Australia’s second-largest natural gas producer, Santos, announced on Monday its intention to endorse an all-cash takeover offer valued at $18.7 billion from an international group led by Abu Dhabi’s National Oil Company (ADNOC), aimed at expanding its global gas operations.
The consortium, which includes ADNOC’s investment arm XRG, Abu Dhabi Development Holding Company (ADQ), and private equity firm Carlyle, has proposed a bid of $5.76 (A$8.89) per share for Santos, representing a 28% premium over the company’s closing price on Friday.
Factoring in net debt, the agreement establishes Santos’s total enterprise value at A$36.4 billion, positioning it as the largest all-cash corporate acquisition in Australia’s history.
This acquisition would be the third-largest ever recorded in Australia, according to data from FactSet.
Kaushal Ramesh, vice president of gas and LNG research at Rystad Energy, remarked, “This aligns seamlessly with ADNOC’s aggressive expansion strategy.”
During early trading on Monday, Santos’s shares surged by 15% to A$7.86, although this was still lower than the offered price for the acquisition before settling at A$7.81 midway through the session.
Market analysts have suggested that the stock’s performance below the proposed price indicates concerns regarding the likelihood of regulatory approval from authorities in both Australia and Papua New Guinea.
The bid came as oil prices reached multi-week highs amidst escalating tensions between Israel and Iran, raising fears of disruptions to oil exports from the Middle East.
Should the deal proceed, the XRG-led consortium would gain control over two Australian liquefied natural gas operations – Gladstone LNG on the east coast and Darwin LNG in the north, in addition to interests in PNG LNG and the undeveloped Papua LNG project. Santos’ holdings in Papua New Guinea are regarded as some of its most valuable assets.
Moreover, the company is advancing an oil initiative in Alaska, known as Pikka, which is expected to commence production in mid-2026.
XRG has expressed its goal to establish a gas and LNG business with a capacity ranging from 20 million to 25 million metric tons annually by 2035. Last year, Santos reported sales of 5.08 million tons of LNG, with over 60% of that deriving from Papua New Guinea.
Rystad’s Ramesh noted, “ADNOC is particularly interested in the LNG assets, as they are situated within the Asia Pacific region. Their strategic aim is to secure resources close to the anticipated future demand.”
This latest acquisition attempt follows two prior offers made by the consortium in March, priced at $5.04 and $5.42 per share, which were not disclosed publicly.
The Santos Board confirmed it intends to recommend that shareholders support the proposed transaction, assuming acceptable terms are reached for a binding agreement, unless a superior offer emerges.
The XRG consortium indicated that it is currently in discussions for exclusive due diligence with Santos before finalizing the proposal, which will require the backing of at least 75% of Santos investors.
“This proposed acquisition aligns with XRG’s objectives of building a prominent integrated global gas and LNG enterprise,” the consortium stated.
XRG, formed in November, acquired a stake in an offshore gas block in Turkmenistan last month. ADNOC has also engaged in various international asset deals that will contribute to XRG, including gas and LNG interests in Mozambique.
Regulatory Approval
Santos highlighted that the agreement requires approval from several Australian regulatory bodies, including the Foreign Investment Review Board (FIRB), Australian Securities and Investments Commission (ASIC), and others in both Australia and Papua New Guinea.
In attempts to satisfy regulators, XRG stated it intends to keep Santos’ headquarters located in South Australia.
MST Marquee’s senior energy analyst, Saul Kavonic, indicated that securing FIRB approval could pose significant challenges, particularly given Santos’ control over vital energy infrastructure in Australia. E&P Capital analysts also expressed concerns regarding approvals from relevant authorities overseeing offshore operations in Australia and Papua New Guinea.
Kavonic added that attempting to divest domestic infrastructure assets to appease regulatory agencies would likely be complicated due to associated decommissioning costs.
This deal follows the cancellation of negotiations last year between Santos and its larger rival Woodside regarding the creation of a potential A$80 billion oil and gas enterprise. Santos opted to explore alternative avenues to enhance its value.
In February, Santos reported a nearly 16% decline in its underlying annual profit for 2024 and announced a 41% reduction in its dividend payouts.
Santos has historically been a target for acquisitions, having previously rejected a $10.8 billion proposal from Harbour Energy, a private equity-backed firm, in 2018. Kavonic stressed that a competing bid is highly unlikely, as only ADNOC is in a position to offer such a premium to achieve its global LNG objectives.