australian broker Macquarie said.
Write to Ross Kelly at ross.kelly@wsj.com
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