Papua New Guinea demands better terms from Santos in $21bn Oil Search merger
Santos’s $21bn merger with Oil Search faces a major threat after the Papua New Guinea government demanded better terms.
Santos’s $21bn merger with Oil Search faces a major threat after the Papua New Guinea government demanded better terms and warned that aspects of the deal could fail a national interest test.
A merger agreement is in the final stages of negotiation between the energy giants but the government of PNG, where both producers own major gas interests, has upped the ante by saying aspects of the transaction may not pass a national interest test seen as critical for the deal to proceed.
“If the merger will result in the weakening of any Papua New Guinean shareholders or shareholder interests, reduction in market liquidity, potential for job losses, potential delisting from PNGX, and loss of local ownership of the company assets to a foreign interest, it is not in PNG’s National interest,” PNG Deputy Prime Minister Sam Basil said.
“The Board of Oil Search and Santos must explicitly inform Papua New Guinea their plans for PNG capital market development in the context of this merger. Our concern derives from the possibility that PNG will incur significant detriment in the oil and gas sector to a foreign company. It is equal to losing our sovereignty in the oil and gas industry where PNG will have no control over it.”
Oil Search is listed in both PNG and Australia and has 5000 local shareholders, according to Mr Basil, but the company will cease to exist if the merger gets the green light leaving the nation in limbo and without its biggest locally listed company on the stock exchange.
“From our perspective, this is an outbound transaction. At the conclusion of this merger process, Oil Search has ceased to exist. I am advised we have about 5000 thousand PNG shareholders. If the arrangement succeeds, these shareholders will become shareholders of an Australian company which has no presence in the Papua New Guinea capital market,” Mr Basil said.
The government is worried that Santos boss Kevin Gallagher has no plans to list the merged company in PNG which means new investors of the bulked up group will have to buy and trade their shares in Australia, a process made more challenging by foreign exchange restrictions.
It also laid out concerns that investment funds will migrate from PNG to redomicile in Australia and locals will be denied access to direct investment into the country’s big LNG export projects – PNG LNG and the proposed Papua LNG development – in which Oil Search and Santos hold stakes.
“Santos may later, after the merger, squeeze out PNG shareholders by purchasing their shares,” Mr Basil said in the statement released on Thursday. The impact of capital erosion will significantly damage PNG’s already fragile emerging domestic savings and investment market.”
The market capitalisation of the PNG stock exchange will fall by a third if Oil Search delists, Mr Basil added.
“Oil Search and Santos, owe a moral obligation to Papua New Guinea to create value for all PNG stakeholders, not just the shareholders. This merger must encourage investment in the country.”
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