Try again: Oil Search demands better offer from Santos
Oil Search says Santos needs to bump up the terms of its $23bn merger proposal to start talks between the two energy rivals.
Oil Search will require a higher bid from Santos before it opens talks over a $23bn merger, with interim boss Peter Fredricson declaring he wants the top job permanently and is trying to unite staff unsettled by the shock exit of former chief executive Keiran Wulff.
The demand puts pressure on Santos to boost its offer, with Oil Search saying that while the company and its shareholders see logic in the tie-up, the bid terms fall short.
“We’ve said that doesn’t work. Our shareholders are telling us we were right with that rejection. And the market is telling us the number should be different,” Mr Fredricson told The Australian.
“We don’t have to do anything to tell Santos that. They know. They can see the same information that we’re seeing.
“It’s not for us to do anything more. It’s a little bit like someone wants to gets engaged and give you a diamond ring but we gave the diamond ring back and said no thanks. They need to come back with a couple more carats in the diamond ring.”
Oil Search on July 9 rejected the all-share offer which would have given it 37 per cent of the merged company, saying the deal to create Australia’s biggest oil and gas company offered a premium of only 6.8 per cent despite its rival owning 70 per cent more of the equity.
Several shareholders have urged Oil Search to engage with its suitor, but Mr Fredricson said it had made its position clear and it was now up to Santos.
“The vast majority of shareholders that we’ve spoken to see the logic in putting the two businesses together. And by the way, we don’t disagree with them.
“The issue is not about the fact this shouldn’t happen, it’s about the exchange ratio at which it should happen. So when we see something that’s different to what we rejected – we’re very happy to engage.”
The interim boss only joined Oil Search four months ago as its chief financial officer after 12 years at gas pipeline operator APA, where he got to know Santos CEO Kevin Gallagher. After being called up to lead the company a week ago, following the sudden exit of Mr Wulff over behavioural issues, the New Zealand-raised executive wants the job on a permanent basis despite a shortage of oil and gas experience.
“I’m not an oil guy running an oil company, so that might be a difficulty for some people out there. But I bring a different skill base to the role. So long as you’ve got the oil and gas expertise within your team, I see no reason why I couldn’t be the long-term CEO of this business. I’m happy to go through the process and happy to be judged against others.”
One of his first tasks was reviewing the firm’s defences against a takeover approach, tweaking some prior assumptions and drawing more broadly on experience gained from APA’s $13bn takeover approach by Hong Kong’s CK Infrastructure, ultimately rejected by Treasurer Josh Frydenberg.
Oil Search last fought off a $11.6bn takeover tilt from Woodside Petroleum in 2015. Mr Fredricson said deals and merger approaches were a normal part of running a business.
“These things don’t come as a surprise to me. I’m a commercial beast. I’ve been brought up on businesses buying and selling assets. You can’t afford to be surprised but you’ve got to be prepared to react.
“An alignment putting Oil Search and Santos together has huge industrial logic to it. But you’ve got to get an appropriate value allocation, because we’ve got shareholders that aren’t shareholders of Santos. And we’ve got to look after their rights.”
The resignation of Mr Wulff amid health and behavioural issues shook the market, and chairman Rick Lee faced pressure to step down after bungling the initial disclosure of the takeover and rejecting the approach.
Some Oil Search staff were unsettled by the CEO’s swift exit after multiple complaints about Mr Wulff across the company’s Sydney, Papua New Guinea and Alaskan offices.
“There have been a range of different emotions. Some were surprised and others were maybe not. Some were asking what do we do next and some want to get on with it,” Mr Fredricson said.
“We’ve said whatever your view, and whatever your feelings, we’re here to support you. You can’t say people aren’t affected by these things, because they are. We’re a group of people who are charged with taking the business forward without Keiran. And let’s do that all together.”
Many in the market think Santos has the upper hand, with Oil Search’s share price failing to fully track a recovery in crude prices and the company noncommittal on hitting an end-of-2021 deadline for the investment go-ahead and equity selldown for its $US3bn Alaskan oil project.
Oil Search is confident the Alaskan project stacks up even amid climate pressures, but said it would not be rushed in getting the right funding and buyer in place before it decides whether to go ahead.
“We’ve said that we will not go to final investment decision if we do not have an appropriate reallocation of risk in the project. What that means is either the selldown of equity or a significant midstream infrastructure partner who effectively is helping to fund the project as an equity provider would,” Mr Fredricson said.
“It could very well be fourth quarter this year but only if we’ve got the right outcomes.”
Debt on its flagship asset, a 29 per cent stake in the PNG LNG export project, will be paid off by 2026, handing the company more than $500m free cashflow a year. It is also encouraged by the PNG government preparing to hold talks with ExxonMobil over the future of the P’nyang gas project.
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