Santos, the second-largest gas producer in Australia, announced on Monday its intention to endorse an all-cash takeover proposal valued at $18.7 billion from an international group spearheaded by Abu Dhabi’s National Oil Company (ADNOC), which aims to expand its global gas operations.
The consortium, which includes ADNOC’s investment division XRG, Abu Dhabi Development Holding Company (ADQ), and the private equity firm Carlyle, has proposed to acquire Santos shares at $5.76 (A$8.89) each. This figure represents a 28% premium over the price at which Santos shares closed last Friday.
Factoring in the net debt, the transaction attributes an enterprise value of A$36.4 billion to Santos, positioning it as the largest all-cash corporate acquisition in Australian history.
This merger would mark the third-largest takeover ever recorded in Australia, according to data from FactSet.
“For ADNOC, this aligns with their ambitions for aggressive growth,” remarked Kaushal Ramesh, vice president of gas and LNG research at Rystad Energy.
In early trading on Monday, Santos shares experienced a 15% increase, reaching A$7.86, although this remained beneath the offered price. Midway through the trading session, shares adjusted to A$7.81.
Analysts pointed out that the stock was below the offer price due to potential regulatory hurdles in receiving approval from authorities in Australia and Papua New Guinea.
The takeover bid surfaced at a time when oil prices have surged to multi-week highs amid hostilities between Israel and Iran, raising fears of substantial disruptions to oil exports from the Middle East.
If the consortium successfully acquires Santos, it would gain control of two liquefied natural gas operations in Australia: Gladstone LNG located on the east coast and Darwin LNG in the north, along with stakes in PNG LNG and the undeveloped Papua LNG. Santos’ assets in Papua New Guinea are considered to be among its most valuable holdings.
Additionally, Santos is working on an oil project in Alaska, known as Pikka, which is set to commence production in mid-2026.
XRG previously indicated its goal to establish a gas and LNG business capable of producing between 20 million and 25 million metric tons annually by 2035. Last year, Santos produced 5.08 million tons of LNG, predominantly sourced from Papua New Guinea.
“ADNOC is primarily interested in acquiring the LNG assets within the Asia Pacific region, which is critical for their strategy to expand in this market,” Rystad’s Ramesh added.
This offer builds on two earlier bids made by the consortium in March, which were not disclosed publicly, amounting to $5.04 and $5.42 per share.
The Santos Board confirmed its intent to recommend that shareholders vote in favor of the acquisition, provided acceptable terms for a binding agreement are reached, unless a superior offer arises.
According to XRG, negotiations are underway to conduct due diligence on an exclusive basis with Santos before finalizing the offer, which requires at least 75% support from Santos shareholders.
“This proposed transaction aligns with XRG’s strategic vision to establish a premier integrated global gas and LNG enterprise,” the statement read.
XRG, which began operations in November, recently acquired a stake in an offshore gas block in Turkmenistan. ADNOC has also engaged in various international agreements for assets to be managed under XRG, including interests in gas and LNG in Mozambique.
Regulatory Approvals Needed
Santos mentioned that the transaction would require clearance from multiple regulatory bodies, including Australia’s Foreign Investment Review Board (FIRB), the Australian Securities and Investments Commission (ASIC), the National Offshore Petroleum Titles Administrator, the PNG Securities Commission, the PNG Independent Consumer and Competition Commission, and the Committee on Foreign Investment in the United States (CIFIUS).
XRG expressed its commitment to maintaining Santos’ headquarters in South Australia as a strategy to address regulatory concerns.
Saul Kavonic, a senior energy analyst at MST Marquee, noted that obtaining FIRB approval poses significant risks to the deal due to Santos’ control over crucial energy infrastructure in Australia. Analysts at E&P Capital also highlighted concerns regarding approvals from the offshore operations regulator in Australia and the authorities in Papua New Guinea.
Kavonic further stated that any potential divestiture of domestic infrastructure assets to satisfy regulators would be challenging, considering the associated decommissioning costs.
This acquisition attempt follows the breakdown of talks last year between Santos and its larger competitor Woodside regarding a potential A$80 billion merger to create a significant oil and gas entity. Santos decided to withdraw from those discussions in search of alternative methods to enhance its value.
Santos reported a nearly 16% decline in its underlying annual profit for 2024, coupled with a 41% reduction in its dividend.
Although Santos has been a target for takeovers in the past, having previously declined a $10.8 billion offer from Harbour Energy in 2018, Kavonic suggested that a competing bid is “very unlikely,” noting that only ADNOC might be prepared to offer such a premium to achieve its global LNG objectives.