Santos selldowns loom as energy markets boom

Santos managing director Kevin Gallagher. Picture: Simon Cross

Santos has been tipped for more than $4bn of equity selldowns following its $21bn merger with Oil Search, to cash in on booming energy markets while also trimming its own capital outlay as projects move to the drilling and production stage.

At the top of the pile sits PNG LNG, the Port Moresby gas export plant, where Santos now owns a 42.5 per cent stake after clinching the Oil Search deal.

With an expected 10 per cent stake up for grabs, the early runners were seen as PNG LNG operator ExxonMobil and France’s TotalEnergies, which runs the Papua LNG project that will feed an expansion of PNG LNG. While both those oil and gas giants remain at the table, DataRoom understands several Japanese players have also emerged as serious contenders in the race.

JX Nippon Oil & Gas, which owns just under 5 per cent of PNG LNG, has been linked as a potential bidder, while Marubeni and JERA may also consider wading into any sale.

The impetus for Japan to secure a greater foothold in projects like PNG LNG has been underlined in recent months by a supply squeeze. Japan relied on Moscow for 10 per cent of its LNG supplies, but volumes from Russian producers have been curtailed by sanctions following its invasion of Ukraine.

More broadly, Japan is now moving to boost its investment role in LNG upstream projects. Its government recently spoke of providing ‘‘risk money’’ through the state-run Jogmec for existing LNG projects that can lift supplies over the next few years.

Santos boss Kevin Gallagher said in February he had already garnered early interest from buyers in the PNG LNG stake. The question now is whether it is split among several parties to keep joint venture alignment in place, or an investor takes the 10 per cent-plus holding.

The PNG government also lurks as an outsider, though there are doubts it can fund a deal to top up its share.

In terms of timing, Gallagher could barely have picked a better moment to sell. With a global squeeze on LNG production, prices hovering near all-time highs and PNG LNG seen as one of the world’s top prospects to pull off a low-cost expansion, buyers can expect to pay a full price to either get in on the action or build a new position.

Santos has also reopened a selldown process started by Oil Search for the Pikka asset in Alaska, with Moelis fielding offers, and will consider selling a 20-30 per cent stake in its Dorado oil project in Western Australia.