Re: SA Economy
Posted: Fri Dec 08, 2023 5:05 pm
https://www.adelaidenow.com.au/business ... 3f9ebaf6a7Woodside, Santos merger talks linked to shareholder frustrations
Energy giant Santos has struggled to bolster its share price amid rising shareholder frustration, which led to quiet review and a possible $80bn merger.
Colin Packham
3 min read
December 8, 2023 - 2:33PM
Woodside explored the prospect of a merger with Santos after the South Australia-based company moved to quietly implement a strategic review amid rising shareholder frustration over its share price that has struggled despite a global energy crunch.
Santos confirmed late on Thursday it was in preliminary talks with the much larger Woodside over a merger that investors have greeted.
Earlier this year, a group of investors wrote to Santos to suggest the company split the business, creating a separate LNG entity that the shareholders said would drive the share price up more than 40 per cent.
Santos confirmed receipt of the proposal, but never revealed its view on the plan.
However, The Australian understands that Santos quietly engaged Citigroup to undertake a strategic review of options, including the proposal mooted by the group of investors.
The plan pitched by Melbourne-based fund manager L1 Capital, with the support of Tribeca Investment Partners and Wilson Asset Management, was then discussed with the market, but it received a cool reception.
This in combination with the broader share price frustration is understood to be the catalyst for Woodside interest.
The Australian understands Woodside has appointed Morgan Stanley as advisors on the possible transaction.
Talks with Woodside are understood to be at a very early stage, but a transaction could be attractive as chief executive Kevin Gallagher approaches the end of his much-publicised contract. But sources close to Santos said the company will not accept any deal that does not unlock shareholder value.
“Have you seen the share price? Kevin is not shy in talking internally about 2025 and his own situation, but he is focused on shareholder value and any talk of a nil premium is not delivering for shareholders” said one source.
Shares in Santos are nearly 6 per cent higher in Friday afternoon trade at $7.23.
The talks come as Santos struggles with a series of problems.
Work on its $5.2bn Barossa LNG project has been curtailed by two legal challenges, which the company has warned threatens its production timetable.
Santos insists those problems are not unique to it, and sources also highlight several legal challenges faced by Woodside.
Woodside’s chief executive Meg O’Neill has warned she expected further opposition as its own $16.5bn Scarborough project materialises.
Santos in 2021 handed Mr Gallagher an unusual $6m “once-off growth projects incentive” in 2021 to deliver the oil and gas giant’s major projects to 2025 – a move that proved successful in keeping him out of winning Woodside’s top job, now held by Meg O’Neill.
Investors in Santos said they continued to believe in the outlook for the company and would therefore be hesitant to accept a merger with Woodside without a significant premium.
“We need some meat on the bone. We did not invest in Santos for one quarter, and of course we are frustrated with the share price – but eventually the value will be unlocked – and we wouldn’t accept losing that upside without a decent premium on the offer,” said one large investor who spoke on condition of anonymity.
While talks are tentative, a deal would underscore Woodside’s ambition to take a global leader position.
Woodside has moved aggressively to expand its reach, an ambition that was propelled through its acquisition of BHP’s petroleum assets.
Woodside, under Ms O’Neill, has positioned itself to capitalise on strong near-term demand for fossil fuels, while the company envisages demand for LNG to remain robust until 2050 as traditional sources of energy run low and new sources take longer to mature.
But a Woodside-Santos merger would not be entirely smooth. Some investors question the WA oil and gas giant’s interest in some assets owned by Santos.
Santos holds quality assets in PNG. But its WA assets service the domestic market, and doubt remains over whether the company’s massive investment in coal seam gas in Queensland was worth the money spent.
It’s thought that merger talks could involve a break-up of Santos with the GLNG gas export project in Queensland potentially being snapped up by Gina Rinehart’s Senex Energy, while fellow Adelaide producer Beach Energy could snap up Santos’ Cooper Basin and West Australian assets.
Woodside – already under fire from climate activists – would also inherit some of Australia’s most contentious fossil fuel projects in any merger with Santos, including the company’s long stalled Barossa gas project and Santos’ $3.5bn Narrabri gas project- which has also been beset by delays and challenges.
https://www.adelaidenow.com.au/business ... d710b16989Tom Koutsantonis says the government is monitoring merger talks between Santos and Woodside Energy ‘very closely’
Energy Minister Tom Koutsantonis says the government will be doing everything possible to maintain Santos’ presence and jobs in SA, as merger talks begin with Woodside Energy.
