SYDNEY, (Reuters) – Australia’s Woodside Energy WDS.AX and Santos STO.AX said yesterday they were in preliminary talks to create an A$80 billion ($52 billion) global oil and gas giant, as consolidation among international energy firms intensifies.
Combining two of Australia’s largest oil and gas producers would be the largest corporate deal in the country for several years, during which buyout activity has been subdued by rising interest rates and financial market volatility.
A deal, if it goes ahead, would create the biggest liquefied natural gas (LNG) producer in Australia, the world’s No. 2 exporter of the super-chilled fuel that is expected to see decades of growth to meet Asia’s energy transition needs.
Perth-based Woodside, the larger of the two companies, said the talks with Santos were confidential and incomplete and that there was no certainty an agreement would materialise. Its market capitalisation stands at A$56.91 billion, while Santos is valued at A$22.1 billion.
“Woodside continuously assesses a range of opportunities to create and deliver value for shareholders,” it said in a statement to the Australian stock exchange.
Both companies face rising pressures of decarbonisation as well as challenges in their current projects. Woodside’s share price has dropped 15.4% this year so far, while Santos’ stock is down 4.3%.
Combined oil and gas production for the two stood at just over 260 million barrels of oil equivalent while the total proven plus probable reserves is at 5.39 billion BOE, based on 2022 data from the companies.
A deal between them would create an LNG powerhouse with annual sales of 16 million metric tons, said Bernstein analyst Neil Beveridge.
“It’s an Australian powerhouse that would have better leverage with buyers and the ability to optimize that LNG portfolio given the number of terminals,” he added.
However, such a combination would come under close scrutiny from Australia’s competition watchdog, which has been toughening its stance towards allowing takeovers in concentrated sectors.
“The ACCC is aware of public reports of the potential transaction,” a spokesperson for the Australian Competition and Consumer Commission said. “If the potential transaction progresses, the ACCC would consider if a public merger review into the impact on competition is required.”
“It (a merger) makes sense given how the share prices have languished and all the capex to come,” said Jun Bei Liu, Tribeca Alpha Fund portfolio manager who owns shares in both companies.
“In today’s world oil is almost done so you need to get scale and generate as much profit as possible to invest for the energy transition.”