South Australia-based Santos told the Australian Securities Exchange yesterday that it presented a confidential merger proposal to Sydney-based Oil Search on June 25 to create a “regional champion of size and of scale and a diverse portfolio of low-cost, long-life products.
A merger would place the company in the top 20 companies listed on ASX and the top 20 oil and gas companies in the world.
Oil Search rejected the initial offer because it did not provide appropriate shareholder value, but said it was open to other approaches.
Santos subsequently sought to engage Oil Search’s board of directors on the rationale for the transaction and the desirability of Oil Search shareholders to participate in the value created by the merger.
Santos has a market cap of around $ 13.5 billion while Oil Search is valued at around $ 7.6 billion.
Oil Search shares rose 6.2% to $ 3.90 after yesterday’s announcement, while Santos shares fell to $ 6.49 from $ 6.82 at the start of trading on Tuesday.
With offices in Sydney, Port Moresby, Alaska, Tokyo and Abu Dhabi, Oil Search has a history of active exploration in Papua New Guinea dating back to the 1920s.
It took over the operation of the Hides Gas-to-Electricity project in 1998 and all producing PNG oil fields in 2003. It also owns a 29% stake in PNG LNG, which began operations in 2014 and is operated by ExxonMobil.
Oil Search also acquired oil concessions on the North Slope of Alaska in 2018.
The merger proposal provides that the transaction would be implemented through a scheme of arrangement whereby Oil Search shareholders would receive 0.589 new Santos shares for each Oil Search share held.
After approval of the program, Oil Search shareholders would own 37% of the merged group and Santos shareholders would own 63%.
The ownership ratio implied a transaction price of A $ 4.25 per Oil Search share, based on Santos’ closing price on June 24, 2021. This represented a 12.3% premium over the closing price of Oil Search on June 24, 2021 of 3.78 Australian dollars.
“The potential merger of Santos and Oil Search is a logical combination of two industry leaders to create a regional champion unmatched in size and scale,” Santos’ statement told ASX yesterday.
“The combination would create a better alignment in Papua New Guinea by supporting the development of key projects, including Papua LNG, create new jobs and help support the local economy.”
In response to Oil Search, also posted on ASX yesterday, said it was always open to receiving and engaging on any proposal that is in the best interests of shareholders.
âOil Search agrees with Santos that there is strategic logic in a combination of the two companies,â he said in the statement.
âOil Search has informed Santos that it is open to receiving a revised proposal that more appropriately reflects the value Oil Search would bring to any combined entity.
âAt this stage, no such proposal has been received. “
With its origins in the Cooper Basin, Santos has one of Australia’s largest exploration and production areas and extensive infrastructure.
It is already Australia’s largest domestic gas supplier and aims to be a leading LNG supplier in Asia-Pacific.
In March, Santos approved its $ 4.7 billion Barossa project northwest of Darwin, which it says represents the biggest investment in Australia’s oil and gas sector since 2012.
Santos ranked # 1 in InDaily’s 2020 South Australian Business Index – an annual review of the state’s top private and public companies.
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