Santos CEO Kevin Gallagher touts global ambition after $22bn Oil Search deal
Having sealed its $22bn merger with Oil Search, Santos CEO Kevin Gallagher says the company’s bigger balance sheet will help it transition to a low carbon energy future.
Santos chief executive Kevin Gallagher says the company’s bigger balance sheet – having sealed its $22bn merger with Oil Search – will allow the resources major to navigate accelerating climate pressures and help it transition to a low carbon energy future.
The deal has created one of the largest companies on the ASX and one of the 20 biggest oil and gas producers in the world, with shares in the group to start trading on Monday for the first time.
“This merger brings together two industry leaders to create one high-performing team with a vision of becoming a global leader in the energy transition. This is the biggest transaction in Santos’s history and positions us to execute our growth plans,” Mr Gallagher said to mark the merger.
“We know the world will continue to demand gas for decades to come. We also recognise the world must decarbonise and this merger gives us the balance sheet to fund that transition.”
Both Santos and Woodside Petroleum, pursuing a $40bn merger with BHP Petroleum, have sold their deals on decades of demand for their gas supplies while also pitching a pivot into cleaner sources of energy including hydrogen and carbon capture and storage.
The Santos chief has conceded fossil fuel companies will have to transition to new energy sources “or die”, but said $US5.5bn ($7.7bn) of liquidity and its transition strategy would allow it to thrive amid growing environmental pressures.
“Critically our commitment to net zero emissions by 2040 target remains and if anything, the merger enhances our ESG credentials due to our larger balance sheet and greater ability to fund the projects that will be critical as the world decarbonises,” Mr Gallagher said.
Santos has previously outlined synergies of up to $US115m a year amid expectations of job losses and the potential closure of Oil Search’s Sydney office.
Several hundred full-time Oil Search staff face uncertainty over their roles, although any decisions about who will remain with the merged company are expected to take several months to play out.
Three Oil Search directors are likely to be included on the joint board, with one of those based in Papua New Guinea.
Santos will own a 42.5 per cent stake in the PNG LNG gas export project, but Jarden expects it will sell a 10 per cent share to reduce its concentrated exposure to PNG.
Total, which controls a linked gas development called Papua LNG, is the obvious buyer of a 10-15 per cent stake in PNG LNG, according to MST Marquee.
RBC has also floated the idea of Santos considering a deal giving Total a foothold in PNG LNG and the beefed-up Santos a bigger share of Papua LNG, which is operated by the French company.
“The merger also provides an opportunity to improve alignment between the PNG LNG and Papua LNG projects, supporting the Papua LNG final investment decision, jobs growth and long-term wealth for Papua New Guinea and its people,” Mr Gallagher said.
Santos will own 61.5 per cent of the merged company to Oil Search’s 38.5 per cent after the deal was overwhelmingly backed by shareholders last week.
An independent expert’s report ultimately concluded a deal was still in Oil Search shareholders’ best interests given bigger funding and development hurdles getting projects off the ground despite pointing out a valuation gap with the merger ratio.
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 this year on the development, 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 that Santos will sell Oil Search’s stake in the project should the merger proceed.
More Coverage
