Santos mulls Oil Search takeover

Keiran Wulff, head of Alaskan operations, is tipped to succeed Peter Botten.

Just over a year after fending off suitor Harbour Energy, speculation is mounting that Santos could be looking at staging a takeover of its own, and that the target is close to home.

There is talk in the market that Santos could be considering an acquisition of its $10.6 billion Australian-listed rival Oil Search, capitalising on the expected departure of its longstanding and well-regarded chief executive Peter Botten and the current political uncertainty in Papua New Guinea, which has been weighing on its share price.

The price of Oil Search shares has fallen to about $7.14 from around $8.30 in January and more than $9 a year ago as fears grew about gaining approval for a planned $US13bn PNG LNG expansion after Papua New Guinea’s then prime minister, Peter O’Neill, resigned following a string of desertions from his government.

Oil Search told the market in May that the board was well advanced on managing the succession plan for Mr Botten, who led the business successfully for 25 years.

The comments at the Oil Search annual general meeting were taken as a signal that Mr Botten was about to leave the business, and the widely held expectation is the head of its Alaskan operations, Keiran Wulff, will be his successor.

Mr Wulff is highly regarded, but taking the reins of the PNG operations could prove something of a challenge given the political difficulties that can arise in the Pacific nation and the fact that his experience has been in Alaska.

The prospect of Santos looking at Oil Search comes after a rocky ride for Santos four years ago.

In 2015, it was caught out by a falling oil price and was prompted to raise $3bn — partly through selling a stake in the business to China’s Hony Capital. It also replaced its chief executive with Kevin Gallagher and opened its books to potential buyers of its assets as it desperately searched for ways to appease lenders owed $9bn and reposition itself.

Japan’s Mitsui bought its Bass Strait gas field, and the group tapped the market for an additional $1.5bn the following year.

Since then, the oil price has rallied and shareholders have thrown their support behind the management team, largely backing the board that knocked back a $14.5bn takeover bid by private equity-backed Harbour Energy in May 2018.

Now Santos’s market value is $14.27bn and in May it was worth more than the Harbour bid.

Talk of interest in Oil Search started emerging at the annual Australian Petroleum Production Exploration Association (APPEA) oil and gas conference during May in Brisbane, where investment bankers were said to have pitch books involving a deal between Santos and Oil Search.

Analysts believe that Santos and Woodside Petroleum are the most likely suitors of Oil Search.

However, relations are said to have cooled between Woodside and Oil Search after Woodside boss Peter Coleman made an $11.6bn play for the PNG-focused Oil Search in 2015 that was swiftly rejected.

It may be a year too early for Santos to make its move, according to some, but most do not doubt the company would find Oil Search attractive at a time it searches for more gas reserves.

It is also thought that any buyer would want to wait for a final investment decision on a $US13bn PNG LNG expansion project before it made a move — one that the new PNG government has vowed to review.

Yet, most believe the right time to strike is the time of Mr Botten’s departure, which is unlikely to take more than a year.

Another factor to consider is that industry giants Exxon and Total are also bullish on PNG so a look at Oil Search by either global giant may not also be entirely out of the question.