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
US Oil, Gas Rig Count Rises for 14th Consecutive Month
For the month, drillers added 13 rigs, putting the count up for a 14th month in a row for the first time since July 2017, as rising oil prices have prompted drillers to return to the wellpad.
Best of This Week’s Drilling Activity Highlights (Sept. 24, 2021)
Spraberry Field producers in the Midland Basin announced by Headington Energy plus Chesapeake Marcellus Shale completions in Pennsylvania’s Wyoming County and another Exxon Mobil Guyana discovery top this week’s oil and gas drilling activity highlights from around the world.
E&P Case Study: Using Edge Computing to Reduce Truck Runs by 80%
How an AI technology reduced site visits, operating costs and carbon emissions while increasing efficiencies and safety for an E&P operator.