Santos board approves $30bn takeover bid from Abu Dhabi group

The deal includes promises to maintain Santos’ headquarters in Adelaide and accelerate investment in gas in Australia, should it go through.

Santos managing director Kevin Gallagher at the company’s Moomba carbon capture and storage plant in South Australia. Picture: Supplied

Oil and gas giant Santos has struck a landmark near $30bn agreement with a consortium of investors led by Abu Dhabi’s state-owned oil company, ADNOC, in a deal that may test Canberra’s appetite to put critical infrastructure in the hands of Middle East investors.

Santos confirmed on Monday it received an offer from a consortium led by Abu Dhabi National Oil Company and including sovereign wealth fund Abu Dhabi Development Holding Company and US private equity firm Carlyle.

A cash offer price of $US5.76 ($8.89) a share – a 28 per cent premium to the company’s last closing price – has been endorsed by the Santos board, which has agreed to give the consortium a period of exclusive due diligence.

But ADNOC will have to overcome concerns over critical infrastructure controlled by foreign interests.

In a sign that the consortium is looking to sway favour, ADNOC subsidiary XRG has promised that should the deal close it will maintain Santos’ headquarters in Adelaide, support local employment and communities where it operates, and accelerate investment in gas in Australia and the wider region in order to “provide reliable and affordable energy and low carbon solutions to customers in Australia, the Asia Pacific and beyond”.

“The XRG-led consortium aims to build on Santos’ strong and longstanding legacy as a trusted and reliable energy producer, unlocking additional gas supply for Santos’ customers, and strengthening domestic and international energy security,” the consortium said in a statement.

“The proposed transaction is aligned with XRG’s strategy and ambition to build a leading integrated global gas and LNG business.”

The agreement also includes a pledge to collaborate on carbon capture and storage (CCS) technologies.

Santos is already advancing a CCS project at Moomba in South Australia, and ADNOC is developing one of the world’s largest carbon capture initiatives in the UAE.

Santos said the “final non-binding indicative offer” came after two confidential approaches on March 21 for $US5.04 ($8.00) and on March 28 for $US5.42 ($8.60) were rejected.

The board intended to recommend Santos shareholders vote in favour of the deal, in the absence of a superior proposal and an independent expert review.

“After careful consideration of the indicative proposal (including in consultation with its financial and legal advisers), the Santos board has determined that it is in the best interests of Santos shareholders to provide the XRG consortium with access to confidential information to conduct confirmatory due diligence and negotiate the terms and conditions of an SIA (scheme implementation agreement),” Santos said in a statement.

The Moomba gas plant owned by Santos. Picture: Brenton Edwards

The deal would be subject to various regulatory approvals, including from the Foreign Investment Review Board.

MST Financial energy analyst Saul Kavonic said the uncertainty around its prospects was the reason that shares in Santos traded below the offer price.

“Foreign Investment Review Board approval may be a major risk to the deal given Santos control significant critical energy infrastructure in Australia,” Mr Kavonic said.

“Spinning out the domestic infrastructure is not straightforward given large decommissioning liabilities associated with it. Carlyle may have interest in this aspect.”

Shares in Santos rose almost 11 per cent to $7.70 - underscoring concern among investors about the prospect of Treasurer Jim Chalmers vetoing any deal.

Mr Kavonic said Labor could look to extract increased domestic gas capacity - much needed as Australia’s east coast is poised to experience structural deficits from 2029 - in return.

ADNOC has deep pockets and the capacity to invest in new gas projects that could meet both Australia’s domestic demand and continue the country’s important role in servicing regional demand could be enticing.

The deal for shareholders is also appealing. Australia’s second-largest gas company after Woodside has underperformed its peers.

Santos’ fortunes were hampered by opposition to growth projects but it is poised to deliver two major developments in the coming months: the NT Barossa LNG project and an oil project in Alaska.

Santos explored a merger with Woodside in 2024 but talks broke down.

It insists its fortunes are poised to lift. In April, the company secured final regulatory approval for its $5.8bn Barossa project in the Timor Sea, and a month later the company won a decade-long fight over its controversial Narrabri gas development in north-western NSW when the Native Title Tribunal ruled the project’s importance to energy reliability outweighed environmental and cultural heritage concerns.

But while Narrabri is a leading contender to resolve the east coast shortfalls, Santos is under pressure to lower capital expenditure - a constraint that ADNOC would not have.

Still, the consortium will need to sway locals, including South Australia state Premier Peter Malinauskas, who said he had spoken with XRG leadership on Monday morning, and the state government would assess the proposal to ensure it was in the state’s best interests.

“The state government’s priority at all times is to ensure that South Australian jobs remain in South Australia, and to maintain Santos’ headquarters in Adelaide,” he said.

“I spoke today with XRG who briefed me about their plans, and we welcome the opportunity to continue this positive engagement.”

The state government recently passed legislation that requires ministerial approval for any change in the ownership of petroleum exploration and production licences across South Australia.

Mining and Energy Minister Tom Koutsantonis said the new laws gave the state government leverage to have a say in the takeover negotiations.

“I think it’s fair to say my main concerns are the headquartered company remaining here in South Australia, and the jobs in the Cooper Basin and the jobs in the headquarters here in South Australia,” he said.

“We’ve got legislation that puts us at the table. We’re going to use that legislation, and if it’s deemed that it’s not in the interests of South Australians, the South Australian government will act accordingly.

“Having a headquartered company here in South Australia is of strategic and vital importance to the state and we’re going to fight to keep it here.”

Mr Kavonic said that while the bidding consortium was saying all of the right things to allay local concerns, its ownership of Santos would result in a significant downsizing of the company’s head office in Adelaide.

“I think it would be inevitable that the Adelaide head office would diminish in significance over time under foreign ownership,” he said.

“XRG is building a global portfolio, and they are not going to be running their global portfolio out of Adelaide. At best they might allow some of the Australian business to continue to notionally be operated out of Adelaide for a period of time.

“There’s the letter and the spirit of these things, and I’m sure they, by the letter, can make commitments to the head office and that can all be technically accurate. But the spirit of where the decision making is going to lie, and where the people who are making decisions have their homes and vested interests – that’s not going to be in Adelaide anymore under foreign ownership.”

South Australian Deputy Premier Susan Close said the state government would be watching the bid for Santos “very carefully”.

“The South Australian government’s interest is, of course, in South Australian jobs and in having the headquarters here,” Dr Close said.

There are “legislative instruments” the government could use to influence any deal.

“The government is able to be a decision maker through this,” Dr Close said.

“What’s important is we have power and we’ll be watching.”

SA Business Chamber chief executive Andrew Kay said it was important for “all parties to actively ensure that the interests of South Australia are at the forefront of any successful takeover”.

Originally published as Santos board approves $30bn takeover bid from Abu Dhabi group