Abu Dhabi’s XRG consortium targets SA talks for $30bn Santos deal
Abu Dhabi’s XRG consortium is flying executives into Australia for face to face meetings as the $30bn takeover bid nears the due diligence stage.
Executives from Abu Dhabi’s ADNOC subsidiary XRG are expected to travel to Adelaide this week to sign a confidentiality agreement with Santos as a precursor to due diligence on the mooted $30bn takeover.
The Middle East consortium will hold a series of meetings in Santos’ home state as it seeks to soothe anxiety over the deal and underline commitments to keep the company’s headquarters in South Australia and protect local jobs.
Meetings are also expected to be held with prospective banks pitching for a role in the deal. ADNOC is advised by JP Morgan with Goldman Sachs, Rothschild and J.B North & Co working for Santos.
A confidentiality deed will likely be signed in the next day, clearing the way for a six week period of due diligence, according to sources.
Foreign Investment Review Board clearance has been named as a major impediment to the deal getting the green light given Santos’ role as a major energy producer and the precarious domestic gas industry on Australia’s east coast where supply shortages are forecast by 2028.
However, broker Barrenjoey said regulatory concerns are overstated with its analysis of more than 30 Foreign Investment Review Board decisions pointing to the low risk of a deal being blocked.
Barrenjoey said its analysis of 31 transactions reviewed by FIRB over the last five years shows an 80 per cent approval rate with an average review time of less than six months.
Rejected deals were often split into issues of monopoly control over critical infrastructure and increased stakes in strategic mineral projects with neither of these categories relevant to XRG’s bid for Santos.
A third factor, a preference towards a competing domestic offer, also appears unlikely while Australia and the UAE’s trade pact in November 2024 also played in the deal’s favour.
Barrenjoey pointed to the ACCC’s approval of Brookfield’s ultimately thwarted Origin Energy takeover, saying the same arguments could be made by XRG to accelerate spend on domestic gas market supply.
Santos holds a 27 per cent market share for gas in Western Australia and 8 per cent on the east coast, Barrenjoey analysis shows.
“XRG could also appease any government or regulator concerns by committing to boost domestic gas production, especially by accelerating development of Narrabri, Beetaloo, Mahalo, Taroom Trough and the Cooper Basin; assets long promised but constrained by Santos’ balance sheet and focus on dividends,” Barrenjoey analyst Dale Koenders said.
“Given the lack of critical infrastructure monopoly, the unlikelihood of a credible competing bid from a domestic suitor, the timing of the Comprehensive Economic Partnership Agreement and the range of options the federal government has to promote the domestic gas market, in our eyes FIRB approval is more likely than not.”
Jim Chalmers has described the Middle East offer as a “big transaction in a sensitive area” amid concerns over the Albanese government giving the go-ahead for selling vital domestic gas infrastructure.
Santos fell 1.5 per cent per cent to $7.66, a 14 per cent discount on XRG’s $8.89 a share offer price.
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