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What Shell’s Woodside Petroleum sale will mean for investors

It looks increasingly likely that a large chunk of Woodside Petroleum (ASX: WPL) is about to be put up for sale.

Back in November global oil giant Royal Dutch Shell (NYSE: RDS.A) announced plans to sell up to US$15 billion of assets to help fund future projects and many analysts expect that the sales will include the company’s 23% stake in Woodside.

Shell’s holding is estimated to be worth up to $7.4 billion and RBC Capital Markets analyst Andy Williams has told the Sydney Morning Herald that the block would most likely be split up and offered to investors in tranches as opposed to finding one big investor.

If this is the case one implication is that investors could see a minor decrease in share volatility. This is because there is an inverse correlation between a company’s float (available trading shares) and volatility.

A second impact of a Shell sale could be more buying interest from institutional investors. The Sydney Morning Herald reports that some institutions have held back on investing in Woodside in case Shell’s sell-down flooded the market and forced the share price down. With this scenario unlikely these institutions may now step into the breach and acquire shares.

Though Shell has been a significant partner for Woodside any sale is unlikely to have a negative impact on Woodside’s current projects. Shell has been working closely with Woodside to implement floating LNG (FLNG) technology for the Browse Basin gas project and the two companies also work together on the Sunrise LNG project. However analyst Andy Williams says Shell views its projects on a stand-alone basis.

Foolish Takeaway

Strong cash flows, high-growth potential and the potential benefits of a sale mean investors need not be worried by Shell’s move. Woodside remains a good performing company with shares up 10% over the last 52 weeks.

While this is a tick below the 13% increase of the S&P/ASX 200 Index (ASX: XJO), it is better than the energy sector average. The S&P / ASX 200 Energy (Index: ^AXEJ) (ASX: XEJ) is up 6.26%.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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