Santos bid rumours surface amid investor angst

Santos faces a renewed period of takeover uncertainty with two Middle East heavyweights pondering a tilt at the underperforming energy producer.

Santos Chief executive Kevin Gallagher. Picture: Mark Brake

A spokesman for Saudi Aramco, in response to media reports of potential interest in a takeover of Santos, said: “With reference to recent media reports claiming that Aramco is considering an offer for Santos, the Company can confirm that such claims are inaccurate”.

Earlier: Santos faces a renewed period of takeover uncertainty with two Middle East heavyweights pondering a tilt at the underperforming energy producer, amid broader investor frustration over the company failing to command a higher market value.

Saudi Aramco and Abu Dhabi National Oil Co have separately been looking at potential bids for Santos, with a view to bolstering their gas portfolios, according to Bloomberg.

The re-emergence of merger talks has landed just five months since a $52bn merger with rival Woodside Energy was scrapped, with the pair unable to agree on value.

Saudi Aramco, owned by the Saudi Arabian government, is the largest energy company in the world. Adnoc, wholly owned by the Abu Dhabi government, is also one of the largest state-owned operators in the region.

Santos declined to comment on the report, which also had no comment from either of the Middle Eastern majors.

Santos has been a frequent target of overseas investors given its exposure to LNG production, bolstered by the takeover of fellow gas exporter Oil Search.

The South Australian producer fielded a $13.5bn, $6.91 per share takeover bid from US-based Harbour Energy in 2018, which it knocked back.

Santos has since grown to a $24.9bn valuation, largely off the back of its own takeover of Oil Search in 2021.

Santos and Woodside were engaged in initial talks about a merger, however, those negotiations broke down and the plans were shelved in February.

In 2015 Santos also rejected an early stage proposal from Scepter Partners, linked to the Brunei royal family, led by former chief executive John Ellice-Flint.

MST Marquee analyst Saul Kavonic said while the new rumours could motivate other potential bidders to accelerate any assessment of Santos, a bid from Aramco or Adnoc would be a “real stretch”, with an offer for Santos a big step out of their comfort zone both politically and operationally.

Aramco tower in Riyadh. Saudi Aramco, owned by the Saudi Arabian government, is the largest energy company in the world. Picture: AFP

However, it may be a signal to the market from Santos bankers that the company is effectively in play with another third party bidder potentially on the sidelines and the Middle Eastern names being leaked to add tension to these talks.

“Other possible bidders include European majors, Mid-Ocean, ConocoPhillips but all face value, funding and alternative priority hurdles,” he added.

Santos in May said it was “open to all opportunities” to maximise the value of its assets, with more consolidation expected across the world oil and gas sector, CEO Kevin Gallagher said. He added the company was not happy that its discussions about a possible merger with Woodside had leaked out.

Mr Kavonic said Santos had been “shopping itself for a while, so there would be quite a few players out there who have pursued preliminary assessments’’.

“We shouldn’t read too much into that of itself,’’ he said in a note to clients. “Aramco and Adnoc are kicking tyres on lots of LNG opportunities (we expect Woodside too).

“The issue as always is once a bidder advances beyond preliminary assessments, where the Papua New Guinea/Barossa (and maybe Alaska) looks interesting, the baggage of the domestic Oz assets becomes clearer (including multibillion-dollar decommissioning liabilities) and then bidder may walk from Santos.’’

One previous proposal floated by a group of investors called for a split of the company to create a separate liquefied natural gas entity, which they said would increase the value of the business by 40 per cent.

The plan was proposed by Melbourne-based fund manager L1 Capital, with the support of Tribeca Investment Partners and Wilson Asset Management.

Mr Kavonic said the supposed leak of the Aramco and Adnoc interest could actually scare them away, with Middle Eastern companies valuing confidentiality.

“And while LNG is a thematic priority, and they may be willing to pay a premium to properly get into the global LNG game, Santos would be a big step out of their comfort zone (size, politically, and operationally). They tend to be slow and fickle acquirers, and the larger the deal the more fickle.

“The tone of the reporting sounds like Santos bankers leaking talks that haven’t advanced beyond a preliminary stage.

“One must ask why would Santos leak if the talks were really serious, as it would only put the talks at risk. “The leaks could just be an attempt to support the share price (it wouldn’t be the first time) and nothing more than that’’.

Santos shares closed 4.2 per cent or 32c higher at $8.

Originally published as Santos bid rumours surface amid investor angst