Oil Search Announces Extension of Due Diligence Period

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Oil Search Announces Extension of Due Diligence Period

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  • Oil Search shares valued at $3.84 per share, based on OSH share price at 6 September
  • A$21 billion market capitalisation post-merger, with US $5.5 billion liquidity to fund development pipeline
  • Scheme of Arrangement finalised post-Christmas

Merger Proposal

Oil Search (‘OSH’) looks set to merge with Santos following agreement to a revised scrip merger ratio that values OSH at $3.84 a share, based on the closing share price of Santos shares on 6 September. Under the proposal, Oil Search shareholders would own approximately 38.5 percent of the merged entity. The offer is subject to confirmatory mutual due diligence to be completed by 13 September. The OSH board have indicated their likely intention to unanimously recommend the offer to shareholders, subject to an independent expert attesting that the proposal is in the best interests of Oil Search shareholders.

The merger transaction will be implemented by way of a Scheme of Arrangement. This requires the merger terms be first approved by 75 percent of OSH shareholders who cast a vote and then by the PNG National Court, provided ASIC has no objection to the Scheme and has stated this in writing to the Court. This process may take 4 to 6 months from both companies formally agreeing to implement the merger. Once implemented, Santos will own 61.5 percent of the merged entity, leaving open the prospect that Santos will eventually bid for the remaining shares it doesn’t own. At some future date, this should enable remaining Oil Search shareholders at the time to realise a ‘control premium’ for their shares in the merged entity.

Merger Rationale

Santos have stated that the merger proposal would create a new company capable of developing a diverse portfolio of high-quality oil and gas assets.

According to Santos, the merged entity would have the following features:

  • A$21 billion market capitalisation, an ASX-20 company, among the top 20 largest oil and gas companies globally
  • Quality long-life, low-cost assets with clear growth prospects
  • Combined 2021 production capacity of 116 million barrels of oil equivalent
  • Combined 2P + 2C resource base of 4983 million barrels of oil equivalent
  • Enhanced funding platform with US$5.5 billion liquidity to self-fund development pipeline
  • Substantial potential combination synergies, given Santos management track record in extracting synergies from previous transformative acquisitions of Quadrant Energy and ConocoPhillips WA and NT business units.

OSH shareholders will have to wait until after Christmas for formal PNG Court approval. Nevertheless, the merged entity will attract a wider pool of investors seeking exposure to one of the largest Asian LNG suppliers, with an operational footprint that supports cost control and asset growth.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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