The group representing Australian investors is backing Woodside Petroleum’s bid to buy out Royal Dutch Shell.

In June, Woodside signed a binding agreement with Shell, so it could sell 78.3 million shares to institutional investors to raise $US2.68 billion ($A2.90 billion), reducing its holding from 24.5 per cent to 13.6 per cent.

But Woodside needs shareholder approval to buy a separate set of 78.3 million shares from Shell for the same price.

This would reduce Shell’s holding to 4.5 per cent.

The Australian Shareholders Association will be voting undirected proxies in favour of the buyback when an extraordinary general meeting is held in Perth this Friday.

The ASA’s policy co-ordinator, Stephen Mayne, said the group saw merit in securing Woodside’s independence from Shell for the first time in its history.

An independent Woodside would open new opportunities for growth and create the potential for higher future dividends and earnings-per-share growth.

“The global oil business involves substantial dealings with government and Woodside stands to benefit if it can demonstrate Shell is no longer its largest shareholder,” Mr Mayne said in a statement.

“This is a strategic transaction for all shareholders and the only proposal on the table that Woodside has been able to negotiate to secure Shell’s exit.”

But he added support for Woodside’s buyback was qualified because Shell would still get access to franking credits, despite not disclosing its tax position.

Former treasurer Peter Costello blocked Shell’s attempted $A10 billion takeover of Woodside in 2001 on national interest grounds – one of only two such rejections in Australia.

Shell is now selling Australian refineries and service stations.