What: Australia's largest oil and gas company Woodside Petroleum Limited (ASX: WPL) has decided to keep its cash in its pocket after announcing the termination of a memorandum of understanding (MOU) to acquire a 25% share of the offshore Israel-based Leviathan field.
So what: Woodside was set to pay out US$850 million on settlement of the MOU, a further US$350 million milestone payment, plus certain volume-based charges for its 25% share of the field which was estimated to hold 18.9 trillion cubic feet of natural gas and 34.1 million barrels of condensate.
Now what: The decision to terminate the MOU by Woodside which sited a failure to reach a commercially acceptable outcome is good news for shareholders. There is of course nothing worse than a management team which commits to spending shareholders' funds in a way which fails to maximise value. As Woodside's CEO Peter Coleman rightly stated in commenting on the decision to terminate: "While Woodside's commitment to growth is strong. Even stronger is our commitment to making disciplined investment decisions."
This attitude is unfortunately all too rare amongst management teams – with the lure of doing a deal at any cost leading many astray. Shareholders can now possibly look forward to a substantial special dividend from the previously earmarked funds, or at the very least sleep well at night knowing that management is acting in their best interests.
