Do the hard stuff fast: the Santos mantra for Oil Search merger
Santos boss Kevin Gallagher will use knowledge from previous M&A deals to guide the Oil Search merger process.
Santos has lifted the lid on execution plans for its $21bn Oil Search merger, saying it will “do the hard stuff fast” as speculation swirls over the future of Oil Search’s Sydney headquarters and staff if the deal proceeds.
Shareholders of Santos will control 61.5 per cent of the combined group with Oil Search at 38.5 per cent under the proposal with a merger proposal poised to be sealed later this week after the two sides agreed to a seven day extension conducting due diligence on each other.
Santos has been busy on the deal front in the last few years after buying Quadrant Energy for $US2.15bn in 2018 and then ConocoPhillips’ stakes in northern Australia for $US1.4bn a year later. The company delivered $US160m in synergies from those two deals and said it had learnt from experience the best ways to execute M&A deals.
“I do believe in doing the hard stuff fast,” Santos chief executive Kevin Gallagher told the West Australian Energy Club on Tuesday night. “You have got to get that done fast because it’s death by a thousand cuts if you let that go on forever. So a lot of planning goes into that and it’s three months before day one of the new entity.”
Mr Gallagher conceded synergies were often read as code for job cuts, but said it was a broader consideration which would also include office space and business costs such as procurement.
“The first part of that is managing the fear that comes across the workforce when you announce you are merging or acquiring the company. Because people and investors want to know what your synergy number is. We all know what synergy is code for and it’s not all people by the way. I continually emphasise that many of our synergies have come from things like procurement and office space.”
The Santos chief said there had “been a few blips” with its Quadrant and Conoco deals but said both had been managed relatively well and staff from the two companies were now a part of the larger Santos group. “It’ll take two or three years but the sign of success is when we forget where they came from. You don’t talk about Santos people, Conoco people and Quadrant people. We talk about Santos people and obviously if we merge with Oil Search there will be another challenge.”
Mr Gallagher said the Oil Search deal will allow it to fund a move to net zero emissions, describing climate pressures as the biggest challenge over the next decade.
Santos was among Australian oil and gas producers in June that warned the industry could suffer the same funding strike that has hobbled coal companies unless they rapidly step up action on climate change.
Separately, a bulked up Woodside Petroleum could be worth $28 a share – a 43 per cent premium – if the $40bn BHP Petroleum deal proceeds, Bank of America analysts said.
It expects shareholders to benefit from a stronger balance sheet with lower gearing of 12 per cent from 23 per cent pre-merger, the ability to sell non-core assets and also the better phasing of growth projects through this decade.
Bank of America estimates BHP’s share of abandonment costs are $US6bn on a nominal basis and $US1.5bn in real terms with the largest closure provision relating to the Bass Strait assets around 2035.
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