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Santos could simply sell its share of the Queensland Cooper Basin to billionaire Kerry Stokes’ Beach Energy, giving it full control, he said.
Woodside is already taking steps to streamline its enlarged portfolio after last year’s merger with BHP Petroleum, moving to sell its interests in the Macedon and Pyrenees oil and gas ventures off the WA coast. Selling Macedon would reduce the merged company’s share of the west coast’s market to below 30 per cent, Wiseman estimates.
But divestment deals for offshore oil and gas fields with looming and expensive decommissioning liabilities are becoming more difficult to execute, further complicating the proposed merger.
A year ago, the federal government paid $325 million to decommission the failed Northern Endeavour oil vessel moored in the Timor Sea 550 kilometres from Darwin, after its owner Northern Oil and Gas Australia went into liquidation.
Soon after, it passed legislation forcing the offshore oil and gas industry to foot the bill and tightened laws to include trailing liabilities, making previous owners responsible for decommissioning costs as a last resort.
It remains to be seen if Woodside will progress to an offer or if other bidders for Santos, including from offshore firms, emerge now that the company is in play, Wiseman said.
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Analysts at E&P Capital say global oil and gas producers who are already operating in the country are the likeliest source of an alternative bid for Santos given their knowledge of the regulatory challenges around developing oil and gas projects in Australia.
Total, BP and ConocoPhillips would fit the bill as potential acquirers. “We have discussed this with a range of investors over the past six months. Total gets the most agreement,” they said.
Santos chief executive Kevin Gallagher told staff in an end-of-year video message last week that Woodside had previously made “a number” of approaches.
“It’s correct that Woodside approached us about a potential merger recently as they have done a number of times over the past year or so,” Gallagher said.
Divestment deals for offshore oil and gas fields with looming and expensive decommissioning liabilities are becoming more difficult to execute.Credit: AP
The Santos boss is known to be frustrated with the company’s share price performance, and the company recently informed investors it was looking at strategic opportunities and structural alternatives to unlock shareholder value.
Santos’ shares are up nearly 3 per cent over the past month, but Woodside’s fell around 7.5 per cent.
Jun Bei Liu, a portfolio manager at Tribeca Investment Partners which holds both companies, said the deal was likely to get through with some synergies. “Potentially there might be some asset sales, but I don’t think it’s [a] significant amount,” she said.
“We do think it’s a good deal for both companies even though we’ve seen Santos’ share price rally more than Woodside’s.”
Together, Woodside and Santos will become a “globally relevant” and unique exploration and production company that will comfortably rank among the top 10 largest producers globally, analysts at UBS said. Rather than being oil heavy, about 70 per cent of its output will come from gas or LNG, giving it greater exposure to the unfolding energy transition.
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