Oil Search Rejects Santos Plan for $16 Billion LNG Giant

Oil Search (OTC:OISHY) Ltd. rejected a takeover approach from Santos Ltd. that would create a A$22 billion ($16 billion) liquefied natural gas export giant with operations across Australia and Papua New Guinea.

Santos made an all-share proposal on June 25 with an implied transaction price of A$4.25 per share, a 12% premium to Oil Search’s close on the previous day, the Adelaide-based company said in a Tuesday statement. The company had subsequently sought to engage the target’s board, indicating it remains open to further negotiation.

“Santos continues to believe that the merger proposal represents an extremely attractive opportunity,” the company said in the statement. Combining the two producers would create a “diversified portfolio of high quality, long-life assets,” it said. The Santos bid values Oil Search at A$8.8 billion.

Sydney-based Oil Search, which on Monday announced the abrupt departure of Managing Director Keiran Wulff, said Tuesday its board and advisers had rejected the offer “as it was determined to not be in Oil Search shareholders’ best interests on the terms and value proposed.”

The target’s value plunged in early 2020 as oil slumped on weaker demand as a result of the global coronavirus outbreak and shares remain well below pre-pandemic levels even as fuel prices have recovered.

“A higher bid could come from Santos,” said Jamie Hannah, deputy head of investments and capital markets in Sydney at VanEck. “Oil Search is trading at very low levels and Santos can afford to bid more.”

Oil Search shares rose as much as 5.5% in Sydney on Tuesday, erasing Monday’s decline on the back of Wulff’s departure. Santos fell as much as 5.6%.

Santos and Oil Search are both junior partners in the Exxon Mobil Corp (NYSE:XOM). operated PNG LNG project, which can produce as much as 8 million tons of LNG a year. A merger would rank the combined group among the world’s top 20 oil and gas producers by market capitalization, Santos said in its statement.