Santos Limited and Oil Search Limited have entered into a Merger Implementation Deed (MID), under which the two companies will combine via an Oil Search Scheme of Arrangement. This follows both companies completing reciprocal confirmatory due diligence, which commenced on 6 August 2021.
Under the terms of the merger, Oil Search shareholders will receive 0.6275 new Santos shares for each Oil Search share held on the record date of the Scheme of Arrangement. Upon implementation of the merger, Oil Search shareholders will own approximately 38.5 per cent of the merged entity and Santos shareholders will own approximately 61.5 per cent.
The Oil Search Board of Directors unanimously recommends that Oil Search shareholders vote in favour of the merger.
Oil Search Chairman, Rick Lee, 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.”
Santos Chairman, Keith Spence, commented: “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,” Mr Spence said.
Oil Search Acting Chief Executive Officer, Peter Fredricson, noted: “We see significant benefits for our shareholders in this merger, not least in the access that Santos brings to a broader range of more liquid global debt capital markets to fund growth projects.”
The combined Santos and Oil Search will be led by Santos Managing Director and Chief Executive Officer, Kevin Gallagher, who 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 unrivalled 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,” Mr Gallagher said.
Following the completion of the Merger, three non-executive directors from Oil Search will join the Santos Board. Santos’ head office will remain in Adelaide.
The combination of Santos and Oil Search will include:
- Portfolio of assets across Australia, Timor-Leste, Papua New Guinea and North America;
- Pro-forma market capitalisation of approximately A$21 billion which would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies ;
- Pro-forma 2021 production of approximately 116 million barrels of oil equivalent ;
- Pro-forma 2P+2C resource base of 4,867 million barrels of oil equivalent 
- Investment-grade balance sheet with more than US$5.5 billion  of liquidity to self-fund development projects;
- Target gearing of less than 30 per cent; and
- Substantial potential combination synergies. Santos has an excellent track record of integration and recently merged Quadrant Energy’s WA and ConocoPhillips’ NT business units into Santos, delivering more than US$160 million in annual synergies.
Key conditions of the merger include:
- Approval being obtained from shareholders of Oil Search and Papua New Guinea court approval in relation to the merger;
- Customary regulatory approvals;
- The Independent Expert concluding that the merger is in the best interests of Oil Search shareholders, and not changing that conclusion or withdrawing its report;
- No material adverse change, prescribed occurrences or regulated events (each as defined in the MID) occurring in relation to either Santos or Oil Search; and
- Other conditions customary for a public transaction of this nature. The MID includes reciprocal exclusivity arrangements (including “no shop”, “no talk” and “no due diligence” restrictions (each subject to a fiduciary out) and notification obligations), matching rights for Santos on market standard terms and reciprocal break fees.
 Based on market data as at 30 July 2021.
 Based on the midpoint of each company’s 2021 production guidance.
 2P reserves and 2C resources as at 31 December 2020.
 Based on Santos and Oil Search balance sheet data as at 30 June 2021.