Oil Search shareholders vote in favour of $21bn Santos merger
Oil Search shareholders have overwhelmingly voted in favour of a $21bn merger deal with Santos.
Oil Search shareholders have overwhelmingly backed a $21bn merger with Santos, creating a top 20 listed ASX company and one of the 20 biggest oil and gas companies in the world.
Some 95.07 per cent of votes cast were in favour of the merger, Oil Search said in an ASX statement on Tuesday, with just 4.93 per cent opposed.
The deal, recommended by Oil Search’s board, needed the approval of 75 per cent of shareholders to get over the line.
Santos will now own 61.5 per cent of the merged company to Oil Search’s 38.5 per cent with the combined company owning a suite of oil and gas operations spanning Australia, Papua New Guinea and Alaska.
Oil Search chairman Rick Lee said the mega merger deserved to be backed and would leave shareholders in a stronger position than if it had remained independent.
“In making our recommendation, the Oil Search Board considered an extensive range of issues while being cognisant of our overarching responsibility to act in the best interests of all shareholders,” Mr Lee said in a statement.
“Having regard to all of these factors, the Oil Search Board believes that Oil Search shareholders will be better off if the merger proceeds than if it does not.”
The vote is poised to bring an end to Oil Search’s 92-year history as an independent oil and gas company amid a turbulent year which saw its chief executive, Keiran Wulff, depart in July owing to a combination of deteriorating health and complaints over bullying. Long-time boss Peter Botten signed off in 2020 after a quarter century at the helm.
More recently Oil Search was sued by its former finance boss with the gas giant‘s top executives accused of bullying, physical and psychological intimidation and harassment.
Mr Lee also initially bungled communications over Santos’ takeover approach and faced pressure to step down after rejecting the tie-up, putting the company on the back foot against its suitor.
The company has long been in the cross-hairs of Santos chief executive Kevin Gallagher given the overlap between the pair in Papua New Guinea where Oil Search holds a clutch of lucrative stakes in gas export projects including PNG LNG.
Santos under Mr Gallagher 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.
More broadly, Santos has been eager to bulk up saying the Oil Search deal would allow it to fund a move to net zero emissions, given its view climate pressures loom as the biggest challenge over the next decade.
Australia’s energy sector is undergoing its most profound restructuring in a generation as companies look to grow through consolidation after last year’s pandemic-sparked oil price rout.
The tie-up would have catapulted Santos into Australia’s biggest oil and gas producer but a $40bn merger between Woodside Petroleum and BHP’s petroleum arm will likely see the South Australian company remain second in the pecking order.
Oil Search and Santos own 29 per cent and 13.5 per cent stakes in the PNG LNG project respectively while Oil Search also holds a 22.8 per cent share in Papua LNG, which will add a further two trains of LNG or 60 per cent extra capacity by 2027.
The merger ratio between the companies also caused some consternation. An independent expert’s report found Oil Search would add 43-44 per cent of the value of the merged companies, sparking unrest among some investors who argued they were being short-changed by more than $1bn on the deal with their agreed 38.5 per cent share of the spoils.
However, while Grant Samuel said shareholders in Oil Search faced a material loss of value under the financial terms of its merger, it ultimately concluded a deal was still in their best interests given bigger funding and development hurdles getting projects off the ground.
Funding barriers have included Oil Search’s $3bn Alaskan oil project, known as Pikka, which has struggled to gain momentum.
A final investment decision had originally been due by the end of 2021, but in October it pulled back from any timeline until commercial deals to sell down its stake and attract funding were in place.
Oil Search now expects to make a call on sanctioning Pikka in the first half of 2022 amid market expectations Santos will sell Oil Search’s stake in the project should the merger proceed.
The Australian revealed in August a heated phone call between Mr Wulff and ConocoPhillips boss Ryan Lance over Alaska frayed company relations, reducing the chance of an equity stake being sold to the US giant and putting Oil Search on the back foot when Santos pounced with a merger approach.
The merger is due to take effect on Friday. Santos rose 2 per cent to $6.58 while Oil Search lifted 3.8 per cent to $4.12.