Santos shares jump on report Middle Eastern giants are weighing up takeover bids

Speculation is building that Australian oil and gas producer Santos may be again in talks with one or more potential suitors looking to acquire the company, as unconfirmed reports emerged that two Middle Eastern energy giants are evaluating potential bids.

Santos, one of the largest Australian gas companies, declined to confirm or deny reports from Bloomberg suggesting that Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) had been conducting preliminary evaluations of the company.

However, the reports pushed Adelaide-based Santos’ share price almost 5 per cent higher on Thursday,

Santos and Woodside, the two biggest Australian gas companies, broke off merger talks in February.

MST Marquee energy analyst Saul Kavonic said Santos had been “shopping itself for a while” and suggested a number of possible bidders may have conducted early evaluations, attracted primarily to the company’s prized liquefied natural gas (LNG) interests in Papua New Guinea.

“Aramco and ADNOC are kicking tyres on lots of LNG opportunities,” he said.

“Lots of potential acquirers start to consider Santos, but once they look under the surface at Santos they see too many problems at the legacy onshore Australian assets and walk away.”

While Kavonic added that it would be a “real stretch” to think either of the Middle Eastern heavyweights named in the report would actually lob a bid for Santos, he suggested the leak could be a sign of more advanced discussions on foot between Santos and another third-party bidder.

The Middle Eastern names may have been leaked to add tension to those talks, he said.

“Other possible bidders include European majors, MidOcean, ConocoPhillips, but all face value, funding and alternative priority hurdles,” he said.

Simon Mawhinney, managing director of investment firm Allan Gray, which owns shares in Santos, said the company appeared “reasonably cheap” and had a “handful of very good assets”, although he also downplayed the likelihood of a bid materialising from either Aramco or ADNOC.

“I’d love to be wrong on this particular point, but I’d find it very hard to believe that would-be suitors or acquirers would pre-announce their intentions,” Mawhinney said.

Santos chief executive Kevin Gallagher. Santos and Woodside broke off merger talks in February. Credit: Ben Searcy

Santos has LNG projects in Australia, Papua New Guinea and Timor-Leste that are prized for their proximity to fast-growing Asian demand. It also has gas operations focused on the Australian domestic market and oil assets in Alaska.

Earlier this year, merger talks between Santos and Perth-based oil and gas giant Woodside broke down, and Santos said it would look for other ways to unlock shareholder value.

A Santos spokesperson on Thursday said the company “does not comment on media speculation”.

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