INSIDE STORY: Brett Clegg and Matt Chambers
JUST how big are the ambitions of Marius Kloppers?
Potash Corp isn’t the only blockbuster deal BHP has been actively working on in 2010.
The aggressive and acquisitive chief executive and his team are believed to have also been examining a major oil and gas acquisition in tandem with the encirclement of the $US38.7 billion ($42.5bn) Canadian fertiliser player.
An energy deal has been firmly on the agenda for BHP for several years. The Australian can lift the lid on manoeuvring that occurred between BHP and Royal Dutch Shell last year, when they explored, but then abandoned, a joint $35bn takeover bid for local player Woodside Petroleum.
With Potash and a big energy deal under his belt, BHP would be within reach of Kloppers’ ambition of creating a super major and positioning the group as one of the world’s biggest and most influential companies.
As BHP doubles its iron ore production, brings on Olympic Dam and leaps into potash, oil and gas are likely to diminish in importance to the company. That would reinforce a strategy of expansion through acquisition in energy.
BHP has run the numbers on several Gulf of Mexico assets belonging to the distressed BP, but is understood to have pulled back when former BHP chief — and now BP board member — Paul Anderson made it clear through back channels that BP’s prized gulf assets were not for sale.
Rather, a senior figure in the global energy industry is convinced that the “second target” for BHP is Anadarko Petroleum Corporation, telling The Australian he believed the US oil and gas independent was firmly on BHP’s radar. BHP declined to comment for this article.
Anadarko, which has a market capitalisation is $US24bn, describes itself as one of the largest independent producers in the deepwater Gulf of Mexico, with more than 3 million gross acres and eight operated hubs.
It also has a portfolio of onshore assets in the Rocky Mountains, and exploration efforts and projects across several continents.
Anadarko was exposed to BP’s Macondo well disaster through a 25 per cent passive stake in the well, and its shares had been hit hard, making it vulnerable to a move by BHP or another party.
The stock has, however, rallied since touching a low in early June.
US regulatory scrutiny of deepwater gulf drilling apparently does not deter BHP, which is said to be confident of its operational excellence. It also expects tougher regulations to price smaller players out of valuable deepwater assets.
The Macondo disaster also highlights the need for a better balanced portfolio of petroleum assets, and Anadarko has an excellent operational reputation in the gulf and elsewhere.
Based on Thomson Analytics numbers, Anadarko is trading at a premium to BHP on an enterprise-value-to-EBITDA multiple of 8.7 times, compared with BHP’s 7.8 times. That could make the numbers harder to stack up, especially with Anadarko still holding a liability of as much as $US2bn on Macondo.
Goldman Sachs estimates a Macondo liability of $US14 a share compared with Wednesday’s close of $US48.79, and a share price target of $US62.
Underscoring the desire of Kloppers to bulk up in energy was BHP’s detailed study of a carve-up of Woodside Petroleum between itself and Royal Dutch Shell.
The process started in 2008 and only went off the boil in February last year.
Paul Perry, who runs BHP’s Melbourne-based Australian mergers and acquisitions team, is believed to have been in charge of the project, while UBS and Gilbert + Tobin were advising the Anglo-Dutch energy giant.
Former Shell Australia chairman Russell Caplan admitted to this paper: “It’s an unusual relationship Shell has with Woodside, as a large minority shareholder in an independent company. We don’t have many of those around the world.”
Indeed, it was Shell that in 2008 put Woodside in play by looking at three options:
l Using creep provisions to move up the share register by buying shares on-market,
l Offering to inject assets into Woodside in return for stock, moving it above 50 per cent.
l A full ownership attempt through a takeover offer.
The multinational concluded the only way to win Woodside was through a joint venture with the Global Australian, and so reached out to it.
BHP was very interested, but so soon after the aborted Rio merger, relations with Canberra were still frayed, so Kloppers ultimately dropped the deal in the too-hard basket.
That was despite several months of intensive work and dialogue.
Shell had its own difficulties, including the fact that Caplan was inching toward retirement.
According to a source close to the process, Shell had “stuffed up” in 2001 when a bid for control of Woodside was rejected because it had “tried to run the process by remote control from The Hague”.
“Caplan was the guy who had the pedigree and reputation in Canberra to see another crack at Woodside through the political corridors, but it would have required him staying on” for longer than he wanted, the source says.
Even more of a problem was a growing belief that Woodside chief Don Voelte had got wind of the talks. The Nebraska-born chief executive was talking up the importance of the Pluto project to the national interest, not just Woodside.
There were parallels with the huge North West Shelf projects, and some unsubtle indications that Pluto was not a priority for its 34 per cent shareholder, Shell.
“At Woodside, we not only have a vision for Pluto, we have a vision for Australia. We see that Australia can truly be a global LNG producer,” he told investors at a conference last year.
“Woodside, with its world-class development assets, has the potential to rank alongside the likes of Qatar Petroleum and outrank a host of national and independent oil and gas companies.”
He may be from Nebraska but he was hitting the right notes with a patriotic Australian audience, in public and behind the scenes in Canberra. “It was like trying to catch a wily cat. It ended up just too hard to get your arms around Woodside as Voelte jumped here and there,” one source says.
It was fears that Shell would prioritise its Indonesian LNG projects over the North West Shelf which led to then treasurer Peter Costello blocking its bid to move to control in 2001.
Reviving those memories would not help Shell or its partner.
Another party familiar with the process describes Voelte’s presentations and press interviews at the time as laden with “subliminal messaging”.
BHP is reckoned to have lost interest in bidding for Woodside, but another energy asset to bulk up its oil and gas division, such as Anadarko, is far from being off the agenda.
Filed under: Mergers & Acquisitions, News, Australia, BHP, Canada, Potash, Royal Dutch Shell, Woodside Petroleum