Despite recent declines in the oil price to levels not seen for over a decade, Woodside Petroleum Limited's (ASX: WPL) share price remains stubbornly high.
Investors are clearly focussed on the company's low cost base, strong cash position and ability to grow both organically and through acquisitions.
But with the company's latest acquisition under Australian Competition and Consumer Commission (ACCC) scrutiny, Woodside's share price could be headed lower, faster.
The ACCC has sent letters to interested parties, seeking feedback on whether the deal would lead to a significant reduction of competition in Western Australia.
The deal is expected to lead to a ~20% increase in Woodside's oil and gas reserves, as well as a boost to production that will be outlined in February.
What the ACCC will be aiming to do is ensure that customers in WA are not placed in a position where they are forced to pay higher energy costs and have a limited choice of provider for their energy needs.
Generally speaking, publicly-listed companies will charge whatever they think the market will bear as they are beholden to shareholders and management to increase profits.
Competition in sectors like retail and finance keeps this profit-chasing from growing out of control, as excessive margins can always be undercut by competitors.
However with a sector like energy, start-up costs and lead times are so long that it could literally be years before a viable competitor arises to undercut a company like Woodside that achieves a monopolistic position.
If the Apache acquisition looks likely to deliver a monopoly, the ACCC will look at blocking the acquisition or, possibly, legislation will be enacted – similar to that which affects rail operator Aurizon Holdings Limited's (ASX:AZJ) maximum chargeable tolls – in order to keep prices reasonable for customers.
The investigation may lead to nothing, if it is deemed that Apache and Woodside don't substantially compete for business in WA.
However investors should be aware that it may be necessary for the takeover to be cancelled or restructured in order to fulfil the ACCC's demands.
