Santos, Oil Search merger dance nearing its conclusion

Santos (ASX:STO) is a step closer towards completing its $21bn merger with Oil Search (ASX:OSH) after an independent expert found that the merger is in the best interests of Oil Search shareholders.

Meanwhile, the National Court of Papua New Guinea, where the majority of Oil Search’s oil and gas assets are located, has approved the distribution of an explanatory statement about the scheme and ordered the company to convene a meeting of Oil Search shareholders on Tuesday 7 December 2021, to consider and vote on the proposed merger.

The latter’s board is unanimously in favour of the offer of 0.6275 new Santos shares for every Oil Search share that will see Oil Search shareholders own about 38.5% of the merged group.

Oil Search chairman Rick Lee said the merger brought together two highly complementary businesses to create a significant oil and gas company with a portfolio of geographically and product diversified long-life and low-cost assets.

Santos chairman Keith Spence added that the merged company would have the balance sheet and cashflows to fund growth, the energy transition to a lower carbon future, and deliver shareholder returns.

Bigger Santos is better?

The merged company will have a major portfolio with interests in three producing LNG projects – PNG LNG, DLNG and GLNG, oil fields in Papua New Guinea, two producing Australian gas hubs and the Alaska, Papua LNG, Dorado and Barossa development projects.

With a market capitalisation that places it squarely among the top 20 ASX-listed companies, the merged groups pro-forma liquidity of $5.7 billion as at 30 June 2021, relatively modest financial leverage, and combined cashflows are expected to help maximise the value of its key development assets.

It will help the group obtain funding for its projects in a timely manner and on more favourable terms than Oil Search would be able to achieve on a standalone basis.

Santos also expects to record pre-tax synergies of between US$90 and US$115 million per annum after full integration.