ADNOC, Aramco considering bids for LNG producer Santos

(Bloomberg) – Saudi Aramco and Abu Dhabi National Oil Co. (ADNOC) have been separately studying potential bids for Santos Ltd., people with knowledge of the matter said, becoming the latest companies to show an interest in the Australian producer’s liquefied natural gas assets.

The stock rose as much as 6.5% in Thursday trading, hitting the highest level in more than two years. They were up 4.2% at the close in Sydney, valuing Santos at A$26 billion ($17.4 billion). The company’s languishing share price has led to several failed takeover attempts in recent years and spurred calls for it to break up its businesses.

State-owned Aramco and ADNOC have been conducting preliminary evaluations of Santos as a possible acquisition target, the people said, asking not to be identified because the information is private. The Middle Eastern energy giants are investing billions of dollars in natural gas, which is seen as an important bridge fuel in the energy transition, especially in Asia.

Aramco agreed last year to buy a minority stake in MidOcean Energy LLC, an arm of investment firm EIG Global Energy Partners that has interests in a number of LNG projects, for about $500 million.

Deliberations are ongoing, and the suitors haven’t decided whether to proceed with any proposals, the people said. Aramco could opt to team up with a partner if it moves ahead, some of the people said. Aramco said in a statement that reports it’s considering an offer for Santos are “inaccurate,” without elaborating. Representatives for ADNOC and Santos declined to comment.

In 2018, Santos rejected multiple offers from U.S.-based Harbour Energy Ltd., while preliminary talks with Woodside Energy Group Ltd. broke down earlier this year. Some investors have urged the company to split its coveted LNG assets from oil operations in Alaska and its domestic gas business in Australia to cash in on higher valuations.

“Santos has been shopping itself for awhile,” said Saul Kavonic, an energy analyst at Sydney-based MST Marquee. “But once they look under the surface at Santos they see too many problems at the legacy onshore Australian assets and walk away.”

Chief Executive Officer Kevin Gallagher, who transformed Santos into Australia’s second-largest oil and gas producer, has been under pressure to boost the performance of a stock that has lagged peers and to crank up shareholder returns. An activist investor last year slammed the company for committing too much capital for growth.

Investors are frustrated and there is no succession plan in place for the CEO, who is coming toward the end of his tenure, Kavonic said. That could create a period of added vulnerability for the much-circled target.

However, the Australian company’s portfolio could be a better fit for European oil majors or MidOcean Energy, he said.

“I would be pleasantly surprised if there was an approach,” said Matthew Haupt, a portfolio manager at Wilson Asset Management, which holds Santos shares. “Santos is an attractive target for other parties, so it’s in play, but not sure it’s the Middle East players.”