Santos Ltd., Adelaide, has acquired 100% of Quadrant Energy Ltd., Perth, for $2.15 billion. The acquisition includes Quadrant’s 80% share of the Dorado oil and gas discovery in the Bedout subbasin offshore Western Australia (OGJ Online, Aug. 20, 2018).
The terms include the upfront payment of $2.15 billion at completion on a cash and debt-free basis. There also are contingent payments linked to the Dorado oil and liquids 2C resource certification of greater than 100 million bbl and a future final investment decision on development of the field.
These comprise a fixed payment of $50 million triggered on 100 million bbl of certified 2C resource plus variable payments of $2/bbl for each barrel certified between 100-125 million bbl (gross), payable on Quadrants 80% interest net barrels and $2.50/bbl for each barrel certified above 125 million bbl (gross), again payable on Quadrant’s 80% interest net barrels.
In addition, there will be royalty payment over any future Bedout subbasin project revenue excluding Dorado production of oil and liquids.
Santos says the buy will be fully funded from existing cash resources ($1.5 billion as of June 30) and $1.2 billion in new committed debt facilities, with rapid degearing expected to be less than 30% by yearend 2019.
The company adds that there is substantial overlap of Quadrant’s portfolio of assets with those of Santos that will provide combination synergies estimated at $30-50 million/year.
Apart from Dorado, Quadrant has interests in a number of gas hubs and oil storage facilities in Western Australia. These include 55% and operatorship of each of the Devil Creek and Varanus Island gas facilities (where Santos has the remaining 45% of each); 28.6% of the Macedon gas hub (which is operated by BHP holding the remaining 71.4%); 52.5% and operatorship of the 540,000-bbl capacity Ningaloo Vision floating production, storage, and offloading oil storage vessel (with Inpex holding the remaining 47.5%); and 28.6% of the 840,000 bbl Pyrenees FPSO (operated by BHP which holds the remaining 71.4%).
Quadrant also has a large inventory of discovered resources to backfill existing infrastructure.
Santos said the acquisition will result in an estimated 17% free cash flow accretive on a per share basis in the first year of ownership. The deal also increases the company’s proforma 2P reserves by 220 million boe (up about 26%) and proforma production by 19 million boe (up about 32%).
There will also be a $4/bbl decrease in Santos’ forecast proforma 2018 portfolio free cash flow breakeven to about $32/bbl.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said the acquisition of Quadrant delivers increased ownership and operatorship of a high-quality portfolio of low-cost, long-life conventional Western Australian gas assets that are well known to Santos. He added that the deal increases Santos’ offshore operating capability.
The acquisition has an effective date of Jan. 1 and completion is expected by yearend.
