Santos’ $21bn Oil Search merger suffers delay
Santos and Oil Search have suffered a delay on a key plank of their $21bn merger.
Oil Search and Santos have confirmed a delay to the next steps of their $21bn merger while the Papua New Guinea government has sent a letter to Santos outlining its request for an extra equity stake in the PNG LNG project.
It’s now expected a crucial shareholder vote on the merger, scheduled for November 29, will be pushed back until early December.
The change in timeline was triggered after a scheduled court hearing in PNG to sign off on the merger scheme booklet failed to take place on October 27, The Australian revealed earlier on Friday.
Merger documents have taken longer than expected to be finalised, while Oil Search is thought to still be waiting for an independent expert’s report. A raft of reasons including bureaucratic issues with the PNG Securities Commission and worsening Covid-19 cases were also to blame for the court date being delayed, according to sources.
Oil Search said it was in the process of obtaining material to finalise the scheme booklet and the PNG court date had now been delayed until November 10.
“Oil Search will release an updated timetable upon dispatch of the scheme booklet,” the company said in an ASX statement.
Santos also confirmed the same date change without providing any reason for the delay. Talks are ongoing between Oil Search, Santos and the PNG government over the merger and all parties remain hopeful a deal will be sealed before the end of 2021.
Separately, Papua New Guinea’s Prime Minister James Marape has sent a letter to Santos confirming the Pacific nation wants an extra 10 per cent stake in the lucrative PNG LNG project.
Mr Marape met with Mr Gallagher and Oil Search chief executive Peter Fredricson at Port Moresby’s five star Airways Hotel earlier in October where he laid down the demand as part of a broader discussion over the merits of the merger deal.
Sources said Mr Marape has since written a letter to Santos confirming it wanted to hold discussions about lifting its stake. France’s TotalEnergie, operator of the Papua LNG project, has also started informal talks about taking an interest in PNG LNG. One scenario could see the PNG government and TotalEnergie split a stake should Santos sell down its merged interest.
The national government originally held a 19.4 per cent stake in PNG LNG but is in the process of distributing a 7 per cent share to provincial governments and project landowners as part of the original benefit sharing deal struck in 2009. That means the PNG government will be left with a 12.4 per cent share of PNG LNG, which it regards as too small.
The two companies have signed a merger agreement, with Santos controlling 61.5 per cent of the beefed up producer to Oil Search’s 38.5 per cent, a sweetener to the previous 63-37 per cent ratio rejected by Oil Search’s board.
But with the deal requiring the approval of at least 75 per cent of shareholders at the proposed November 29 meeting, there is growing talk that several institutional Oil Search shareholders still harbour concerns over the tie-up and whether the company is being handed over too cheaply to a major energy rival.
Oil Search fell 2.3 per cent to $4.29 on Friday while Santos dropped 1.6 per cent to $6.98.