What we know about the potential Woodside-Santos preliminary merger talks

About Santos

Santos Limited, headquartered in Adelaide, Australia, is involved in the exploration, development, production, transportation, and marketing of hydrocarbons in the Asia Pacific region. The company’s principal assets are located in the Cooper Basin, Queensland and NSW, Papua New Guinea, Northern Australia and Timor-Leste, and Western Australia. Additionally, Santos has an asset in Alaska and is actively involved in the development of carbon capture and storage technologies. The company’s diverse portfolio includes the production of natural gas, liquefied petroleum gas, ethane, methane, coal seam gas, liquefied natural gas, shale gas, condensate, and oil.

About Woodside

Woodside Energy Group Ltd, based in Perth, Australia, is actively involved in the exploration, evaluation, development, production, marketing, and sale of hydrocarbons across Oceania, Africa, the Americas, Asia, and the Caribbean. The company’s diverse portfolio includes the production of liquefied natural gas, pipeline gas, condensate, natural gas liquids, and crude oil. Woodside holds interests in various projects such as Pluto LNG, Northwest Shelf, Wheatstone and Julimar-Brunello, Bass Strait, Pyrenees FPSO, Macedon, Scarborough, Sangomar, Trion, Calypso, Browse, Wildling, Atlantis, Woodside Solar project, Sunrise and Troubadour, and Pluto Train 2, as well as Liard basin. The company, formerly known as Woodside Petroleum Ltd, underwent a name change to Woodside Energy Group Ltd in May 2022. Woodside Energy Group is a key player in the global hydrocarbons industry.

What sparked these preliminary merger talks?

There has been a significant amount of takeover activity within the petroleum industry in the US, with Exxon Mobile acquiring Pioneer Natural Resource, Chevron acquiring Hess, and Occidental Petroleum acquiring CrownRock. The companies in the petroleum sector are sitting on large cash piles following years of record oil prices leading to record profits.

Other global energy players have also benefited from soaring energy prices, with takeover activity now threatening to occur in other markets, including Australia. One of these potential mergers is between Santos and Woodside petroleum, which confirmed preliminary discussions had begun on the 8th of December. A merger between these two companies could potentially create an $80 billion AUD company that would become one of the top ten energy companies worldwide. Both Santos and Woodside operate similar services in similar markets. As a result, UBS analysts suggest that a merger could unlock up to 200 million in cost savings and synergies.

What hurdles will this merger face?

The Australian Competition and Consumer Commission (ACCC) would scrutinize this deal over a potential monopoly in the Australian gas markets. A merged entity would control about 26% of Australia’s east coast gas market and 35% of the Western Australian domestic gas market. However, analysts say that some of these concerns can be overcome through selling off parts of the companies. However, the issue will be finding players to purchase these parts of the business as there are limited potential buyers available.

What’s next?

The companies have not made any further announcements since the confirmation of preliminary merger talks on the 8th of December. Santos’s shares have rallied slightly in the following trading session following the announcement, whereas Woodside’s shares have fallen slightly. UBS analysts suggest that a takeover price of $8.20 AUD to $8.88 AUD per Santos share is a realistic range.