Oil Search out in the cold after ex-CEO Keiran Wulff’s Alaskan mistake
A heated phone call with ConocoPhillips’ boss Ryan Lance signalled a missed opportunity for Oil Search to reduce its Alaskan stake.
A heated phone call between former Oil Search chief executive Keiran Wulff and ConocoPhillips boss Ryan Lance over Alaska frayed company relations, reducing the chance of a equity stake being sold to the US giant and putting Oil Search on the back foot when Santos pounced with a $21bn merger approach.
Sources told The Australian the conversation between Mr Wulff and Mr Lance, head of the largest US independent oil producer, took place in late 2020 and was focused on Oil Search’s process to sell part of a 51 per cent stake in its $US3bn ($4.1bn) Alaskan oil project.
Conoco, Alaska’s largest oil producer, was regarded as an obvious partner for Oil Search given the pair operated next door to each other in the North Slope and could have saved money by sharing facilities.
The US giant is understood to have tabled an offer to buy part of Oil Search’s stake in late 2020, handing the Australian company an opportunity to repair its balance sheet after an oil crash rocked the industry and forced the producer to launch an emergency $US700m capital raising and slash jobs.
Oil Search baulked at the terms, including giving up its position as operator of the asset known as Pikka, leaving the discussions as a stalemate. A tense discussion with Mr Lance over the impasse led to Mr Wulff questioning Conoco’s track record on the North Slope, which “went down like a lead balloon”, according to one source.
Oil Search and Mr Wulff declined to comment, while Conoco said it typically does not comment on business development or commercial activities.
Mr Wulff abruptly resigned on July 19 following a whistleblower complaint in mid-June, sparking an investigation which found evidence of bullying.
The Australian revealed on Monday the whistleblower complaint also raised concerns that the now deposed boss was too close to the company’s chairman, Rick Lee, potentially jeopardising their chances of a fair hearing.
Oil Search on Monday promoted Beth White to acting head of finance after Peter Fredricson‘s elevation to interim chief executive following Mr Wulff’s exit.
Ms White has spent 14 years at Oil Search and will retain her existing role as head of sustainability and technology, which includes oversight of emissions from its mooted Alaskan development.
While Oil Search still had plenty of other potential buyers in addition to Conoco, some within the company questioned the wisdom of not engaging further with its most logical suitor.
Diversifying into Alaska was a smart idea on paper, giving Oil Search a new source of revenue beyond its mainstay Papua New Guinea LNG project.
But the decision two years ago to exercise a $US450m option to double its stake left the company in a difficult position, particularly as crude prices plunged last year, souring the appetite of oil majors and investors for buying into assets such as Pikka.
When Santos started circling at the start of this year, a potential prize asset seemed more a liability given it still had to offload some of its exposure and find banks or financiers to fund its share of the project with partner Repsol.
The lack of an apparent “Plan B” for Alaska and Mr Wulff’s determination to remain operator, shared by Oil Search’s board, meant the company had a comparatively weak hand to play when Santos finally pounced on June 25.
After rebuffing the first bid, the board agreed a week ago to unanimously recommend an improved offer which gives it 38.5 per cent of the combined company with Santos the 61.5 per cent balance. Analysts say Santos may sell the entire Alaskan stake.
Oil Search in late July backed away from an end of 2021 deadline for sanctioning Alaska, saying it would only commit to a final investment decision once appropriate funding and ownership levels are in place. Some company insiders thought they were unable to challenge internal assumptions over the Alaska base case under Mr Wulff’s leadership, while his close relationship with the chairman was also seen as an issue.
Ongoing governance issues were a concern for the company, Credit Suisse said, and Ms White faces a big job executing both the merger and the Alaska selldown.
“The situation surrounding management change continues to present governance concerns in our view,” Credit Suisse analyst Saul Kavonic said on Monday.
“Oil Search appears to be currently led by a chairman and acting CEO with limited upstream experience. The new EVP finance also appears to have little senior finance experience, amidst a demanding time regarding merger and Alaska selldown negotiations.”
Oil Search has agreed on confidentiality with Santos and started mutual due diligence.
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