Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Australia’s two largest oil and gas companies have opened talks over a potential near-A$80bn ($52bn) merger to create a national champion in liquefied natural gas production in a further sign of consolidation in the global sector.
Woodside Energy and Santos said on Thursday that they had opened talks over a potential merger that would almost completely consolidate Australia’s LNG sector into one listed company if consummated.
Woodside, which is valued at A$57bn, said talks were “incomplete” and there was “no certainty that discussions would lead to a transaction”. Santos, worth A$22bn and long tipped as a takeover target, said the talks were “preliminary” and it was assessing “a range of alternative structural options” to unlock value.
The talks come after two large US deals were struck in October with ExxonMobil agreeing to buy Pioneer for $64bn including debt and Chevron striking a $60bn takeover of Hess, also including debt. The takeovers come as the largest companies seek to deploy huge profits made during the energy crisis to buy up prospects in the oil market.
Woodside and Santos have struck transformative deals in recent years but have struggled to forge ahead with key development projects, creating investor pressure.
Perth-based Woodside completed its takeover of BHP’s petroleum business in 2022, which transformed the company into a global player with assets in the US, Algeria and Canada. The deal coincided with booming prices for oil and gas, which fed through to record profits for the company but its shares have fallen about 20 per cent over the past year because of uncertainty and opposition to a development project in Western Australia.
Santos completed a A$21bn deal for rival Oil Search last year but a multibillion-dollar offshore drilling project was derailed by a court challenge from the indigenous population of the remote Tiwi Islands whose waters it will run through.
Santos has faced investor pressure in recent months to consider a break-up of the company to separate its LNG assets from its domestic gas business. The company said at an investor day last month it was open to structural options to improve its value.
The talks follow the collapse of Brookfield’s $13bn takeover offer to buy Australian energy company Origin Energy this week after shareholders rejected the deal. EIG, the private equity fund, was due to break off Origin’s offshore gas assets as part of that deal.
Wood Mackenzie said last month that $7bn of deals had been struck for Australian LNG assets in the first 10 months of 2023, making it one of the top destinations for global investment in the sector. The research company noted that groups including BP, Saudi Aramco, ConocoPhillips, Japanese energy companies and Gina Rinehart’s Hancock Prospecting had all invested in Australia’s LNG sector over the course of the year.
It said that Australia’s “world-class LNG assets” would continue to play a key role in the global energy transition and that asset pricing had been at levels equivalent or higher than the global average.
Source: Financial Times