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Is Woodside Petroleum Limited a takeover target after Shell sells out?

Australia’s largest independent oil and gas producer, Woodside Petroleum Limited (ASX: WPL) could become a takeover target, after Shell announced that it was selling down most of its 23.1% holding.

In an announcement today, Woodside reported that it was buying back 78.3 million shares from Shell at a price of US$2,680 million. Shell will also sell down another 78.3 million shares to institutional investors, leaving the oil giant with a maximum holding of 4.5% in Woodside after the deals.

Shell’s majority shareholding generated a level of uncertainty, with many analysts questioning whether Shell would mount a full takeover of Woodside, or sell out at some stage. Now it’s clear Shell is moving out of the picture, potentially putting Woodside in play.

With several top class assets including investments in the North West Shelf, the Pluto LNG project as well as the potential of the Browse and Sunrise LNG ventures, several players may well be taking a closer look at Woodside now.

They could include oil majors like BP, Chevron, ConocoPhillips, Exxon and even BHP Billiton Limited (ASX: BHP), which already has substantial oil and gas assets, but may want a larger slice.

The good news for Woodside shareholders is that the buyback will increase per share earnings, reduce shares on issue and most likely see the share price appreciate from here.

It’s not yet known whether Woodside will take on debt to buy back the 78.3 million shares, but thanks to its prodigious cash flows, the company has a solid balance sheet and should easily be able to handle any extra debt.

The move by Shell could also shine a light on other large ASX-listed oil and gas companies including Santos Limited (ASX: STO), Origin Energy Limited (ASX: ORG) and Oil Search Limited (ASX: OSH).

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Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga