Santos wants to buy one of the newest oil players in ASX, and its partner Carnarvon is cheering the deal.

The gas giant is offering $US2.15 billion ($2.94 billion) cash plus payments related to the newly discovered Bedout Basin for Quadrant Energy.

Quadrant is the major joint venture partner of Carnarvon (ASX:CVN) in the Phoenix Project, the site of the largest oil discovery ever found on Australia’s north-west shelf.

The Phoenix Project consists of the Dorado, Roc and Phoenix South discoveries, in which Carnarvon holds a 20-30 per cent interest in the four associated permits.

Quadrant owns the other 70-80 per cent.

Santos managing director and chief executive Kevin Gallagher said Santos has a long relationship with Quadrant, while a statement from the bidder said the companies share a “significant” portfolio overlap in the region.

Carnarvon said it “welcomes” the news and the introduction of Santos as its joint venture partner.

“Carnarvon notes that Santos has not stated what proportion of the upfront consideration was applied to the Phoenix Project area. Accordingly, it is not possible to ascertain the consideration applicable and therefore the look through value associated with the Phoenix Project,” it said.

The Dorado structure has a 2C contingent resource of 171 million barrels of oil.

Contingent resources are known, potentially recoverable volumes with a development plan that is not yet commercial.

Contingent Resources are rated as 1C, 2C and 3C according to low, best and high estimates.

More oil deals on the way?

Investors will now be watching what comes next for Carnarvon.

At the time of the discovery, Wood Mackenzie analyst Daniel Toleman said Carnarvon “could attract interest from established Australian oil and gas operators or an international E&P [exploration and production company] looking for exposure to the Australian upstream sector.

“If a high case outcome for Dorado materialises, could an E&P company or a large independent take a shot at Quadrant and/or Carnarvon?

“The options to secure ‘value’ from the find before development include a trade sale, farm-down, re-opening the Quadrant IPO idea, or splitting the business,” he said.

“The Dorado oil find opens up a hot new exploration play in the region. We cannot underestimate how important the oil aspect is for the attractiveness of the play.

“A medium-sized gas play in this remote location would most likely be uneconomic – the isolation and the 75 trillion cubic feet (tcf) of undeveloped gas in neighbouring basins would see to that.

“But even a 50-million-barrel oil discovery should break even at $US49/barrel, well below today’s oil price of US$73/barrel, without requiring the complexity of new export infrastructure or commercial arrangements.”