Santos Ltd., Adelaide, made an all-scrip takeover approach to Oil Search late June which was quickly rejected as not in the best interests of Oil Search shareholders.
The bid, made June 25, and its rejection was revealed by Oil Search on July 20 as a point of clarification for statements made by Oil Search chairman Rick Lee the previous day regarding the resignation of the company’s chief executive Keiran Wulff (OGJ Online, July 19, 2021).
During the July 19 investor briefing, Lee said that Oil Search had received no takeover approaches.
His July 20 clarification stated that Oil Search “had received a confidential non-binding and indicative change of control proposal.” The proposal was assessed by the Oil Search board, senior management (excluding Keiran Wulff), and advisors before being rejected.
Upon the disclosure, Santos released a statement July 20 confirming its confidential proposal made June 25 was an all-scrip merger proposal designed as a scheme of arrangement under which Oil Search shareholders would receive 0.589 Santos shares for each Oil Search share held valuing the target at around $8.8 billion (Aus.). Oil Search shareholders would hold 37% of the combined group with Santos shareholders holding 63%.
Santos is a joint venture partner with Oil Search in the PNG LNG project in Papua New Guinea.
Santos’ proposal said that such a merger would create an entity with a market capitalization of $22 billion (Aus.) and position it to compete with large global peers. It would have a combined portfolio of high quality, long-life and low-cost assets and a balance sheet that was sufficient to fund development projects in Alaska, PNG, and Australia without the need for sell-downs or additional equity financing.
Despite the subsequent rejection by Oil Search (July 9), Santos said July 20 that it continues to believe “the merger proposal is an attractive opportunity to deliver compelling value accretion for both Santos and Oil Search shareholders.”
Oil Search is believed to be open to a revised bid that better reflects the value it would bring to any combined entity. No further proposal has been received at this time.
While some investors expressed shock at the contradiction in Lee’s comments, the revelations, combined with the news of leadership turmoil, has increased speculation that Oil Search has become a takeover target. Analysts have suggested that international majors, particularly ExxonMobil and Total which already have interests in PNG, would find Oil Search an attractive route to increase their portfolios in the country.