Santos, Australia’s second-largest gas producer, announced on Monday its intention to back an all-cash takeover offer valued at $18.7 billion from an international consortium led by the Abu Dhabi National Oil Company (ADNOC), aiming to expand its global gas operations.
The consortium, represented by ADNOC’s investment arm XRG, partnered with the Abu Dhabi Development Holding Company (ADQ) and private equity firm Carlyle, has proposed a price of $5.76 (AUD 8.89) per Santos share, reflecting a 28% premium over the company’s closing price on Friday.
Factoring in Santos’ net debt, the transaction would signify an enterprise value of AUD 36.4 billion, making it the largest all-cash corporate acquisition in Australia’s history.
The transaction would rank as the third-largest takeover in Australia, according to data.
“This move aligns with ADNOC’s ambitious growth strategy,” stated Kaushal Ramesh, vice president of gas and LNG research at Rystad Energy.
In early trading on Monday, Santos shares surged 15% to AUD 7.86, although they later settled at AUD 7.81, still below the offer price, as analysts noted potential regulatory hurdles in both Australia and Papua New Guinea.
The proposal comes at a time when oil prices have surged to multi-week highs due to escalating tensions between Israel and Iran, raising concerns about the stability of Middle Eastern oil exports.
If the acquisition proceeds, the XRG consortium would obtain control of two significant Australian liquefied natural gas (LNG) operations, Gladstone LNG in the east and Darwin LNG in the north, in addition to stakes in PNG LNG and the undeveloped Papua LNG, with Santos’ PNG assets regarded as highly valuable.
Santos is also advancing an oil project in Alaska, named Pikka, which is expected to commence production by mid-2026.
XRG aims to establish a gas and LNG entity capable of producing between 20 and 25 million metric tons annually by 2035; Santos recorded sales of 5.08 million tons of LNG last year, over 60% of which originated from Papua New Guinea.
“ADNOC’s primary interest lies in acquiring LNG assets within the Asia Pacific region, aligning with their strategy to expand in LNG markets that are expected to grow,” added Ramesh.
This bid follows two earlier, undisclosed offers made in March at $5.04 and $5.42 per share.
The Santos Board has indicated that, pending a mutually agreed upon binding scheme implementation agreement, it intends to recommend that shareholders support the deal, unless a superior proposal arises.
The XRG consortium is currently in exclusive negotiations to conduct due diligence with Santos ahead of formalizing the offer, which necessitates at least 75% approval from Santos’ investors.
“This proposed transaction is in line with XRG’s strategy and goal of developing a leading integrated global gas and LNG business,” the statement noted.
Established in November, XRG acquired an interest in an offshore gas block in Turkmenistan last month. ADNOC has also pursued various international agreements for assets to be incorporated under XRG, including gas and LNG holdings in Mozambique.
Regulatory Approval
Santos acknowledged that the deal requires clearance from several 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, and the PNG Independent Consumer and Competition Commission, as well as the Committee on Foreign Investment in the United States (CIFIUS).
To address some regulatory concerns, XRG plans to keep Santos’ headquarters in South Australia.
MST Marquee’s senior energy analyst Saul Kavonic stated that FIRB approval poses a significant risk to the transaction due to the critical energy infrastructure Santos controls in Australia. Analysts from E&P Capital also highlighted challenges in obtaining approvals from Australia’s offshore operations regulator and Papua New Guinea authorities.
Kavonic remarked that any potential spin-off of domestic infrastructure assets to mitigate regulatory scrutiny would be complicated, considering their associated decommissioning liabilities.
This takeover effort follows abandoned negotiations last year between Santos and its larger Australian competitor Woodside, intended to create an A$80 billion oil and gas conglomerate. Santos opted to seek alternative ways to enhance its valuation.
In February, Santos reported a nearly 16% decline in its underlying annual profit for 2024, alongside a 41% reduction in its dividend.
While Santos has consistently been viewed as a potential target for acquisition, having rejected a A$10.8 billion bid from Harbour Energy in 2018, Kavonic expressed skepticism regarding competing offers, suggesting that only ADNOC is positioned to pay a premium necessary to fulfill its global LNG aspirations.