Woodside Petroleum's proposed $US2.68 billion share buyback has been voted down by shareholders.
Only 72% of shareholders voted in favour of the deal, short of the 75% required for the deal to pass.
Earlier, chairman Michael Chaney said he expected the vote to fail after proxy votes fell short and the final result came down to floor votes.
"We won't be able to announce the results at the meeting," Mr Chaney earlier told shareholders at an extraordinary general meeting in Perth.
Mr Chaney said three or four major shareholders, making up 16% of the company's register, had decided to vote against the buyback, with one voting against the move this week.
" It's unfortunate that it appears that it won't go through but it's not a disaster by any means," Mr Chaney told shareholders.
"Shell has now been reduced to 13.5% (holding) as a result of the arrangements we had and we still have the money and we still are focused n shareholder returns and capital management."
Mr Chaney said the company "respects the likely outcome of the vote", after only 71.3% of eligible proxy votes backed the deal.
The resolution needs 75% approval of all votes cast. "It looks like we shall fall short," Mr Chaney said eariler, adding that the floor vote would still go ahead as planned.
Despite heavy lobbying by Woodside, institutions opposed the deal on the grounds it was selective -- only Shell would benefit directly -- and in breach of the corporate governance principle that all shareholders should be given an equal opportunity to participate in any benefits from a transaction their company is engaged in.
Mr Chaney said the buyback was an efficient mechanism to assist the exit of Shell from its register and the "only option" to achieve that aim.
"An equal access off-mark buyback would involve less certainty regarding the price and quantum of the buy-back depending on shareholder participation and would not provide an orderly reduction of Shell's shareholding in Woodside," he said.
Around 59% of those entitled to vote have done so through proxy or direct voting means. Shell is unable to vote on the deal and Woodside has historically had a low turnout at shareholder votes.
Shell, which is Woodside's largest shareholder, announced in June it would sell 19% of its $6.3 billion stake in Australia's largest oil and gas producer. The desire to split is mutual, with Woodside keen to remove the overhang that has capped its share price for years and Shell in the middle of a $15 billion global asset sale, including Australian refineries and service stations.
Last month, Shell completed the sale of a 9.5% stake in Woodside to institutional investors, but the major shareholder is still hopeful of offloading a similar holding to Woodside.
Shell will be left with a 4.5% stake.
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.