SYDNEY: Woodside Energy and Santos are in preliminary talks to form a global oil and gas giant with a combined value of A$80 billion ($52 billion), marking a significant consolidation in Australia's energy sector. This potential merger, if realized, would be the largest corporate deal in the country in recent years, amid subdued buyout activity due to rising interest rates and financial market volatility.
Both companies, among Australia's largest oil and gas producers, are grappling with challenges related to decarbonization and ongoing projects. Woodside, the larger of the two, emphasized that the talks are confidential and incomplete, with no certainty of a deal materializing. Woodside's market capitalization is currently A$56.91 billion, while Santos is valued at A$22.1 billion.
The Australian Competition and Consumer Commission (ACCC) would closely scrutinize the merger, reflecting a broader trend of increased regulatory scrutiny in concentrated sectors. Jun Bei Liu, a portfolio manager at Tribeca Alpha Fund, noted that the potential merger makes sense in the context of languishing share prices and the imperative to generate profit for the energy transition amid a changing global landscape.
The proposed merger follows a series of recent global deals in the oil and gas sector, with Exxon acquiring Pioneer Natural Resources in a $59.5 billion all-stock deal and Chevron's $53 billion deal to buy Hess. There is existing pressure to simplify Australia's oil and gas sector, with recent big-cap mergers, including Woodside combining with BHP Group's oil and gas business and Santos acquiring Oil Search.
Kaushal Ramesh, Vice President of LNG Research at Rystad Energy, highlighted that Woodside has been outward-looking since the BHP acquisition, and both companies have benefited from the high oil and gas prices of the past two years.
The discussions with Santos come less than 18 months after Woodside completed the BHP deal and as it seeks final approvals for its A$16.5 billion Scarborough venture in Western Australia. L1 Capital, a local hedge fund, and STO shareholder have urged the consideration of separating LNG assets to boost Woodside's share price.
Woodside and Santos, in annual investor briefings, have underscored near-term production challenges, soaring capital expenditure, and regulatory hurdles. Santos aims to restart work on the Barossa gas project after talks with landowners. Both companies' shares have faced declines, with Woodside down 15.4% and Santos down 4.3% this year. __Reuters
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