WA-based oil and gas giant Woodside Petroleum Limited (ASX: WPL) has pulled its bid to buy Papua New Guinea-based Oil Search Limited (ASX: OSH) in an announcement to the ASX this morning.
No explanation was provided for the decision to pull the offer but it's likely that one major stumbling block was that the PNG government would have to be persuaded to relinquish its own equity interest in Oil Search and its flagship wealth generator the PNG LNG project.
The original proposal offered Oil Search shareholders 0.25 Woodside shares for every Oil Search share held which would imply a valuation of just $7 per share if you use Woodside's closing price of $28 last night, although this would be adjusted across a number of metrics.
Clearly the deal had almost no chance of proceeding under the proposed terms given that Oil Search shares currently sell for $7.52, with Woodside likely concluding that it had no chance of meeting far higher terms likely demanded by Oil Search.
The company's low cost and large-scale PNG LNG operations are the envy of energy companies everywhere, with US giant Exxon Mobil another significant operator and owner across the project.
The attempted takeover is also at a time of plunging energy prices that has seen the value of global energy producers shattered and it's likely that Oil Search would rather sit out the storm than sell itself to Woodside at what may be the bottom of the cycle.
Although mega mergers in the energy space are likely to be an ongoing feature of 2016 as producers fight for economies of scale and operating cost savings in today's world of super-low energy prices.
In 2015 Royal Dutch Shell launched a $98 billion takeover offer for BG Group in a move that was widely seen as a consequence of the dramatically changing outlook for world energy prices as new extraction technologies in the US continue to put a downward pressure on prices.
