PERTH (miningweekly.com) – Takeover target Oil Search has rejected an A$11.7-billion takeover offer from Australian energy major Woodside, calling the indicative proposal highly opportunistic and saying that it grossly undervalued the company.

Woodside last week confirmed its intent for a confidential and nonbinding merger proposal, offering 0.25 of its own shares for every one Oil Search share held, allowing Oil Search shareholders to maintain a stake in the combined entity.

The merger proposal was subject to Papua New Guinea (PNG) regulatory approval, the completion of a satisfactory due diligence and other customary conditions. The proposal would also be conditional upon the parties entering into a binding implementation agreement.

Oil Search holds a stake in the PNG liquefied natural gas (LNG) project, along with a number of other low-cost growth opportunities and producing assets.

Oil Search on Monday said the merger proposal would significantly alter the fundamental characteristics of an investment in the company and would dilute the present growth profile available to its shareholders.

The takeover target also pointed out that it was in a robust financial position, with strong operating cash flows from its producing assets, even at low oil prices, and current liquidity of some $1.6-billion, comprising $850-million in cash and $750-million in undrawn corporate credit facilities.

“The board of Oil Search believes our company is in a very strong position, both operationally and financially. We have a low-cost, high-quality production base which is generating strong cash flows and excellent growth opportunities, with the proposed PNG LNG train 3 and Papua LNG among the most competitive new developments in the world,” said chairperson Rick Lee.

He noted that if any proposals were tabled in the future that reflected the “compelling value” for Oil Search shareholders, the company would consider this option.

“Clearly, this proposal falls well short of that test,” Lee added.

Woodside expressed surprise at Oil Search’s rejection of the takeover offer, saying the company had rejected the offer without meeting with Woodside to understand the benefits of the opportunity or to negotiate the terms of a possible merger.

“Woodside believes the proposal will create the regional oil and gas champion for both PNG and Australia, with a global portfolio of world-class assets and development opportunities which will deliver significant benefits to both companies’ shareholders,” Woodside said in a statement on Monday.

The ASX-listed company added that the proposal aligned with its strategy of developing superior shareholder returns by maximising the value of its core assets, leveraging its capabilities and growing its portfolio.