Oil Search, Santos agree on takeover terms; target mid-Dec.
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Kay Cashman Petroleum News
In a joint statement Sept. 10 Santos and Oil Search said that they have entered into a definitive agreement to merge the two companies into a “regional champion” in an all-scrip transaction. They expect the deal to be finalized in mid-December.
Merging the companies will create an oil and gas company with a market value of around $15 billion ($21B Australian dollars) and unlock between $90 million and $115 million in pretax savings each year, they said.
Oil Search’s board unanimously approved the transaction and recommended that shareholders vote in favor of the merger in the absence of a superior proposal and subject to an independent expert concluding that the merger is in the shareholders’ best interest.
The takeover by Santos is subject to a limited number of usual conditions including regulatory approvals, Papua New Guinea court approval and, of course, shareholder approval of both companies.
Santos’ offer is 0.6275 of its own shares in exchange for each Oil Search share. Completion of the deal would lead to Santos shareholders owning around 61.5% of the combined company, and Oil Search shareholders holding the remaining 38.5%.
Oil Search is Papua New Guinea's largest oil producer and owns a minority stake in the Exxon Mobil Corp.-operated PNG LNG gas-export project in the country, which also counts Santos as an investor.
Oil Search owns undeveloped oil reserves in Alaska that it hopes to develop if it and 49% partner Repsol can sell up to a 30% stake split between them. Development of the Pikka unit is first on Oil Search’s list of projects.
As previously reported in Petroleum News, Oil Search is on track to reach a final investment decision as soon as yearend if it picks up a satisfactory partner.
In his first briefing on the proposed merger, Santos Managing Director and CEO Kevin Gallagher said he would continue the sell-down process and would be “more flexible” about giving up operatorship than Oil Search has allegedly been with North Slope producer ConocoPhillips.
Gallagher said in a Q&A session on Aug. 17 with analysts: “We’ll continue with Oil Search’s plan and we’ll be very flexible on what that would look like in terms of operatorship.”
Gallagher recently told Reuters he has a “very good relationship” with ConocoPhillips and sees the company as a “world class operator.”
ConocoPhillips is a likely bidder for Oil Search’s Alaska North Slope assets because the company holds most of the leases and infrastructure surrounding Pikka.
Plus, ConocoPhillips’ top executive Ryan Lance has made it clear in recent financial presentations that his company is interested in picking up oil and gas assets in areas where it already operates, as long as the price is right and the deal brings value to the company’s portfolio.
Benefits of the merger The merger implementation deed signed by Santos and Oil Search follows them each completing reciprocal confirmatory due diligence which began Aug. 6.
Per Santos’ website, a merger between it and Oil Search will create a regional champion of size and scale with several benefits, including:
* Diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America (Alaska) with significant growth optionality.
* Pro-forma market capitalization … would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies.
* Pro-forma 2021 production of approximately 116 million barrels of oil equivalent.
* Pro-forma 2P+2C resource base of 4,867 million barrels of oil equivalent.
* Investment grade balance sheet with more than US$5.5 billion of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimize the portfolio.
* Strong ESG credentials including maintaining Santos’ net-zero emissions target by 2040, focus on carbon capture and storage projects and Oil Search’s social and community investment in Papua New Guinea and North America (Alaska).
Executive statements Oil Search Chairman Rick Lee said: “Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale, product mix, ESG and geographic diversity, and access to capital. The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.”
Santos Chairman Keith Spence said: “We look forward to integrating our businesses to create one high performing team - with a vision of becoming a global leader in the energy transition.”
Merged company leadership The combined Santos and Oil Search will be led by Gallagher, who said: “The merger will create a company with a balance sheet and strong cashflows necessary to successfully navigate the transition to a lower carbon future with the combination of Santos’ leading CCS capability combining with Oil Search’s ESG programs in PNG and Alaska to provide a strong foundation.”
Following the completion of the merger, three non-executive directors from Oil Search will join the Santos board, which currently has eight directors.
Santos’ head office will remain in Adelaide, Australia.
- KAY CASHMAN
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