Santos Agrees to Proposed Merger Ratio with Oil Search
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Santos and Oil Search reached an agreement on the merger ratio under a proposed merger and additional terms.
Under the Revised Merger Proposal, Oil Search shareholders will receive 0.6275 new Santos shares for each Oil Search share held via a Scheme of Arrangement. Following approval of the Scheme, Oil Search shareholders will own approximately 38.5 percent of the merged group and Santos shareholders will own approximately 61.5 percent.
The Board of Oil Search has confirmed that, subject to the completion of confirmatory due diligence and the agreement of a binding Merger Implementation Agreement, their intention is to unanimously recommend the Revised Merger Proposal, in the absence of a superior proposal and subject to an independent expert concluding that the scheme of arrangement is in the best interests of Oil Search shareholders.
Current Issue
April 2024
The Revised Merger Proposal implies a transaction price of $4.29 per Oil Search share, based on the closing price of Santos and Oil Search shares on July 19, 2021 (being the day prior to disclosure of the first proposal). This represents a 16.8 percent premium to the Oil Search closing price on July 19 and a 16.4 percent premium to the one-month VWAP on that day. In addition, the proposal represents the opportunity to deliver compelling value accretion to both sets of shareholders.
The merger of Santos and Oil Search would create a regional champion of size and scale with the following features:
- Diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea, and North America with significant growth optionality
- Pro-forma market capitalization of $21 billion which would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies
- Combined 2021 production of approximately 116 million barrels of oil equivalent
- Combined 2P+2C resource base of 4,983 million barrels of oil equivalent
- Investment grade balance sheet with more than $5.5 billion of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimize the portfolio
- Target gearing of less than 30 percent
- Strong ESG credentials including maintaining Oil Search’s social and community investment in Papua New Guinea and North America, including the Oil Search Foundation
- Substantial potential combination synergies. Santos has an excellent track record of integration and recently merged Quadrant Energy and ConocoPhillips’ WA and NT business unit into Santos, delivering more than $160 million in annual synergies
The combination would also create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG, deliver new jobs and help support the local economy.
Oil Search shareholders would continue to participate in the merged entity and retain the opportunity to realize a premium for control as part of the merged entity.
Santos Managing Director and Chief Executive Officer Kevin Gallagher said the potential merger of Santos and Oil Search is consistent with Santos’ disciplined strategy to grow around its core assets.
“It represents a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets.
“The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.
“The merger also builds on our industry-leading approach to ESG through the combination of Santos’ net-zero 2040 pathway, including its sector-leading CCS projects, and Oil Search’s unique social programs in PNG, underpinned by a strong balance sheet to fund the transition to a lower carbon future.
“The Revised Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.”
Santos and Oil Search have committed to conduct best endeavours due diligence subject to appropriate confidentiality arrangements over a period of approximately four weeks with the aim of entering into a Merger Implementation Agreement, which would contain conditions to completion of the merger such as regulatory approvals.
Each party will be free to declare ordinary dividends in accordance with existing dividend policy through to signing of the Merger Implementation Agreement. Should a party declare a dividend outside its existing dividend policy before the signing of the Merger Implementation Agreement, there would be an appropriate adjustment to the merger ratio.
Citigroup and JB North & Co are acting as financial advisers and Herbert Smith Freehills and Dentons are acting as legal advisers to Santos.
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