Woodside (ASX:WPL) has announced the “attractive” (their word, not mine) acquisition of ConocoPhillips‘ (NYSE:COP) 35% interest in oil fields off the coast of Senegal. The “attractive price” of $2.20 per barrel is hard to argue against. Its new joint venture partners include FAR (ASX:FAR), whose 15% interest in the oil field was valued by the market at around $3 per barrel, while broker valuations are well above that.
It appears that the acquisition is cheap. It has also been made from a motivated seller. ConocoPhillips made a loss last year and is aiming to boost cash flow by cutting dividends, reducing capital expenditure and selling assets. So Woodside’s acquisition meets two of the five signs of a good acquisition.
However, it is hard to get too excited by the acquisition just yet. Woodside is arguably a forced buyer of assets to replenish its diminishing oil reserves. And there is a long way to go, with the Senegal oil fields not expected to start production until 2021. As we’ve seen with other oil and gas projects, a lot can go wrong in the five years between development and production.
But as far as acquisitions go, having two out of the five positive signs makes Woodside’s acquisition better than most.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.