Oil Search defends value of $21bn Santos merger
Investors have questioned Oil Search’s approach to the $21bn Santos merger amid some concern over the value of the deal.
Oil Search has defended its decision not to seek rival bidders or consider testing the market for asset sales, as investors question the value of its $21bn merger with competitor Santos.
While shareholders of Oil Search will own 38.5 per cent of the merged company with Santos the 61.5 per cent balance under the current proposal — a boost to the initial takeover offer at 37 per cent to 63 per cent — some shareholders argue the company is being given away too cheaply.
Oil Search acting chief executive Peter Fredricson said it would consider any rival approaches but was not actively shopping the company around for a deal as it conducts due diligence on the Santos tie-up.
“I noticed that we were asked by a shareholder today if we had gone out and knocked on the door of everybody else. But when we’re in a process like you’re in, you sign non-disclosure agreements and typically they’ll include ‘no shop, no talk’ type restrictions. And we’re in that environment today.
“If something else was to come in the door that led to a better outcome, then we have the ability to step away from the Santos transaction.”
Oil Search has been working to sell a stake in its $US3bn ($4.15bn) Alaskan oil project but said that process has also been delayed given buyer uncertainty over the Santos deal.
The fate of the Alaska project has been heavily debated by investors, with Oil Search pulling back in July from any definitive timeline to sell down its 51 per cent stake in the Pikka project, while Santos has indicated it would not necessarily seek to retain operatorship of the development should the merger proceed.
“The Santos merger proposal is always likely to slow counter-parties up because third parties want to understand what they are getting and are they getting the same outcome as might have been discussed with us through the process,” Mr Fredricson said.
“If we receive something during this year, we’ll assess it and we’ll deal with it in a way we’re able to at the time. And if that’s covered by a merger implementation deed with Santos, we will assess it in that context. But if we don’t we’ll work through the Santos proposal and see where we are at the end of that.”
The Alaska selldown has proved problematic for Oil Search after The Australian revealed a heated phone call last year between former Oil Search chief executive Keiran Wulff and ConocoPhillips boss Ryan Lance over Alaska frayed company relations, reducing the chance of an equity stake being sold to the US giant.
Oil Search has left the door open to revisiting the merger ratio with Santos depending on the outcome of due diligence.
“Both of us are going through a process today that is geared towards confirming the agreed exchange ratio. But I suspect if there was any material departure from the inputs that delivered that initial exchange ratio there might be some discussions beyond that,” Mr Fredricson said after its half-year results.
“As we’re sitting here today, we have not talked about that. We’re all doing the due diligence work that we were expected to do and we’ll address that when we get to the end.”
Oil Search rebounded back to first-half profit due to a recovery in oil and gas prices, with its core net profit for the first half jumping to $US139m ($192m) — beating analysts‘ consensus of $US114m for the six months to June 30.
Revenue edged up by 7 per cent to $US667m, with a dividend of US3.3c reinstated after being scrapped last year due to torrid market conditions which saw the biggest oil crash in a generation, which saw it record a bottom line loss of $US266m.
Mr Wulff abruptly resigned from the Papua New Guinea LNG producer on July 19 following issues raised over bullying including a whistleblower complaint in mid-June, sparking an investigation which found evidence of inappropriate behaviour.
Oil Search shares rose 3 per cent on Tuesday to $3.81.
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