A Melbourne Business School professor's report into Royal Dutch/Shell's bid for control of Woodside Petroleum Ltd found the merger should clear Australia's foreign investment laws.

Report author Professor Ian Harper said the report examined the main national interest grounds for possible rejection of the bid by the Federal Treasurer. "I can't see any reason why it would be contrary to the national interest," he told Reuters.

Harper, a professorial fellow at the Melbourne Business School and a director of Harper Associates Australia, was retained by Shell to provide an expert opinion on whether the proposed merger was against the national interest. The Federal government will decide on the merger after Treasurer Peter Costello receives advice from the Foreign Investment Review Board. It was given a 90-day extension to consider the issue from January 24.

Few takeovers are rejected but Woodside shares on Monday plunged to a three- month low of A$13.49 after comments by Prime Minister John Howard raised fears that a heightened political sensitivity over foreign ownership could block the bid.

The company's shares closed up 13 cents at A$13.93 yesterday while the overall market was up 0.27 per cent. Harper said there was a government policy presumption that foreign investment was good for Australia, and that for an investment to be rejected there must be special circumstances that outweighed the positive impact.

"I went through eight possible reasons why it might be held to be contrary to the national interest and essentially I don't find any of them to hold," he said. Woodside is operator of the landmark North West Shelf joint venture, which exports liquefied natural gas to Japan and is targeting a multi-billion expansion and new markets.

There are some fears that if Shell succeeds in raising its stake in Woodside to 56 per cent from 34 per cent it could interfere with development of Australia's gas resources in favour of its other offshore interests.

Shell and Woodside both hold a one-sixth interest in the venture. Harper said Shell did not control the international gas market and even if it had a third of the North West Shelf could not unilaterally alter the pace of development of the strategic national resource.

"Given the commercial realities facing Shell, a merger with Woodside would make no difference to the pace at which the North West Shelf was developed," Harper said in the report. He said if there were concerns about Woodside continuing as operator, the other joint venture partners could change the operating agreement, or appoint another operator.

But he said there appeared to be no reason to impose conditions on the bid other than to enshrine commitments given by Shell, such as that Woodside's head office remained in Perth.