Paul Starick, Perry Williams and Nick Evans
2 min read
December 8, 2023 - 9:51AM
South Australia risks losing the corporate headquarters of its largest company, Santos, which has confirmed merger talks with the much-larger resources firm Woodside.
The $80bn merger deal would create a global oil and gas giant, as fossil fuel producers bulk up as part of a wave of consolidation across the industry.
However, Energy Minister Tom Koutsantonis on Thursday night strongly warned Woodside against diluting the oil and gas firm’s Adelaide base.
“The first two letters of the name Santos stand for SA,” Mr Koutsantonis said.
He declared the state government a strong supporter of Santos, particularly its jobs and resources, and insisted any weakening of either would be “examined very closely”.
“The SA government has been very supportive of Santos, a company that employs 1000s of people and is headquartered here in SA,” Mr Koutsantonis said.
“We will do all we can to maintain and protect SA jobs and the headquarters.
“This is very early in this process, but we will be monitoring it very closely.”
Opposition Leader David Speirs said any suggestion that Santos could be moving interstate was “deeply concerning”.
“If Santos does merge with Woodside, Peter Malinauskas must assure South Australians he will fight hard to keep its headquarters here, because if it goes west that would be a huge economic blow for the state,” he said.
Santos told the ASX late on Thursday rumours about it being in talks with Woodside were correct.
Details of the progress of the merger talks, and crucially where any merger entity would be headquartered, are scant at this stage.
Santos timeline
- 1954: The South Australia Northern Territory Oil Search (SANTOS) was founded.
1963: Santos pioneers discovered natural gas in the Gidgealpa 2 well, located in the Cooper Basin region.
1966: The Moomba 1 site was discovered confirmed the Cooper Basin region as a major petroleum province.
1969: Santos has a commercially viable quantity of gas and entered into gas sales agreements with the South Australian Gas Company, Electricity Trust of South Australia and Australian Gas Light Company.
1970s: Discovered oil at Tirrawarra in Central Australia.
1980s: A liquids recovery plant was built at Moomba along with a fractionation and load-out facility at Port Bonython.
1990s: A number of acquisitions provide Santos with additional opportunities onshore and offshore Australia, Indonesia, Malaysia, Vietnam and Papua New Guinea. Becomes a major Australian operating enterprise with interests in the US and UK petroleum provinces as well as the Timor Sea and WA.
2011: GLNG project was sanctioned.
2014: Celebrated 60 years since being incorporated on March 18 1954
2015: The first shipment of LNG left Curtis Island on October 16 and was delivered in South Korea on October 28.
2019: 50 years since the first gas from its operations in the Cooper Basin made its way to homes and businesses in Adelaide.
2021: Completed a merger with Oil Search Limited, enhancing the company’s growth portfolio and Papua New Guinea operating business.
Santos managing director and chief executive officer Kevin Gallagher is based in Adelaide, working out of the company’s Flinders St headquarters.
Mr Gallagher received an unusual $6m “once-off growth projects incentive” in 2021 to deliver the oil and gas giant’s major projects to 2025, in a move that proved successful in keeping him out of winning Woodside Petroleum‘s top job, now held by Meg O’Neill.
Under a legal agreement struck in 2007, when the-then Labor premier Mike Rann lifted a 15 per cent Santos shareholder cap, a $100m compensation mechanism would be payable to the state government if the firm’s corporate presence in SA was significantly reduced.
Santos said in a statement it: “Confirms it has engaged in preliminary discussions with Woodside regarding a potential merger.”
“Santos continuously reviews opportunities to create and deliver value for shareholders.
“Concurrently, Santos is assessing a range of alternative structural options with a view to unlocking value as referred to on Santos’ investor day on 22 November 2023.
“The consideration of any merger is at an early stage and there is no agreement between the parties.
“There is no certainty that any transaction will eventuate from these discussions.
“Santos will continue to update the market in accordance with its continuous disclosure obligations.’’
Woodside reiterated Santos’ comments that the talks were in the early stages.
“Discussions remain confidential and incomplete, and there is no certainty that the discussions will lead to a transaction,” Woodside said in a statement.
“As a global energy company, Woodside continuously assesses a range of opportunities to create and deliver value for shareholders.’’
Santos is valued at $22.7bn while Woodside is worth $59.8bn.
