Woodside has approached Santos about a deal ‘a number of times’

Santos boss Kevin Gallagher has revealed that Woodside Energy has tried to kick off merger talks a number of times over the past year or so.

Santos managing director Kevin Gallagher.

Santos managing director Kevin Gallagher has revealed that Woodside Energy has approached the company “a number of times” over the past year or so about a merger, while analysts firm that the deal is unlikely to proceed without a steep takeover premium being offered.

In his end of year message to staff, Mr Gallagher reiterated that Santos has a strong business on a stand-alone basis, which was why it was attracting interest from potential buyers, and said at this stage, the company’s internal plan remains shareholders’ best option for growth.

Indeed, the approach was validation of the company’s strategy, Mr Gallagher said.

“We are committed to executing our strategy, it is the right strategy,’’ he said in the message which was sent out on Wednesday.

“Now that strategy has been recognised as the right strategy by others, as you have seen from the external interest in the business.

“It’s correct that Woodside approached us about a potential merger recently, as they have done a number of times over the past year or so.

“We are engaging in those preliminary discussions to explore the potential combination, and to evaluate that against our base strategy, and other options to accelerate value.

“However, Santos does not need this transaction, We have a very strong base business and that’s why there is interest in us.’’

Mr Gallagher said “at this stage’’ the company’s own internal strategy remains the best way to unlock shareholder value.

There has been speculation that a merger could provide an exit ramp for Mr Gallagher, and any such transaction would also crystallise his incentive package.

However Mr Gallagher said in the video message he was committed and looking forward to leading the company next year.

“I’m here, I am energised, and committed to Santos, and looking forward to a very exciting 2024,’’ he said.

Meanwhile Ord Minnett analysts have placed a fair value estimate of $12.30 on Santos shares, and say that while the market seems to have decided the company is in play, it was “also possible ... that the key protagonists could simply walk away, and it would be back to business as usual’’.

Santos’s growing production profile in coming years presents an attractive proposition for Woodside, which industry watchers say has a hole to fill three to four years out.

Ords says Santos’s production is expected to double to about 180 million barrels of oil equivalent by 2028 “thanks to east-coast coal seam gas to LNG and Papua New Guinea LNG projects, and more recently via the Quadrant and ConocoPhillips acquisitions and Oil Search merger’’.

Ords says with Santos in play, there was also the prospect for others to join the fray.

“The deal could elicit interest in Santos from other parties, and no shrinking violet, Santos CEO Kevin Gallagher is likely to exact a premium if a deal is to proceed,’’ the broker says.

“We’ve long thought a merger of Australia’s two largest oil and gas producers was sensible.

“Principally, the larger scale could ensure ongoing relevance for a MergeCo, affording more seats at deal tables in a world increasingly dominated by supermajors.

“A larger Woodside could help it grow in the United States where the share price multiples are greater, assuming ultimate dual listing, and where oil and gas is better supported.’’

Santos shares closed Wednesday at $7.30, up from $6.38 before rumours of the deal emerged last week, but still well shy of valuations analysts would like to see for the company.

Woodside shares closed Wednesday at $30.02, down 1 per cent on the day and marginally higher than the $29.84 close the day before the news of talks was made public.

Originally published as Woodside has approached Santos about a deal ‘a number of times’