Woodside Petroleum is considering raising $2 billion to $3 billion in debt to fund a sweetened bid for Papua New Guinea oil and gas company Oil Search.
Street Talk revealed Woodside was looking at raising debt to help boost its $11.6 billion all scrip offer, with straight bridge financing believed to be the preferred option.
A $3 billion cash sweetener would equate to an extra $1.97 per share, on top of the $7.65 a share scrip offer, taking the total bid to $9.62.
This would signal Woodside was serious in its pursuit of Oil Search, after analysts and investors suggested a bid nearing the $10 mark would be necessary to get a deal over the line.
Oil Search formally rejected the Woodside offer last week, in a move which was widely seen as an opening salvo.
However, sources pointed out that some Woodside shareholders may be unimpressed with the company boosting its offer when there was no competing bid on the table. Most of Woodside's balance sheet firepower is ear-marked to fund the acquisition of Apache's Kitimat LNG project so trying to top up with debt/cash instead of more stock may suggest the Oil Search deal is already marginal and further dilution would make it unsaleable to its shareholders.
The PNG government is a potential kingmaker in any deal with its 10 per cent stake in Oil Search and direct interest in the lucrative Papua New Guinea LNG project.
It bought into Oil Search at $8.20 a share in February 2014, so a $3 billion cash sweetener would likely see its investment crystallised in the black.
However, the government financed the stake through UBS, which provided a $335 million bridge loan and a $904 million collar facility, with little known about the term, cost or interest rates of either the bridge or collar facilities.
The news comes after sources told Street Talk that Woodside had gained access to the Santos dataroom with a focus on its 13.5 per cent stake in the PNG LNG project, although they noted it was one of many parties running the ruler over the assets. Woodside was attracted to Oil Search for its 29 per cent stake in PNG LNG along with a planned expansion train and the prospective Papua LNG development.
Some sources have suggested Woodside was in the dataroom to find out more about the project as it stalks Oil Search, given it has not been allowed to conduct due diligence on the target.