On November 17 last year, Woodside formally marched away from its bid to acquire the US oil and gas producer, Energy Partners Limited (EPL).
In hindsight that decision can now be seen as more than a wise move. It can also be seen as the point at which Woodside started to change shape.
EPL was much more than an over-priced bid for an under-performing business. It was a deal which exposed Woodside as a novice when it comes to working outside its comfort zone of Australia’s gas-rich northern waters.
In the wake of the collapsed EPL offer has come Woodside’s withdrawal from Mauritania, Kenya, and Libya. Not to mention a wholesale management shuffle with embarrassing leaks of internal emails.
Cutting through all the petty bitterness that has been quietly fuming inside Australia’s biggest semi-independent oil and gas producer (when Shell’s got 34% of you, you’re hardly a true independent), it is worth reflecting on what happened during the EPL bid – and to see that as the turning point.
As a reminder, this is what happened with the failed EPL deal.
The New Orleans-based EPL was always a modest member of a big industry. Most of its best assets were in the shallow coastal waters of the Gulf of Mexico, or up one of the many bayous.
EPL management was well aware of the company’s shortcomings, which is why a merger with a small rival, Stone Energy, had been organised. And then along came Woodside, a big company by Australian standards, but a minnow in the US oil patch.
Woodside crashed the EPL/Stone party, for reasons of which no one can now be quite sure.
Having lifted its bid to $US23 a share, and facing a staunch management defence, Woodside eventually walked away – leaving everyone worse off and casual observers such as Slugcatcher wondering whether the mergers and acquisition team at Woodside actually knew what they were doing.
Events at Woodside post the EPL fiasco indicate that they didn’t, just as events in Mauritania, Kenya and Libya suggest the same.
At EPL, the Woodside intervention has proved to be a disaster of unimaginable proportions. After Woodside walked away the New Orleans company was forced to launch a share buy-back, at $US23 a share, to placate angry hedge-fund investors that had bought into the deal.
Explorations assets were also sold, income dropped, losses were posted, Stone Energy was paid $US51 million in break-fees for ending their merger deal, and to cap it off the company is now facing a government inquiry into possible environmental breaches near the mouth of the Mississippi River.
On the New York Stock Exchange, where EPL is listed, the stock has crashed from a 12-month high of $US25.56 during the Woodside raid to recent sales at around $US13.30 – not far off half the peak price.
Why did Woodside bid for EPL?
What did it see that no one else could see – or was there ever actually anything to see?
Today, none of those questions really matter. We’ve all moved on. The oil price is up. Woodside has a swag of project opportunities ahead of it, and all are close to home and in an area in which Woodside excels.
But, for a corporate spectator it is interesting to look back at the deal which changed a company, because it failed – and because it confirmed to senior management, and presumably the directors, that Woodside was trying to run before it could walk.
