By Nick Toscano
Australia’s second-largest oil and gas producer has fronted a series of questions about the drawn-out time it is taking for an Abu Dhabi-led consortium to finalise its $30 billion takeover bid.
The Abu Dhabi National Oil Company’s international investment arm and its partners were given a second extension on Monday to continue conducting exclusive due diligence of Adelaide-based energy giant Santos – more than two months after their non-binding takeover agreement was reached in June.
Santos has critical infrastructure across Australia.Credit: Brendan Esposito
If it proceeds, the $US19 billion deal will mark one of the biggest foreign takeovers in Australian history.
However, the bidding consortium last week told Santos it needed more time to secure the internal approvals necessary to proceed to a binding transaction. The unexpected development increased investors’ uncertainty around the future of the deal and sent Santos’s share price tumbling. Santos managing director Kevin Gallagher fielded multiple questions from analysts on a conference call on Monday asking whether Santos believed the revised deadline of September 19 would be met.
Gallagher said the talks were progressing well, and the XRG consortium had demonstrated it was committed to the transaction. He suggested the sheer magnitude of the deal was a reason behind the consortium’s request for an extension.
“This is a big transaction – I believe it’d be the largest all-cash transaction ever on the ASX, and I think the largest all-cash energy sector transaction globally,” Gallagher said.
“What’s become apparent during that period and during the scheme implementation agreement detailed discussions was that things were taking a bit longer.”
The takeover consortium, which is led by the Abu Dhabi National Oil Company and includes US private equity giant The Carlyle Group, said on Monday it remained committed to completing due diligence and finalising the terms of the takeover. The Middle Eastern oil giant has expressed an eagerness to acquire Santos’s assets in Australia and overseas in a push to expand its production of gas and LNG, and gain exposure to growing Asian LNG markets.
“Given the scale and strategic significance of this deal and the long-term horizon of the investment, it is important that both parties reach an agreement on mutually acceptable terms,” a spokesperson for the consortium said.
“The potential transaction continues to represent a compelling opportunity to leverage the consortium’s operational expertise, investment capacity and long-term investment horizon to unlock additional gas supply, support local employment and contribute to Australia’s energy security.”
Gallagher told analysts Santos and the consortium were targeting a “full, binding agreement” by September 19. “We’ll be working very diligently with XRG to help them make that happen,” he said.
While Santos makes most of its money producing and exporting super-chilled LNG to customers in Asia, it is also a key supplier of domestic gas used by millions of homes and businesses in Australia.
If the consortium’s takeover bid proceeds to a binding agreement, investors and analysts believe Australia’s Foreign Investment Review Board may present a challenging hurdle to overcome as it scrutinises the potential risks of handing over critical energy infrastructure to foreign ownership.
Australian officials have become increasingly worried that consumers in the nation’s populous south-eastern states including Victoria, NSW and South Australia are in danger of facing winter gas shortages within as little as three years due to dwindling gas supplies from offshore fields in Bass Strait and a lack of new projects ready to replace them.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.