Speculation about Shell exiting Woodside is nothing new. Slugcatcher reckons he has seen about a dozen versions of the same story in the three years since the Australian Government told Shell it was not an acceptable owner of the country’s biggest pure oil and gas company.
So, if the background noise has been playing so loudly, for so long, what’s different this time?
For starters, there was a fresh and very open burst of the gossip late last week, not from within Australia, but from Singapore, the regional oil capital and a place very well plugged into China Inc.
According to a survey of banks and brokers by the Reuters news service four experts nominated CNOOC, the China National Oil Company, as the logical buyer of Shell’s 34% stake in Woodside.
The argument, which is really just a more hyped-up version of what’s been around for some time, is that Shell has been told it can never have all of Woodside, so it might as well sell.
Overlaying that core argument is the new-found interest by China Inc for direct ownership of its key raw materials. This is best illustrated by the efforts of China Minmetals to acquire Noranda, a big Canadian copper and zinc miner.
But, what caught Slugcatcher’s eye in the latest bout of rumour mongering was the way in which someone has crunched a few interesting numbers when it comes to Shell.
For instance did anyone out there in Slugcatcher’s backyard know that Shell’s share of Woodside’s forecast 57 million barrels of oil equivalent to be produced this year is around 19 million barrels – a very lowly 1.4% of overall Shell production.
Or that the value of the 34% stake in Woodside is equivalent to 1.8% of Shell’s market capitalisation.
In other words, if Shell gives its Woodside stake the flick it is of virtually no consequence to production numbers or market cap.
A sale, however, is likely to generate somewhere between $US3 billion and $US4 billion for Shell, which is roughly one-third of the target set by Shell in its current asset sales program, which is all about re-organising the company after its embarrassing overbooking of reserves.
Capping off the logic, and introducing CNOC as the logical buyer, is Shell’s desire to curry favour with Beijing.
By flicking to CNOOC a tasty morsel, which will give it a chunk of long-term LNG supplies, Shell may be able to lever itself to a better position for mega gas sales in future deals with its new friends in China.
In other words, a sale to CNOOC achieves many ends. It pleases China Inc – not a bad thing to do for the world’s fastest growing energy market. It satisfies one-third of Shell’s asset sales program. It rids Shell of a minority interest in a business that government has said it will never control – at a time when the unwanted asset is likely to fetch a peak price.
And, once the deal is done, Shell retains a direct stake in Woodside’s biggest asset, the North West Shelf joint venture.
Neat heh! Or too neat to be true?
If Slugcatcher was a betting man, he goes for the neat solution and thinks it could be well worth checking out whether Don Voelte, or any of the other senior chaps at Woodside, have enrolled for night classes in Mandarin or Cantonese.