Santos boss Kevin Gallagher is thought to be moving on a selldown in PNG LNG, with talk that he wants to get a deal done quickly.
Mr Gallagher is believed to be keen to sell a stake in PNG LNG to Total sooner rather than later and negotiations may already be under way.
Total is the operator of the other major PNG project, Papua LNG, which is linked to PNG LNG, and gaining exposure to the PNG LNG project would create synergies for the global energy giant.
Expectations are that Total would be keen to buy as much of the PNG LNG project as was offered, with 10 per cent the minimum to obtain voting rights.
Morgan Stanley analysts believe Santos would reap about $US2.3bn ($3.25bn) for a 10 per cent interest in PNG LNG this year, based on it selling for a 25 per cent discount to its valuation.
It has long been expected that acquisitions will be on the agenda for Santos following its $21bn merger with Oil Search.
Oil Search’s 51 per cent stake in the Alaskan project Pikka was always thought to be at the top of the list, while there had been a prediction it would sell 10 to 15 per cent in PNG LNG and perhaps part or all of its 80 per cent interest in the Doraldo project in Western Australia.
There is also the potential selldown of about $5bn worth of infrastructure linked to Santos’s projects, which Mr Gallagher had flagged as a potential move even before the Oil Search merger.
Equity capital market bankers have been pitching this as a possible initial public offering prospect.
Pikka and Doraldo have large capital costs.
An exit would create more free cashflow by paying down debt and enabling the group to improve its dividend yield and appease institutional investors.
A number of investors are worried about the level of demand for oil and gas in the future, as the trend towards renewable energy and electric vehicles accelerates, and only want a modest level of production.
Morgan Stanley analysts said in a recent research note that they believed that a full exit of the Alaskan project would be a best-case scenario and could reap the group $US1bn, based on a 20 per cent discount to book value. It would reduce capital spending by $US2.7bn, which is required for the project between 2022 and 2024.
They say a full sale of the Alaskan project could lower debt levels to less than 20 per cent, and free cashflow yields would hit between 10 and 15 per cent.
They believe Santos could double its dividends it shifted its current 20 to 30 per cent of free cash policy to 50 per cent, and the stock could yield 8 to 10 per cent compared to between 4 and 5 per cent now.
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