The merger
between Santos Ltd (ASX: STO) and Oil Search Ltd (ASX: OSH) has been approved. They are going to create an oil and gas giant.
Santos and Oil Search merger
The two resources businesses have entered into a definitive agreement to merge the two companies in an all-share transaction.
Oil Search shareholders are going to receive 0.6275 new Santos shares for each Oil Search share they own.
After the deal is completed, Oil Search shareholders will own around 38.5% of the merged entity and Santos shareholders will own the other 61.5%.
What are the benefits of the deal?
The combined business will create a regional champion of size and scale, with a pro forma market capitalisation of approximately $21 billion.
It will have a diversified portfolio of high quality, long life, low cost assets across Australia, Timor-Leste, Papua New Guinea and North America with “significant growth optionality”. As a combined business, it would have produced 116 million barrels of oil equivalent.
Santos expects the merger will unlock pre-tax synergies of around US$90 million to US$115 million per year, excluding integration and other one-off costs. This is expected to benefit both sets of shareholders.
The Oil Search board has unanimously approved the transaction and recommends that shareholders vote in favour of the merger. But there are still a few approvals that need to pass.
There was also a reference to environmental, social and governance (ESG). In the announcement, the businesses said there was strong ESG credentials including maintaining Santos’ net-zero emissions target by 2040, a focus on carbon capture and storage projects and Oil Search’s social and community investment in Papua New Guinea and North America.
Summary thoughts on the merger between Oil Search and Santos
I think the Oil Search Chairman Rick Lee put it well when he said:
“Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale, product mix, ESG and geographic diversity, and access to capital. The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.”
The combined businesses are a stronger package. I hope it works well. However, the oil and gas sector is not what I’m looking for. There are plenty of ASX growth shares in other industries I’d rather look at.
