Oil Search urged to hold talks

$23bn Santos merger rejected

OIL Search faces shareholder pressure to hold talks with Santos over a $23bn merger creating Australia’s biggest oil and gas producer.

It was revealed on Tuesday that Santos had made a merger offer on June 25 and Oil Search had rejected the deal after consulting with its advisers. The tie-up would give Oil Search shareholders 37 per cent of the merged group and Santos shareholders would own 63 per cent.

Santos pitched a scheme of arrangement that would give Oil Search shareholders 0.589 new Santos shares for each Oil Search share held.

The ownership ratio implied a bid price of $4.25 per Oil Search share, based on Santos’s closing price on June 24, 2021. Oil Search shares surged 6.3 per cent to $3.90 on Tuesday as investors anticipated more negotiations.

MST Marquee analyst Mark Samter said Oil Search shareholders are likely to push the company to engage further on talks.

Santos shares closed down almost 5 per cent at $6.49.

Santos received a letter from Oil Search on July 9 rejecting its offer, although Santos said it has been trying to engage with the target’s board since. “The potential merger of Santos and Oil Search is a logical combination of two industry leaders to create an unrivalled regional champion of size and scale,” Santos said.

It would have a market capitalisation of $23bn, positioning the merged company in the top-20 ASX-listed companies and the 20 largest global oil and gas companies

Santos also pointed to its “diversified portfolio of high quality, long-life assets across Australia and Papua New Guinea and robust balance sheet with strong liquidity that can self-fund growth options and an investment grade credit rating”.

Details of the merger plan emerged after Oil Search clarified that it fielded an offer which was rebuffed, after initially saying on Monday during an analyst call that it had not received any change of control proposals.

The proposal involved Santos boss Kevin Gallagher remaining as the chief executive of the merged company.

The identity of the chairman for a proposed merger has not been determined.

Sources said Santos was understood to have made numerous approaches to Oil Search about a merger deal in the past six months, with the two companies already partners in the PNG LNG venture. Sources say there were talks between the two groups in December.

Oil Search on Tuesday confirmed that it did field an offer that was rebuffed.

“The proposal was rejected as it was determined to not be in Oil Search’s shareholders’ best interests on the terms and value proposed,” the company said.

Oil Search’s CEO Keiran Wulff resigned on Monday amid complaints from staff and a long-term health issue.