Santos (ASX:STO) has, as widely expected, sent a revised – though still non-binding – merger proposal to Oil Search (ASX:OSH) worth $22bn that could rank as the largest deal on the ASX this year.

The offer of 0.6275 new Santos shares for every Oil Search share, which values each OSH share at $4.52, has clearly found favour from the latter’s board. It plans to unanimously recommend the offer subject to both companies completing due diligence to their satisfaction.

Oil Search’s board said the revised proposal presents shareholders with an opportunity to maintain ongoing exposure to Oil Search’s portfolio of world-class assets as part of a merged group for which there is strategic logic.

The combined group will take its place in the S&P ASX20 index and be amongst the top 20 largest global oil and gas companies.

Under the revised proposal, Oil Search shareholders will own about 38.5% of the merged group through the offer.

“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,” Santos managing director Kevin Gallagher said.

Oil Search’s board had previously rejected an offer of 0.589 new Santos shares per Oil Search share, which equates to an implied price of about $4.25 per share.

It noted late last month that the offer was determined to not be in shareholders’ interests on the terms and value proposed.

Regional major

Oil Search brings a fair bit to the combined company.

Not only does the Papua New Guinea-focused company have a substantial 29% stake in PNG LNG, it will also give Santos exposure to the Alaskan North Slope where Oil Search is developing the first phase of the Pikka project that could produce 80,000 barrels of oil per day.

The combined company will have 2021 production of about 116 million barrels of oil equivalent (MMboe) and total proved and probable plus best estimate contingent resources of 4,983MMboe.

It will also unlock more than US$5.5bbn in liquidity, giving it the ability to self-fund development projects.