Santos pitches $21bn merger for net zero

Santos chief Kevin Gallagher says the Oil Search merger would give it the bulk to handle and prosper from an urgent global focus on tackling climate change.

Santos CEO Kevin Gallagher hopes its $21bn Oil Search merger will allow it to navigate a fast moving energy transition. Picture: Glenn Campbell

Santos has pitched its $21bn merger with Oil Search as the deal that will allow it to fund a move to net zero emissions, describing climate pressures as the biggest challenge for the industry over the next decade.

Shareholders of Santos will control 61.5 per cent of the combined group with Oil Search at 38.5 per cent under the proposal and chief executive Kevin Gallagher said the tie-up would give it the bulk to handle and prosper from an urgent global focus on tackling climate change.

“Size, scale and strong free cash flow generation would position us for success in the new era of decarbonised fuels and energy,” Mr Gallagher told the West Australian Energy Club on Tuesday. “Critically, this would provide the platform for us to self-fund growth and deliver strong shareholder returns, well into the next decade.

“In other words, the size and scale that comes from this merger and the cash generative nature of our base business is what will help us fund the transition to net-zero emissions.”

Santos was among Australian oil and gas producers in June that warned the industry could suffer the same funding strike that has hobbled coal companies unless they rapidly step up action on climate change.

“What has changed most in the last two years, despite the global economic shock that came with the pandemic, is the pace of the global energy transformation and the race to net-zero emissions,” Mr Gallagher said on Tuesday. “This is the single biggest challenge – and opportunity – facing our industry over the coming decade.”

Santos is devising a giant ‘‘carbon sink’’ scheme where it can offer energy operators the ability to strip out and bury carbon from their gas supplies at its Moomba hub in South Australia. Development of a carbon capture and storage method by the Clean Energy Regulator is set to be approved in September, Santos said, paving the way for a final investment decision on Moomba before the end of the year.

The producer is also looking at its Bayu-Undan facilities offshore in Timor-Leste to store carbon from the Barossa gas project with 10m tonnes of capacity and is considering a third CCS hub based on its offshore WA operations.

Separately, Macquarie Capital and energy giant BP have teamed up to consider developing a major green hydrogen project with plans to repurpose the former Kwinana oil refinery site in Western Australia into a clean energy hub.

The duo will kick off a feasibility study for green hydrogen as part of BP‘s plan for a series of renewable developments at the industrial site.

The move follows nearly a year after the British energy heavyweight announced the closure of its Kwinana refinery, the nation‘s largest, putting 600 manufacturing workers out of a job.

BP wants to develop Kwinana into a renewable zone with plans underway to produce sustainable aviation fuel and renewable diesel and cut emissions of the heavy industry, transport and mining sectors.

Green hydrogen taps renewable energy sources to split hydrogen from water which can then be transported as ammonia both within Australia and overseas.

“We believe Australia – and Kwinana in particular – has a number of use cases that support a meaningful green hydrogen industry,” said John Pickhaver, Macquarie Capital‘s co-head of Australia and New Zealand.

BP is also looking at a separate green hydrogen project in the WA mid-west town of Geraldton with business models and customer demand being assessed ahead of a decision.