Santos and Oil Search, two of Australia’s biggest energy producers, have finalised their agreement to merge into a $21 billion industry giant.
After conducting weeks of due diligence, the two ASX-listed companies confirmed the terms of the all-shares deal under which Oil Search investors would receive 0.6275 new Santos shares for each of their shares.
Santos managing director Kevin Gallagher will lead the combined entity.Credit:Trevor Collens
The tie-up would propel the combined entity into the rankings of the top 20 biggest oil and gas producers globally, with assets spanning Australia, Papua New Guinea, Timor-Leste and North America.
If the merger proceeds, Oil Search shareholders would own about 38.5 per cent of the merged entity and Santos shareholders would own 61.5 per cent. The combination would unlock pre-tax savings of $US190-$US215 million a year, the companies said.
Any merger deal remains subject to approvals, including from Oil Search shareholders and authorities in Papua New Guinea, where Oil Search and Santos are partners in the Exxon-led PNG LNG project.
“Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale,” said Oil Search chairman Rick Lee, whose board intends to unanimously recommend approval of the deal.
“The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.”
The Santos-Oil Search deal comes as the oil and gas industry worldwide faces mounting pressure over its contribution to global warming.
Accelerating climate concerns are prompting investors to retreat from all fossil fuels, pushing the cost of capital higher and setting off a wave of merger-and-acquisition activity. Last month, mining giant BHP entered into a deal to sell its global petroleum division to Perth-based Woodside.
Santos managing director Kevin Gallagher said the Santos-Oil Search tie-up would bring together two strong companies to create a “regional champion” with better ability to self-fund growth and seize on opportunities to expand into clean-energy technologies such as carbon capture and storage (CCS) and zero-emissions hydrogen.
“Santos and Oil Search will be stronger together and will have increased scale and capacity to drive a combined, disciplined, low-cost operating model and unrivalled growth opportunities over the next decade,” Mr Gallagher 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.”
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