Santos and Oil Search Seal Deal

by PNG Business News - September 20, 2021

According to a market statement, Santos Ltd and Oil Search PNG Ltd have completed their merger through a merger implementation deed.

Reciprocal confirmatory due diligence, which began on August 6, has been completed.

Oil Search shareholders will get 0.6275 per cent new Santos shares for each Oil Search share held on the plan of arrangement's record date, according to the conditions of the merger.

Around 38.5 per cent of the combined company will be owned by Oil Search stockholders.

Santos stockholders will own around 61.5 per cent of the company.

The board of directors of Oil Search unanimously recommended that shareholders vote in favour of the merger.

Each director of Oil Search plans to vote in favour of the merger with all of the shares in Oil Search that they own or control.

According to Santos, the merger of Santos and Oil Search will result in a regional champion with the following characteristics:

  • A diversified portfolio of high-quality, long-life, low-cost assets with significant growth potential in Australia, Timor-Leste, Papua New Guinea, and North America;
  • The pro-forma market capitalization of roughly US$21 billion (K53 billion), putting the combined company among the top 20 ASX-listed firms and the top 20 global oil and gas companies;
  • Production of around 116 million barrels of oil equivalent in 2021;
  • 4,867 million barrels of oil equivalent PRO-forma 2P+2C resource base;
  • An investment-grade balance sheet with over us$5.5 billion in liquidity to self-fund development projects while maintaining additional options and flexibility to optimize the portfolio
  • Gearing of less than 30% is the goal; and
  • Santos' net-zero emissions aim by 2040, a focus on carbon capture and storage projects, and Oil Search's social and community involvement in PNG and North America are all strong ESG credentials.

Oil Search chairman Rick Lee said, “Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale, product mix, ESG and geographic diversity, and access to capital.

“The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.”

Santos Chairman Keith Spence said, “The merger represents an attractive combination of two industry leaders to create a regional champion of quality, size and scale with a unique and diversified portfolio of long-life, low-cost oil and gas assets.”

 

Reference: Pacific Mining Watch (13 September 2021). “Santos, Oil Search seal deal”.



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PNG Business News - August 02, 2021

Santos Agrees Proposed Merger with Oil Search

Photo Credit: JASON REED/REUTERS Santos and Oil Search have reached an agreement on the merger ratio under the proposed merger and the additional terms set out in this release (“Revised Merger Proposal”). 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 per cent of the merged group and Santos shareholders will own approximately 61.5 per cent. 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. The Revised Merger Proposal implies a transaction price of A$4.29 per Oil Search share, based on the closing price of Santos and Oil Search shares on 19 July 2021 (being the day prior to disclosure of the first proposal). This represents a 16.8 per cent premium to the Oil Search closing price on 19 July and a 16.4 per cent 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 capitalisation of A$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 US$5.5 billion of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimise the portfolio Target gearing of less than 30 per cent 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 US$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 realise 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 our 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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PNG Business News - July 22, 2021

Oil Search Considering Merging with Santos

Santos, an Australian oil firm, announced its plan to combine with Oil Search Limited. Santos proposed a non-binding indicative merger last month with the goal of making the two companies the regional energy champions. The proposed merged entity has a market capitalization of A$22 billion (K56 billion), putting it among the top 20 ASX-listed companies and the top 20 global oil and gas companies. This means, among other things, that the merger will have a diverse portfolio of high-quality, long-life assets spanning Australia and Papua New Guinea, a solid balance sheet with ample cash to support expansion choices, and an investment-grade credit rating. The merger plan, if approved, would be conducted through a Scheme of Arrangement in which Oil Search shareholders would receive 0.589 new Santos shares for each Oil Search share held, according to Santos in a market disclosure to the Australian Stock Exchange.  Following the scheme's acceptance, Oil Search shareholders would control 37% of the combined company, while Santos shareholders would own 63%. Based on Santos' closing price on June 24, 2021, the ownership ratio suggested a transaction price of A$4.25 (10.92) per Oil Search share. This was a 12.3% premium to the Oil Search closing price of A$3.78 (K9.72) on June 24, 2021, and a 9.8% premium to the Mubadala block trade selling price of A$3865. (K9.92). Kevin Gallagher, managing director and chief executive officer of Santos, said the merger will bring more alignment to PNG, allowing for the development of important projects such as Papua LNG, as well as the creation of new employment and support for the local economy. Santos, according to Gallagher, has proposed a true merger in which ownership of the combined firm is based on proportionate contribution and value. “The strategic rationale for a merger is clear and offers superior value to Oil Search shareholders rather than continuing on a standalone basis. “Santos continues to believe that the Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.” Oil Search stated in its ASX market update that it is open to receiving and engaging with any proposal that is in the best interests of its shareholders. While the company's board of directors agrees with Santos that combining the two firms makes strategic sense, the conditions must be fair to the company's shareholders, which the terms proposed by Santos are not. Despite Santos shareholders holding 70% more shares than Oil Search shareholders, Oil Search maintains that the proposed conditions provide just a 6.8% premium based on Friday's closing share prices for Oil Search and Santos. According to the firm, no such proposal has been made at this time.   Reference: Post-Courier (21 July 2021). "Oil Search Open To Merger with Santos". 

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PNG Business News - September 20, 2021

‘Create A Favorable Environment For Investment’

According to PNGX chairman David Lawrence, listing on the PNG Stock Exchange (PNGX) for the benefit of PNG investors should be a requirement for doing business in the nation. After Santos said it had entered into a merger implementation agreement with Oil Search PNG Ltd, Lawrence said that the firms had not stated whether Santos will be listed on the PNGX. “Of immediate impact to PNGX is that the loss of Oil Search will have a significant adverse impact on our ability to further develop the market,” Lawrence said. “Having a presence in the PNG capital market by listing on PNGX for the benefit of PNG investors should be a condition of operating in the country, given the potential significance of the access some of those companies have to PNG’s natural resources. “Whether the takeover proceeds or not is a matter for Oil Search shareholders and the Government. The PNGX does not have a role in those decisions. “Market capitalisation will drop by 30 per cent if Oil Search leaves the PNG market and that would lower the profile of Papua New Guinea among markets internationally. “This will significantly damage PNG’s already fragile emerging domestic savings and investment market at this time would be a pity, as Papua New Guineans are showing an increasing interest in the stock market and investing.” According to Lawrence, there has been no discussion of Santos going public on the PNGX. “Oil Search has been a major contributor to, and a central part of, the PNG capital market since the inception of the PNG stock exchange,” he said. “Obviously we would like to see Santos listed on PNGX to replace Oil Search and to provide Papua New Guineans an easy opportunity to invest in their own Oil and Gas sector.”   Reference: Luma, Dale. The National (14 September 2021). ‘Set conditions for investors’


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