A $21 billion merger of Santos and Oil Search looks set to proceed after the companies agreed to revised terms.
A $21 billion merger of Santos and Oil Search looks set to proceed after the companies agreed to revised terms.
In the plan, Oil Search shares will be valued at $4.29 each, and the company’s shareholders will own 38.5 per cent of the new entity.
The new proposal follows a late June bid by Santos which valued Oil Search at $4.25 per share, an overture only revealed in late July.
Oil Search’s shareholders would have held 37 per cent of the combined entity under the original deal.
The two companies have an interest in the PNGLNG operation, and will have about $US 5.5 billion of liquidity for development projects.
Santos chief executive Kevin Gallagher said the business would grow around core assets.
“It represents a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets,” Mr Gallagher said.
“The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.
“The merger also builds on our industry-leading approach to ESG through the combination of Santos’ net-zero 2040 pathway, including its sector-leading CCS projects, and Oil Search’s unique social programs in PNG, underpinned by a strong balance sheet to fund the transition to a lower carbon future.”
Wood Mackenzie research director Andrew Harwood said the merger had a strong rationale.
“The impact of Oil Search’s portfolio becomes more pronounced by the middle of the decade when it would contribute over half of growth to the combined production output,” Mr Harwood said.
He said more consolidation in the sector had been expected.
"For Australia’s... landscape, this might not be the last transformative deal we see this year, with BHP’s Petroleum business and Woodside strongly rumoured to be in discussion on a similar match-up,” Mr Harwood said.
“The details of that potential deal remain unclear, but what is certain is that the energy transition will continue to drive consolidation within the oil and gas space, with long-term implications for not only the companies involved, but also Australia’s oil and gas investment outlook."
On Friday, Oil Search revealed details of the pay packet for acting chief executive Peter Fredricson, after previous boss Kieran Wulff resigned.
He will be paid a fixed rate of $1.4 million, plus a series of incentives and bonuses.
Shares in Oil Search were up 4.7 per cent to be $3.99 each at the close of trade.
