Adnoc Sets $18.7 Billion Record Bid for Australian Oil Firm Santos
Abu Dhabi National Oil Co.'s investment arm XRG PJSC has made an audacious $18.7 billion cash offer for Australian fossil fuel producer Santos Ltd., in a move that could catapult the Middle Eastern company to the forefront of the liquefied natural gas market.
In a major coup, Santos' board of directors has recommended Adnoc's offer of $5.76 per share, representing a 28% premium over Friday's close. The acquisition would grant XRG PJSC stakes in major operations in Australia and Papua New Guinea, pending regulatory approvals from the Australian Foreign Investment Review Board.
Santos Chief Executive Officer Kevin Gallagher has repeatedly rebuffed advances from rival bidders, sparking accusations of being too risk-averse. However, faced with intense pressure from investors eager for high returns, Gallagher now seems to have found a lifeline in Adnoc's offer.
Analysts praise Gallagher for securing such a substantial premium, which may pay dividends in the form of incentives attached to his performance. "Credit to Gallagher for extracting such a premium offer," said Saul Kavonic, an energy analyst at MST Marquee. "He will have earned the payout of his ensuing incentives in doing so."
However, regulatory hurdles continue to pose significant challenges to the proposed acquisition. Australian authorities have shown reluctance towards approving foreign investments in the past, leaving room for speculation about their final decision.
Fereidun Fesharaki, founder and chairman of energy consulting group FGE, questions the Foreign Investment Review Board's approval prospects, citing historical precedents where they were reluctant to grant such approvals. "One option would be to keep the current management and Santos as an independent player," he suggested. If XRG PJSC can convincingly demonstrate its commitment to operating as an Australian entity with foreign ownership, regulators might reconsider.
Government officials have acknowledged that foreign investment matters are reviewed on a case-by-case basis to ensure they conform to national interests and security.
The bid highlights the growing importance of liquefied natural gas in international markets. As one of XRG PJSC's primary goals is to expand its production of liquefied natural gas, this acquisition represents a crucial step forward in its ambitions.
Santos shares surged 11% on Monday, reaching A$7.72, the largest daily gain since November 2020. Despite this positive response, the stock remains below Adnoc's offer price, partly due to concerns about regulatory approvals.
Adnoc plans to invest in Santos' growth and development of its natural gas-focused business, with the aim of building a leading integrated global gas and LNG operation. The proposed transaction will further enhance XRG PJSC's capabilities, marking another significant milestone in the company's pursuit of strategic investments worldwide.
The news comes amidst shifting attention towards fossil fuels as governments increasingly focus on transitioning to cleaner energy sources. Yet, for Adnoc and Santos, these ambitions pose challenges in terms of operational strategies and regulatory compliance.