11:42 pmApr 22, 2013 Asia Woodside’s Surge May Tempt Shell to...

11:42 pm
Apr 22, 2013
Asia

Woodside’s Surge May Tempt Shell to Exit

By David Winning
Woodside Petroleum Ltd. WPL.AU +9.71%’s promise of a special dividend has set investors’ pulses racing–nowhere more so than at Royal Dutch Shell PLC' RDSB.LN +0.12%s headquarters in The Hague.

Shell has been looking for an opportunity to sell its 23.1% interest in Woodside for around two years, but has been frustrated by the stock trading consistently below 40 Australian dollars a share.

Now, Woodside’s cash return to shareholders provides Shell with the chance to get out, analysts say.

Peter Voser, CEO of Royal Dutch Shell, pictured at the NYSE —European Pressphoto Agency
Shares in Woodside—Australia’s largest oil producer by output after BHP Billiton Ltd. BHP.AU -1.13%—jumped 8% on news of the special dividend worth US$0.63 a share and an increase its dividend payout ratio. At A$37.40, Woodside’s stock is trading at its highest level since late February.

“With the Woodside share price now supported by a fully franked dividend that is worth more to local investors than to Shell, there is perhaps the heightened possibility of Shell looking to sell into any significant share price strength on the back of this announcement,” Macquarie said.

Shell likely would have opposed other ways to boost returns for shareholders, such as buying back stock, Macquarie added.

Goldman Sachs also GS +0.58% thinks the share price strength gives Shell an opportunity to sell its stake in Woodside, which is worth around A$7.1 billion at current prices.

In 2010, Shell raised US$3.3 billion by selling a 10% interest in Woodside at A$42.23 a share. At the time, Shell said it would hold on to the remainder of its Woodside stake for at least a year, adding it wasn’t a natural long-term holder of the company.

Selling now would provide a timely injection of cash for Shell at a time when it’s spending billions of dollars on new facilities in Australia to produce liquefied natural gas, or LNG, for export.

The investments include a 25% stake in the Chevron Corp. CVX +0.58%-operated Gorgon LNG project being built onshore Barrow Island in Western Australia, and the Prelude facility that aims to turn raw gas into LNG at sea. Gorgon is due to cost A$52 billion to build, while Prelude is estimated to cost more than A$10 billion.

Shell is also a minority shareholder in the Browse LNG project, which has been delayed by at least two years after Woodside and partners decided an onshore facility at James Price Point in Western Australia wasn’t commercially viable. Shell wants it to use the same floating LNG technology as Prelude.

A spokesman for Shell on Tuesday declined to comment on the company’s Woodside stake.

http://blogs.wsj.com/moneybeat/2013/04/22/woodsides-surge-may-tempt-shell-to-exit/