Oil and gas bankers get busy with Santos next in line for asset sales

Santos is understood to have started talking to prospective buyers for its Alaska project as oil prices soar. Picture: AP Photo

Just when Australia’s oil and gas bankers thought they would need to diversify when it comes to deal making this year, they are starting to get busy on their next round of mergers and acquisitions.

Last year, Australian energy deal makers experienced a dream run of transactions, with Santos embarking on a $21bn billion merger with Oil Search, Woodside buying BHP’s $20bn petroleum business and South Korea’s Posco International buying Senex for $900m – a deal on which shareholders will vote on Tuesday ahead of completion on April 1.

The expectation was that 2022 would be quiet in oil and gas after so much industry consolidation had been completed and large energy consumers would start turning off the tap to fossil fuels and tapping into renewable energy sources instead.

But few could have foreseen a war in Europe between Russia and Ukraine and that the oil price would double in the space of months, with wild predictions it could eventually hit $US300 per barrel with energy showing itself as critical to national security.

On Tuesday, Brent crude oil closed up 3.9 per cent to $US127.98 – more than double the $US65 it was trading at during August.

For Europe, about 40 per cent of its gas is purchased from Russia and the Russia gas accounted for about 13 per cent of imports into the US and they will be looking at alternative sources for oil and gas as they become more self-sufficient.

The US and UK have announced a phase out of Russian oil as part of sanctions inflicted over the invasion.

It all makes it an opportune time to place oil and gas assets on the market.

Santos is the company currently under the spotlight, while Seven is selling its 15 per cent stake in the Western Australia Crux gas field project.

Market observers have suggested that Santos would likely be keen to move swiftly on the sale of its Alaska-based Pikka project and the current macro-economic situation is now anticipated to make the asset more valuable.

Santos has a 51 per cent stake and the project is estimated to be worth between $US1.5bn and $US2bn ($2bn-$2.7bn).

Repsol owns the remainder and both owners have been hoping to reduce their interests by about 15 per cent.

Some believe Santos would be keen to sell the entire operation given the geographic distance from the rest of its assets in Australia and PNG.

Kevin Gallagher has tapped the US-based Moelis team for the job, with the Santos boss said to have a close relationship with the chairman of Global Energy at Moelis, Martin Houston.

The understanding is that Moelis is already speaking to prospective buyers.

ConocoPhillips is seen as the stand out candidate to buy the asset, given that it has the most synergies, with an asset that it operates right next door and is the state’s largest oil and gas producer.

Yet with the buoyant conditions, some question whether Santos sells its entire interest or now maintains a stake.

The other asset on offer through Goldman Sachs is a stake in the Dorado project, of which Santos owns 80 per cent. That sales process will restart this year after efforts last year did not result in a sale.

Japanese trading companies Mitsui and Mitsubishi were in talks to buy into the project last year, so perhaps they return to the negotiating table as buyers.

The remaining 20 per cent shareholder, Carnarvon Energy, is also looking to sell a stake or raise funds for the development.

Any sale of Cooper Basin assets would probably be off the agenda for Santos, sources say.