Oil Search Approves Merger with Santos
Down Under has a foothold in the Upper One oil patch. Australian oil company Santos is merging with Papua New Guinea (PNG)-based Oil Search, which has been developing the Pikka project on the North Slope.
Shareholders Vote Yes
Oil Search shareholders voted in favor of the merger on Tuesday. The deal is still pending approval in the PNG National Court of Justice.
The $6.1 billion deal gives Santos shareholders 61.5 percent control of the combined company and suspends trading of Oil Search shares on the PNG and Australian stock markets.
Santos has earlier expressed support for Oil Search proceeding with the Pikka development. The project sits on top of a reservoir estimated at 728 million barrels of oil, based on a two-well appraisal program, combined with data from neighboring drilling activities, 3D seismic mapping and detailed reservoir modelling.
Originally formed in 1954 as South Australia/Northern Territory Oil Search, Santos is the second-largest independent oil and gas producer in Australia. Like its PNG counterpart, the company has significant interests in equatorial gas deposits but has diversified worldwide in recent years.
Oil Search—the senior partner in the merger, formed in 1929, when New Guinea was an Australian protectorate—arrived in Alaska in 2018 after acquiring leases from Colorado-based Armstrong Energy. That gave Oil Search a 51 percent stake in the Pikka Unit on state land east of the National Petroleum Reserve-Alaska, on the Nanushuk oil field, thought to be one of the largest onshore conventional discoveries in the United States in the last three decades. The other 49 percent of Pikka belongs to Spanish oil company Repsol.
Under terms of the merger, Oil Search shareholders receive 0.6275 new Santos shares for each Oil Search share, giving them approximately 38.5 percent ownership of the combined company. Santos also pledges to include at least one PNG national on the board of directors and to continue the work of the Oil Search Foundation, a nonprofit that returns profits to its home country. The foundation is one of the largest health and welfare providers in the country, next to the national government.
From South Pacific to Northern Arctic
Santos CEO and Managing Director Kevin Gallagher says the merger is consistent with his company’s strategy of growing around its core assets. “It represents a compelling combination of two industry leaders to create an unrivaled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets,” he says.
A development plan for Pikka has completed the permitting phase. Oil Search has laid all the gravel it needs for a first phase, awaiting company approval for a final decision on a $3 billion investment. Oil Search leaders have said that global lenders are reluctant to finance new oil and gas projects in the Arctic, but they are still looking.
After scaling back plans in response to COVID-19 restrictions, Oil Search pushed back its target date of first oil in 2022, now expecting startup in 2025. The plan calls for a single drill site with forty-three injector and producer wells, producing up to 80,000 barrels per day.