Woodside the wild card amid Santos-Oil Search

Three years ago, relations between Woodside and Oil Search cooled when Woodside boss Peter Coleman made an $11.6bn offer that was swiftly rejected. Picture: Jane Dempster/The Australian.

One of the questions being asked after Santos’s $22bn bid for Oil Search is where Woodside Petroleum fits into the picture.

Analysts have always believed that Santos and Woodside Petroleum are the most likely suitors of Oil Search. A tie-up with either makes sense, creating an industry champion.

Three years ago, relations between Woodside and Oil Search cooled when Woodside boss Peter Coleman made an $11.6bn offer that was swiftly rejected.

But Mr Coleman and Oil Search’s then chief executive Peter Botten have since left, and many believe Woodside would almost certainly be running the ruler over the business now.

In 2015, the proposal was 0.25 Woodside shares per Oil Search share, which would now be worth about $5.48 per share.

The latest Santos proposal implies a price of $4.25 per Oil Search share, based on the June 24 closing price. Oil Search shareholders would receive 0.589 new Santos shares for every Oil Search share held.

But some believe that PNG, where most of the Oil Search business is based, is not where Woodside is strategically focused, with its attention currently on its Scarborough gas field off the coast of Western Australia.

They also believe that Santos is in a stronger position to do a deal right now.

On Tuesday, shareholders were divided on the value of the latest Santos proposal, with some saying it was far too cheap and others saying Santos scrip was expensive.

Some are calling for the departure of Rick Lee after he failed to acknowledge the bid, despite questions about approaches on an analyst call. He also did not reveal complaints against chief executive Keiran Wulff, who stepped down this week.

Oil Search put out a statement on Tuesday saying the offer, a 6.8 per cent premium to the company’s closing price on Friday, was not high enough, but it was not opposed to a tie-up.

The proposal, where Santos shareholders have 63 per cent of the merged entity and Oil Search shareholders the rest, resembles the Saracen-Northern Star gold mining merger last year where Northern Star would own 64 per cent of the newly created mega-miner at no premium.

Talk of an Oil Search takeover by Santos emerged in May 2019 at the annual APPEA oil and gas conference in Brisbane, as revealed by DataRoom.

Investment bankers were said to have pitch books involving a deal between Santos and Oil Search.

The latest approach comes after six months of talks, as revealed by DataRoom on Tuesday.

Santos boss Kevin Gallagher is understood to have contacted Oil Search chief executive Keiran Wulff about his interest in a deal.

Last year, Oil Search came under pressure when the oil price plunged to $US45 per barrel, prompting the interest from Santos.

However, Oil Search is thought to have not shown interest in a merger with Santos, a sentiment understood to have been expressed in meetings with its rival.

A formal offer only came on June 25.

The deal would see Mr Gallagher become chief executive of the overall company with the chairman not yet determined.

A bigger balance sheet offers better opportunities in projects further down the track for the companies which are partners on PNG LNG.

Citi and J.B North & Co are advising Santos, while Goldman Sachs, Macquarie Capital and Rothschild are advising Oil Search.