Santos M&A curse strikes again as ADNOC-Carlyle consortium abandon $30bn bid

A Santos LNG ship in Papua New Guinea.

Working on Santos transactions has become a graveyard assignment for Wall Street investment banks, with the latest casualty being a $30bn bid from Abu Dhabi National Oil Company and Carlyle Group that collapsed overnight.

The withdrawal by the ADNOC-Carlyle consortium, operating through XRG, marks the fifth failed takeover attempt for the ASX-listed gas producer in a decade — a track record that is beginning to expose fundamental structural impediments to any deal getting across the line.

Market sources point to Santos’s substantial decommissioning liabilities as a key deterrent, alongside regulatory and cost complexities surrounding its PNG LNG assets and underperforming Cooper Basin operations.

While these factors may not have been the exclusive reasons for XRG’s withdrawal, they have consistently spooked previous suitors.

A decade in the deal graveyard

The pattern began in 2015 when Santos’s board rejected a $7.14bn cash proposal from Bermuda-based Scepter Partners — backed by Brunei’s royal family — at $6.88 per share, representing a 26 per cent premium.

Harbour Energy, backed by US private equity firm EIG, made multiple attempts between 2018 and 2019, ultimately offering $14.5bn before abandoning negotiations.

The consortium, advised by Morgan Stanley and JPMorgan, saw its final $6.50 per share bid rejected after two weeks of due diligence.

Woodside Energy’s merger discussions in 2023 initially gave Santos shareholders some hope, particularly given strategic synergies around PNG assets.

Woodside walked away in early 2024, however, with sources indicating reluctance to pay full price for Santos’s broader portfolio despite specific interest in its PNG business.

Structural headwinds

Deal sources consistently cite several structural challenges that have deterred acquirers. Abandonment and decommissioning provisions for Santos’s Western Australian assets may be materially understated relative to bidders’ internal estimates.

The PNG LNG business faces ongoing regulatory complexity and cost pressures that complicate valuation metrics.

Additionally, Foreign Investment Review Board approval conditions potentially requiring commitments to domestic gas supply or pricing on Australia’s east coast have created commercial hurdles for international buyers.

XRG’s statement citing “a combination of factors that when considered collectively” impacted their assessment suggests these issues accumulated to undermine deal economics, despite Santos being well-positioned in its capex cycle with Barossa and Pikka projects largely funded.

Market impact

Santos shares fell 12 per cent to $6.74 at close on Thursday, wiping out gains made since XRG’s indicative $8.89 per share offer was announced.

The consortium’s 28 per cent premium to Santos’s $6.96 closing price had been well-received by the market and recommended by the Santos board.

Goldman Sachs, Rothschild & Co and J.B North & Co advised Santos, while JPMorgan represented the buyers — a prestigious mandate but costly exercise for the bulge bracket.

Oil has been trading at more than $US60 per barrel amid Middle Eastern geopolitical tensions and energy sector consolidation accelerating globally, but Santos’s repeated deal failures raise questions about what’s next for the group after sources have suggested it has sounded out interest from prospective buyers in the past.