Oil Search, Santos One Step Closer to the Altar

Santos and Oil Search have agreed to marry after a fortnight of horse trading over the terms of the $21 billion relationship.

In joint statements on Monday morning, the two companies revealed the terms of the deal that will see Santos acquire Oil Search in an all-paper transaction.

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% of the merged group and Santos shareholders will own approximately 61.5%.

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 new deal implies a transaction price of $4.29 per Oil Search share, based on the closing price of Santos and Oil Search shares on July 19 (being the day prior to disclosure of the first proposal).

This represents a 16.8% premium to the Oil Search closing price on July 19 and is 16.4% above the one-month weighted average price of Oil Search on that day.

The companies say the merger will 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 $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, a combined resource base of 4.983 billion 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 shares finished the Monday session up $0.18 (4.7%) to $3.99, while Santos shares were virtually unchanged, edging up just 0.6% to $6.49.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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