The combined entity will hold a diversified portfolio of long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America


Santos head office in Adelaide, South Australia. (Credit: Danimations/Wikipedia.)

Australian energy company Santos has reached a merger implementation deed (MID) with Papua New Guinea-based Oil Search to create a combined entity with a market capitalisation of A$21bn ($15.4bn).

Under the terms of the merger agreement, Oil Search shareholders are expected to receive 0.6275 new Santos shares for each Oil Search share held.

Oil Search shareholders are expected to own around 38.5% of the combined company, and Santos shareholders around 61.5%.

The combined entity is expected to hold a diversified portfolio of long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America.

According to Santos, the transaction is expected to create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG.

Santos chairman Keith Spence said: “The merger represents an attractive combination of two industry leaders to create a regional champion of quality, size and scale with a unique and diversified portfolio of long-life, low-cost oil and gas assets.

“The merged entity will be well positioned for success in the new era of oil and gas, with strong cashflow generation from a diverse range of assets providing a platform to self-fund growth and deliver shareholder returns.

“We look forward to integrating our businesses to create one high performing team – with a vision of becoming a global leader in the energy transition.”

With an estimated production of approximately 116 million barrels of oil equivalent in 2021, the merged company will have 2P+2C resource base of 4,867 million barrels of oil equivalent.

The entity is planned to be led by Santos managing director and chief executive officer Kevin Gallagher.

Gallagher said: “Santos and Oil Search will be stronger together and will have increased scale and capacity to drive a combined disciplined, low-cost operating model and unrivaled growth opportunities over the next decade.

“The merger will create a company with a balance sheet and strong cashflows necessary to successfully navigate the transition to a lower carbon future with the combination of Santos’ leading CCS capability combining with Oil Search’s ESG programs in PNG and Alaska to provide a strong foundation.”

Citigroup and JB North & Co are serving as financial advisors to Santos in connection with the transaction, while Herbert Smith Freehills and Dentons are acting as its legal advisors.

In May last year, Santos completed the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets for a revised price of $1.26bn.