Santos reveals it rejected a $9.5bn takeover bid in August

Santos has revealed that it passed on a $9.5bn bid in August, as its share price surged on reports of an imminent deal.

A Santos Ltd. pilot well operates on a farm property in Narrabri. (Brendon Thorne/Bloomberg)

Oil and gas producer Santos said it rebuffed an offer worth $9.48 billion from Harbour Energy in August, and that it wasn’t currently in takeover talks with the energy investment firm.

Santos (STO) said the nonbinding bid of $4.55 a share was made by Harbour — formed by EIG Global Energy Partners to buy controlling or near-controlling stakes in energy assets globally — on August 14.

“The board rejected the approach on the basis that the indicative price was inadequate and the sources of funds were uncertain,” Santos said.

Shares in Santos climbed 9.6 per cent to $4.80 on Thursday, as investors bet that Harbour Energy would return with a higher offer. Santos said it wasn’t currently in discussions with Harbour Energy and hadn’t received a new proposal.

Santos and Harbour share a director in common, Goh Hock. Recently an operating partner at Baird Capital Partners in China with more than 30 years experience in the oil and gas industry, Mr Goh has been a nonexecutive at Santos since October 2012 and also sits on Harbour’s board.

Harbour is managed by EIG, which has invested more than $US24bn in about 320 companies in a portfolio across 36 countries. EIG earlier this year became a significant shareholder in Senex Energy (SXY), which holds thousands of square miles of gas acreage in Australia’s eastern Surat Basin and has a 20-year agreement to sell gas from the Western Surat to Santos’s GLNG venture at oil-linked prices.

At the start of the month, Harbour completed the $US3bn acquisition of a package of oil and gas producing assets in the U. North Sea from Royal Dutch Shell.

Many analysts have viewed Santos as vulnerable to a takeover after racking up large debts as it transformed from an oil producer to a company that makes most of its profits from natural gas exports.

In late 2015, Santos rejected as too low a $7.14 billion approach from Scepter Partners, a Bermuda-based private-equity firm backed by sovereign investors and wealthy members of Asian and Gulf-based ruling families. That bid was pitched at a 30 per cent premium to Santos’s shares at a time.

Since then, under industry veteran Kevin Gallagher who took over as chief executive and managing director in early 2016, the company has tied Santos’s future to the GLNG gas-export operation in east Australia that counts Total among its partners, the Exxon Mobil -led PNG LNG operation in Papua New Guinea and projects in Northern Australia, Western Australia, and the Cooper Basin straddling South Australia and Queensland states. Last December, he moved to bundle non-core operations to be run as a separate business and targeted a further $US1.5bn drop in debt to less than $US3bn by the end of 2019.

In June, Chinese natural-gas distributor ENN Group Co. and private-equity firm Hony Capital leveraged their joint stake in Santos to form a strategic partnership aimed at investing in gas reserves and production in Australia and Papua New Guinea. ENN and Hony snapped up more shares in Santos in May, lifting their collective stake to 15.1 per cent, and agreed to act in concert as shareholders when it came to voting and other decisions.

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