ADNOC’s $30bn Santos deal heeded Houston call to ‘make energy great again’

For a cashed up suitor like ADNOC, Santos’s strategy opened the door for it to sweep in with a pledge to invest and develop a long list of projects which might otherwise sit idle into the 2030s.

Sultan Ahmed Al Jaber, chief executive officer of Abu Dhabi National Oil Co (ADNOC). Picture: Bloomberg

When the world’s largest gathering of energy executives landed in Houston in March, Sultan Al-Jaber had a message for the industry: “It is time to make energy great again.”

It was a populist Trump-like boast by the boss of Abu Dhabi’s state-owned ADNOC.

Among those in the packed CeraWeek conference was Kevin Gallagher, boss of Australia’s second largest energy company Santos.

Al-Jaber and Gallagher had crossed paths at plenty of industry events in the previous few years after previously hammering out a loose strategic agreement at the tail end of 2023 to work together on global carbon capture and storage projects.

While that carbon pact had gone nowhere, word had begun to spread that ADNOC was back in the hunt for deals through its newly formed $US80bn international investment arm XRG.

Until that point, the thinking within Santos’ was that ADNOC might take a stake in the Moomba CCS project as a way of putting down a marker for its ambition in low carbon technology.

But as the event unfolded in Houston in the second week in March, Al-Jaber and his team indicated an appetite for a much bigger bite.

Santos CEO Kevin Gallagher, right, at the Moomba carbon capture and storage plant in South Australia.

Gallagher attended a series of industry functions that week including one hosted by global private equity giant Carlyle. At the conference itself, he spruiked Santos’ huge untapped growth potential spanning Alaska, Papua New Guinea and a string of developments in Australia at a roundtable forum.

Within ten days, Abu Dhabi’s Project Emerald was born.

As the Santos team landed back in Australia, an email landed in the inbox of a Santos executive from a familiar name: ADNOC was back and this time wanted a face-to-face meeting. Despite ADNOC flagging its international expansion ambitions, the Santos team was taken aback by the prospect of a full takeover landing.

Within days Mohamed Al Aryani, XRG’s president for international gas, had landed in Sydney with his corporate entourage to open takeover talks with Santos.

A smaller team from Carlyle also flew in for the meeting, underlining the consortium’s financial firepower. Fortified with XRG’s mandate to create a global LNG powerhouse, it lobbed an $8 per share cash offer for the entire company.

Gallagher and the board, chaired by Keith Spence, had plenty of experience dealing with opportunistic M&A bids. Some say they’d initiated one of their own via the $80bn merger with Woodside Energy in late 2024, which was ultimately foiled with Spence unhappy with the valuation offered up by his counterpart, Richard Goyder.

Santos under Spence had previously scuppered a $14.4bn bid at $6.95 a share from private equity player Harbour Energy in 2018 citing debt and oil hedging concerns attached to the offer.

Then a few years earlier in 2015, a $6.88 a share offer worth $7.14bn landed from Scepter Partners, with connections to the Brunei royal family. That too was rejected as opportunistic.

Now, a decade on, Abu Dhabi’s ADNOC and its advisers JP Morgan knew the timing for a buyout offer had some logic.

Gallagher’s $21bn merger with Oil Search in 2021 had handed it a stake in one of the world’s prized LNG projects in PNG LNG along with a challenging but attractive oil development called Pikka in Alaska.

But it has also handed the company a conundrum: how to balance shareholder returns with a huge stack of development options including Papua LNG, backfill opportunities into PNG LNG and in Australia the prospective and expensive Dorado, Narrabri and Beetaloo projects.

Santos finally made its call in November 2024, rolling out a new capital framework which prioritised handing more cash to investors over heavy growth investment.

For a cashed up suitor like ADNOC, Santos’s strategy opened the door for it to sweep in with a pledge to invest and develop a long list of projects which might otherwise sit idle into the 2030s.

Declaring its interest while Gallagher was still on board may have also been a factor. A process to appoint the Scottish executive’s successor was widely tipped to take shape later this year.

Santos and ADNOC knew each other well by Friday. Picture: Brenton Edwards

ADNOC knew its initial $8 a share offer on March 21 was no slam dunk. After a swift rejection it regrouped and within a week hiked its initial tilt to $8.60 a share, bidding against itself for the right to be granted due diligence.

That second approach was also rebuffed on March 28. While discussions between the two camps remained cordial, deal-making paused as Anthony Albanese called the federal election the same day.

With the government in caretaker mode, the XRG camp realised the chances of striking a deal had to be put on ice given the political sensitivities of a foreign takeover of a major domestic gas producer.

A further complication arrived on April 2 when President Trump unleashed his Liberation Day global tariff crackdown, sending markets into a tailspin.

Santos was not immune with its share price cratering by more than 20 per cent in the first week of April before recovering back to late March levels as volatility eased.

ADNOC, for its part, had plenty else on the boil. BP had emerged as a much larger takeover target for the UAE oil producer but reports emerged that by April 11 it had decided not to move talks for the British oil giant beyond preliminary discussions.

Meanwhile Gallagher continued to go about his business, grabbing headlines for likening Victoria’s investment attitude to North Korea and attending a Coalition party fundraiser.

Then a week ago, the ADNOC and Carlyle consortium was back. This time there was no need for the formalities of an in person meeting. By Friday an $8.89 a share non-binding indicative proposal was lodged, a 28 per cent premium to its last closing price.

Santos on Monday said it intended to recommend the bid. A six to eight week period of due diligence is now expected with the aim of signing a scheme implementation deal in August. With a bit of luck, a deal could be wrapped up before the end of 2025.

Before then, Gallagher and Spence can expect an army of stakeholders, investors and politicians to weigh in on the merits of the takeover.

With a domestic gas review underway and the threat of supply shortages, all eyes are on Treasurer Jim Chalmers. He faces a lineball call on whether one of the biggest global energy deals this year ultimately gets the green light. ADNOC has cleared its first hurdle and now faces a drawn out wait to seal the deal.