SYDNEY: The outlook for mergers and acquisitions in Australia’s oil and gas sector has clouded with liquefied natural gas producer Oil Search spurning a buyout offer valued at offered 11.6 billion Australian dollars ($8.18 billion) from Woodside Petroleum.
Yet dealmakers are not yet giving up on jumpstarting activity. Woodside, an Australian oil and gas producer, has indicated it will continue to pursue its bid, while other prospective buyers are circling the assets of rival Santos.
“M&A [activity] in oil and gas in Australia is generally subdued at present, and this is totally related to volatility in the oil price,” said Alex Cartel, a managing director and head of Australian energy investment banking at Deutsche Bank.
Subdued oil prices underlie Oil Search’s refusal: The company is reluctant to accept an offer while its shares are depressed. But Woodside is similarly loath to risk paying a big premium for a franchise whose intrinsic value could continue to deteriorate. Further darkening the outlook is slowing economic growth in China, a key export market for Australian producers.
If the Oil Search deal, which would be worth $11.27 billion including assumed debt, is completed, it would rank as one of the year’s largest M&A transactions in the Asia-Pacific and likely support further activity that might address overcapacity and profitability issues in the Australian energy sector, which has substantially expanded in recent years.
Woodside’s offer alone accounts for 58% of the $13.89 billion worth of Australian oil and gas transactions announced this year, according to data provided by Dealogic.
