Santos sealed an agreement to buy Oil Search to create a global top 20 oil and gas company, the companies said on Sept, 10, even as the Papua New Guinea (PNG) government raised concerns that a takeover could harm national interests.
The deal will make Australia’s Santos the largest shareholder in the country’s biggest resource project, the PNG LNG project, operated by Exxon Mobil Corp.
The all-share deal, which values PNG-focused Oil Search at about A$8 billion (US$6 billion) and would give Oil Search shareholders a 38.5% stake in the merged group, requires approval from a PNG court and Oil Search shareholders.
RELATED:
Oil Search, Santos Close to Deal to Create Top 20 Global Oil Firm
Deputy Prime Minister Samuel Basil warned this deal would harm the national interest as a merger could potentially lead to job losses, a foreign company owning too much of domestic oil and gas resources, and a delisting of Oil Search, which makes up 31% of the country's stock market.
“With all of Oil Search’s oil and gas field portfolio in PNG under an Australian company, there is the real risk of capital erosion,” Basil said in a statement late Sept. 9.
Santos said the merger would better align stakeholdings in PNG’s biggest gas projects—PNG LNG and Papua LNG—that would further support investment and deliver new jobs.
“We see the PNG government could withhold approvals in an attempt to extract further value from the merger,” Credit Suisse analyst Saul Kavonic said, but added that he does not expect the PNG government to block the deal.
Santos said it expects to reap up to $115 million in pre-tax cost savings from the deal, less than the $150 million some analysts had estimated would be needed to justify the premium the company was offering for Oil Search.
The market's reaction reflected that view, with investors pushing Oil Search’s shares up 2.7% while Santos rose 1%.
Santos CEO Kevin Gallagher has said creating a A$21 billion company with strong cash flows will help the enlarged group weather the energy transition better, helping it grow and invest to meet a net-zero carbon target by 2040.
On similar grounds, Woodside Petroleum proposed a $29 billion merger in August with the petroleum arm of the world’s biggest-listed miner, BHP Group.
(US$1 = 1.3546 Australian dollars)
Recommended Reading
Kimmeridge’s Mark Viviano on Reshaping the Energy Sector, SilverBow-Crescent Deal
2024-05-16 - Kimmeridge Energy Engagement Partners’ Mark Viviano says the company is evaluating the Crescent Energy and SilverBow Acquisition and how Kimmeridge played a key role in transforming the shale sector in this Hart Energy Exclusive interview.
Oil, Gas Groups Sue BLM to Block Increased Federal Drilling Fees
2024-05-16 - Under new U.S. Bureau of Land Management rules, royalty rates will jump to 16.67% from 12.5% and minimum lease bonds will increase to $150,000 from $10,000, which industry groups say will deter future oil and gas development.
SilverBow Resets Shareholder Meeting After $2.1B Crescent Deal
2024-05-16 - SilverBow Resources said it will adjourn its May 21 shareholders’ meeting until May 29 following Crescent Energy’s agreement to buy the Eagle Ford operator.
SUPER DUG Shale 4.0 Era about Building Scale- Rystad
2024-05-16 - The Shale 3.0 era or capital discipline era will be followed by the Shale 4.0 era, which will see companies focused on building scale, according to Rystad Energy Senior Shale Analyst Matthew Bernstein.
BPX Looks to Ramp US Production Over 60% by 2030
2024-05-16 - BPX Energy is looking to boost its U.S. production over 60% by 2030 as it considers bringing online a fourth processing facility in the Permian by mid-year 2025, Clark Edwards, the company’s vice president of development, said during SUPER DUG in Fort Worth.