Oil and gas major Santos Ltd is evaluating a A$30 billion takeover proposal from a consortium spearheaded by XRG P.J.S.C, a subsidiary of the Abu Dhabi National Oil Company (ADNOC), marking the Middle Eastern energy giant’s first major foray into the Australian market.
Santos has received a cash offer of US$5.76 (A$8.89) per share, representing a 28% premium to its most recent closing price. The proposal has initial support from the Santos board, which has granted the consortium a period of exclusive due diligence to finalise its bid.
The offer is backed by Abu Dhabi sovereign wealth entity ADQ and US-based private equity firm Carlyle, forming a cross-border alliance that highlights ADNOC’s ambition to expand its global presence in gas and liquefied natural gas (LNG) markets.
Deal includes local commitments and regional expansion
To allay foreign ownership concerns of critical infrastructure, ADNOC and its partners have pledged to retain Santos’ corporate headquarters in Adelaide, support ongoing employment and community engagement in Australia, and prioritise further investment in gas development across the country and wider Asia-Pacific.
“The XRG-led consortium aims to build on Santos’ strong and longstanding legacy as a trusted and reliable energy producer, unlocking additional gas supply for Santos’ customers, and strengthening domestic and international energy security,” the consortium stated.
“The proposed transaction is aligned with XRG’s strategy and ambition to build a leading integrated global gas and LNG business.”
The parties also committed to collaboration on carbon capture and storage (CCS) technologies. Santos is currently advancing its Moomba CCS project in South Australia, while ADNOC is leading a major carbon capture initiative in the United Arab Emirates.
Prior offers and board support
The final indicative offer follows earlier confidential approaches by the XRG consortium on March 21 and March 28, priced at US$5.04 (A$8.00) and US$5.42 (A$8.60) respectively.
Santos said it would recommend shareholders vote in favour of a binding agreement if one is reached, subject to an independent expert confirming the deal is fair and reasonable, and no superior proposal emerging.
“After careful consideration of the indicative proposal (including in consultation with its financial and legal advisers), the Santos board has determined that it is in the best interests of Santos shareholders to provide the XRG Consortium with access to confidential information to conduct confirmatory due diligence and negotiate the terms and conditions of an SIA (scheme implementation agreement), subject to reaching agreement with the XRG Consortium on the terms on which access to due diligence will be provided,” Santos said in its ASX announcement today.
Regulatory hurdles ahead
The proposed transaction will require approval from multiple regulatory bodies, including the Foreign Investment Review Board (FIRB). Given Santos’ role as Australia’s second-largest gas producer behind Woodside Energy, and its ownership of critical infrastructure in South Australia and Queensland’s Cooper Basin, scrutiny is expected.
MST Financial energy analyst Saul Kavonic flagged this as a key uncertainty: “Foreign Investment Review Board approval may be a major risk to the deal given Santos control significant critical energy infrastructure in Australia,” he said.
“Spinning out the domestic infrastructure is not straightforward given large decommissioning liabilities associated with it. Carlyle may have interest in this aspect.”
Strategic shift after merger talks
The approach follows previously stalled merger discussions between Santos and rival Woodside Energy, which in late 2023 and early 2024 had explored a potential A$80 billion combination.
For ADNOC, the bid is a strategic push to diversify revenue streams and broaden its influence within global energy markets as it looks to expand Australia’s gas infrastructure.
The move could appeal to policymakers seeking solutions to Australia’s supply challenges and energy transition goals.
Labor may seek domestic gas gains
The federal Labor government could leverage the proposed takeover to secure greater domestic gas concessions, according to research house MST Marquee.
A Commonwealth review into key east coast gas market regulations commenced last week, incorporating consideration of “initiatives” aimed at improving domestic gas availability. The timing of the review coincides with scrutiny of Santos’ operations, particularly its Gladstone LNG (GLNG) export facility in Queensland.
GLNG has faced criticism from competing LNG exporters for relying on domestic gas purchases to fulfil export contracts, a practice that has been blamed for exacerbating local supply pressures.
“This is a huge opportunity for Labor to extract domestic gas concessions and remedy their failure to impose reservation a decade ago when GLNG took a final investment decision. The timing lines up with Labor’s review of east coast gas market policy,” said Kavonic.
The federal government’s review is examining market transparency between gas producers and buyers, as well as conduct and “good faith” trading practices. It aims to propose reforms that reward producers contributing to domestic supply and safeguard east coast energy security.