Santos ‘must act’ on strategic review after collapse of Woodside merger talks
Santos is under renewed pressure from shareholders to increase its value following the collapse of merger talks with Woodside.
Santos must act on the findings of a strategic review into its structure after the collapse of talks with Woodside over a possible merger, investors have demanded, insisting the oil and gas company cannot afford to continue without change.
Santos and Woodside said this week that talks over a potential $80bn merger had ended after both sides agreed they could not find a deal that would be acceptable to their shareholders.
The collapse was well received by Woodside shareholders, who worried about overpaying, but Santos investors have insisted the company needs a new strategy.
“The Barossa ruling has been priced into the share price, and it’s still sitting around where it has been all year. Santos is probably frustrated but the board has to do something now if the Woodside deal is not happening,” said one investor who spoke on condition of anonymity.
“The board has been open about considering different proposals, well they have to act on what the strategic review finds.”
The Australian last year exclusively revealed Santos had tapped Citi to undertake a review, work that sources said was being conducted alongside Goldman Sachs. It is not immediately clear when Citi and Goldman are expected to report potential options, but investors will not get any insight until Santos reports its 2023 full-year results later this month.
One proposal already floated by a group of investors called for a split of the company to create a separate liquefied natural gas entity, which they said would increase the value of the business by 40 per cent.
The plan was proposed by Melbourne-based fund manager L1 Capital, with the support of Tribeca Investment Partners and Wilson Asset Management, though sources close to Santos said they did not believe the plan had widespread endorsement from shareholders.
But the sources close to Santos said the company shares shareholder frustration, highlighting recent comments from chief executive Kevin Gallagher, who expressed his anger that progress on key growth projects was not being reflected in its share price.
Santos shares closed down 2c at $7.32 on Friday, and are off 7.3 per cent over the past week.
The sources said the company continued to believe that notable projects were tantalisingly close to becoming live and that that would drastically improve the financials of the company.
“In less than 18 months, we will have the Barossa project up and running and Moomba too, which we believe will make a real difference to how the company is valued,” said one source familiar with the thinking of the company.
The $5.4bn Barossa LNG is the cornerstone of Santos’s growth plans. Drilling has begun and, once operational, it is expected to supply 20 years of gas to the Darwin LNG export terminal that will eventually be sold to Asian customers.
Regional demand for LNG remains strong, and Santos says it believes it will increase as countries move to curtail emissions by weaning from higher carbon-emitting fuels such as coal. But the project is in the crosshairs of environmentalists, who have vowed to oppose all resource projects in the region.
Drilling was delayed for more than a year as Santos was forced to consult with more people, while work on completing a 262km pipeline was suspended for weeks as the Federal Court mulled an application by the Environmental Defenders Office.
Santos will receive damages for the failed application, though it is not clear whether the company will be able to lodge a claim for any losses outside of legal fees.
Santos is also positioning itself to profit from rising demand to abate emission through its carbon capture and storage project, Moomba.
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