By Peter Milne
Australia’s two largest oil and gas companies are in merger talks to form a single $80 billion company focused on gas exports.
Perth-based Woodside and its smaller Adelaide-based rival Santos confirmed market speculation with statements to the ASX late on Thursday.
Woodside’s Pluto gas export plant in Western Australia is one of five a merged company would have an interest in.
Woodside said the discussions were confidential and incomplete. “As a global energy company, Woodside continuously assesses a range of opportunities to create and deliver value for shareholders,” it said.
Similarly, Santos said the merger was one of a range of “alternative structural options” it was considering to unlock value.
In November, Santos chief executive Kevin Gallagher said he was frustrated at the company’s low share price.
Both companies said there was no certainty the discussions would lead to a transaction, and they would continue to update the market under their continuous disclosure obligations.
Any combination of $57 billion Woodside and $22 billion Santos would come under scrutiny from the competition regulator due to their already prominent positions in the east and west coast gas markets.
Both companies have grown recently by taking over smaller Australian operations.
Woodside doubled in size when it absorbed BHP’s petroleum division in mid-2022. The deal gave Woodside half the Bass Strait oil and gas fields operated by Exxon, more production in its home state of Western Australia and projects in the Gulf of Mexico and the Caribbean.
Santos bought ASX-listed Oil Search in 2021, increasing its exposure to gas exports from Papua New Guinea and adding an oil field in Alaska.
Internationally, the biggest oil and gas companies are using strong revenue fuelled by high prices after Russia’s invasion of Ukraine to double down on hydrocarbon production by buying smaller rivals.
In October, Chevron, a big producer in WA, bought fellow US company Hess for $81 billion. This was just weeks after ExxonMobil paid $91 billion for Pioneer Natural Resources, which specialises in hydraulic fracturing, or fracking, to access otherwise hard-to-get oil and gas.
Santos chief executive Kevin Gallagher was a senior executive at Woodside but left in 2011 after being passed over for the top job for Peter Coleman from ExxonMobil. In 2021, the Santos board offered him the prospect of a $6 million bonus when they thought he was in line to succeed Coleman.
The successful candidate was Meg O’Neill, who would become one of the most powerful corporate leaders in the country if she was to lead a merged entity.
Both companies are facing mounting opposition on the street and in courtrooms to their plans to develop new offshore gas fields to extend the life of expensive liquefied natural gas plants by decades.
Woodside chief executive Meg O’Neill.Credit: Louie Douvis
Last week, Woodside received environmental approval to conduct seismic testing of the Scarborough gas field off the Pilbara coast after months of delays due to legal action by a traditional custodian of the area concerned about damage to Indigenous culture.
This week, Santos is in court fighting objections from Tiwi Islanders to its plans to lay a pipeline from the Barossa field to an LNG plant in Darwin.
The two companies have protested that the legal actions against already granted environmental approvals are damaging Australia’s reputation with international investors and trading partners.
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