The sale of shares back to Woodside is part of a two-year, $15bn (£8.85bn) divestment plan designed to improve its financial performance.
The divestment will provide Shell with £3.36bn in order to refocus on developing its own Australian liquified natural gas (LNG) projects like Gorgon and Prelude, the company said.
Chief executive Ben van Beurden said it was part of a plan to divest from both its Western Australia venture and its stake in the Parque das Conchas offshore oil field near Brazil.
Van Beurden told investors that the selloff “doesn’t change our view of… Shell’s central role in the country’s energy industry”.
The deal itself involves Woodside Petroleum buying back Shell’s 19 per cent stake at A$36.49 per share, which it will then cancel.
Goldman Sachs and Citigroup will underwrite 78m further shares to be sold to institutions at A$41.35 per share, a 3.5 per cent discount.
Woodside hopes that the transaction will boost earnings per share by up to six per cent. The company intends to fund the buyback through cash and debt.
“This combined transaction is an efficient and disciplined use of capital,” chief executive Peter Coleman said in a statement.
Royal Shell shares yesterday closed down 0.32 per cent. Woodside stock was suspended from trading while the shares were placed.