Co-operative Harbour Energy advances Santos bid

Santos predator Harbour Energy has agreed to work with Santos’s major shareholders.

Santos CEO Kevin Gallagher. PIcture: AAP

Santos predator Harbour Energy has become an effective substantial shareholder in its $13.5 billion target by agreeing to work with Santos’s major shareholders as it finalises a formal offer for the ­Adelaide icon.

Harbour, a privately owned US energy company, has also completed due diligence on Santos without raising any issues, Santos chief executive Kevin Gallagher revealed yesterday.

The agreement and due diligence completion mean two conditions on what would be the nation’s biggest resources sector takeover are close to being met and signal that Harbour is set to make a formal offer.

Rising oil prices are putting pressure on Harbour to boost a $US4.98-per-share approach in April (which translated to $6.50 at the time) that saw it granted due diligence by the Santos board.

In a notice to the Australian stock exchange yesterday, Harbour said it had become a substantial Santos shareholder with a 15.1 per cent stake.

The stake is not directly held.

It is owned by Chinese gas company ENN Holdings and Chinese private equity firm Hony Capital. Harbour wants them to retain their stakes in an unlisted Santos if Harbour’s offer is ­successful.

Harbour, which is managed by US firm EIG Global Energy Partners, said it was working with ENN and Hony and seeking to agree on terms with them to put a formal offer to Santos.

“Harbour Energy has a compelling vision to be a leading player in Australia’s natural gas sector and in global LNG markets,” Harbour chairman R. Blair Thomas said.

“It is a significant milestone to commit to work together with ENN and Hony in connection with our Santos proposal.”

$6.23 Santos closed down 2¢ q

ENN went into a trading halt on the Shanghai stock exchange yesterday, saying that a preliminary agreement had been reached with Harbour. “There is still no deal yet but there is every intention to make one,” an ENN spokesman said.

Mr Gallagher said as far as Santos could tell, Harbour had found nothing unexpected in its due diligence.

“There have been no issues raised, the due diligence process is very advanced and we are ­effectively getting to the end of that process now,” he said on the sidelines of the Australian Petroleum Production and Exploration ­Association conference in ­Adelaide. “The rest is subject to confidentiality until we get to a point where Harbour either decide to make a binding offer or they don’t. At that point, the board will decide whether to recommend that to the shareholders,” Mr Gallagher added.

Harbour’s initial bid is valued at $6.67 at current exchange rates, but Citi has said a bid of $7 a share will probably be needed to get across the line, after Santos chairman Keith Spence said oil price gains had increased the company’s value.

The shares closed down 2c at $6.23 yesterday on a down day for energy stocks.

Mr Gallagher said he was not sure of ENN’s position on the Harbour approach. “There’s been no contact between ourselves and ENN on that,” he said.

Macquarie analysts said the ENN announcements added some risk to the deal.

“Though positive that ENN reached a preliminary agreement with EIG, with the halt lasting up to 30 days, as well as highlighting there are still major uncertainties, we see this as adding a further layer of risk to the deal,” Macquarie said in a note to clients.

“We previously highlighted that the biggest risk to the Santos takeover is receiving approval from the Treasurer in a period when gas and electricity prices are a major political concern.”

Federal Resources Minister Matt Canavan said an application for approval had not been yet been made to the Foreign Investment Review Board.

“It is my understanding there’s no proposal before the government,” Mr Canavan said on the sidelines of the conference.

Mr Canavan said energy security factors would be looked at when the FIRB considered any proposal but said he welcomed comments from Santos that the sale would not impact on any agreements between Queensland’s gas exporters.