Santos and Oil Search have agreed on a $21 billion merger proposal which would establish them in the top 20 largest oil and gas companies.
Under the revised terms, Oil Search shareholders will receive 0.6275 new Santos shares for each Oil Search share held via a Scheme of Arrangement. Oil Search shareholders will own approximately 38.5 per cent of the merged group and Santos shareholders will own approximately 61.5 per cent.
The Board of Oil Search has confirmed that their intention is to unanimously recommend the Revised Merger Proposal, in the absence of a superior proposal and subject to an independent expert concluding that the scheme of arrangement is in the best interests of Oil Search shareholders.
The merger of Santos and Oil Search would create a regional entity of size and scale with the following features:
- Diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America with significant growth optionality
- Pro-forma market capitalisation of A$21 billion which would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies
- Combined 2021 production of approximately 116 million barrels of oil equivalent
- Combined 2P+2C resource base of 4,983 million barrels of oil equivalent
- Investment grade balance sheet with more than US$5.5 billion of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimise the portfolio
- Target gearing of less than 30 per cent
- Strong ESG credentials including maintaining Oil Search’s social and community investment in Papua New Guinea and North America, including the Oil Search Foundation
The merger would also create greater alignment in Papua New Guinea supporting the development of projects including Papua LNG.
Oil Search shareholders would continue to participate in the merged entity and retain the opportunity to realise a premium for control as part of the merged entity.
Santos Managing Director and Chief Executive Officer, Kevin Gallagher, said, “The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.
“The merger also builds on our industry-leading approach to ESG through the combination of Santos’ net-zero 2040 pathway, including its sector-leading CCS projects, and Oil Search’s unique social programs in PNG, underpinned by a strong balance sheet to fund the transition to a lower carbon future.
“The Revised Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.”
Santos and Oil Search have committed to conduct best endeavours due diligence subject to appropriate confidentiality arrangements over a period of approximately four weeks with the aim of entering into a Merger Implementation Agreement, which would contain conditions to completion of the merger such as regulatory approvals.
Citigroup and JB North & Co are acting as financial advisers and Herbert Smith Freehills and Dentons are acting as legal advisers to Santos.