Santos CEO Kevin Gallagher. Hollie Adams/The Australian
Santos CEO Kevin Gallagher. Hollie Adams/The Australian

Santos deal ‘would boost jobs, investment in SA’

A US company which has pitched a "knock out bid" for South Australia's largest company, Santos, already has plans to boost investment in the state.

Harbour Energy, which has made a $13.5 billion bid for Santos, has committed to keeping the 64 year-old company's head office in Adelaide and says it wants to invest to grow the company here and overseas.

Santos knocked back three previous approaches from Harbour starting in August last year but said the new takeover price of $6.50 per share meant "it is in the interests of shareholders to engage further with Harbour".

Harbour chief executive Linda Cook told The Advertiser this was likely to mean more jobs in SA.

Ms Cook said the plan was to boost drilling in the State's Cooper Basin in the short to medium term, as part of ambitious plans to increase gas drilling and exploration across Australia, as well as using Santos to pursue "additional interests in Australia projects as well as in Africa and other regions''.

Harbour Energy first approached Santos in August last year and then November, but was rebuffed by the company which said the initial $4.55 per share bid was too low.

Harbour on Tuesday came back with a bid of $US4.98 per share plus a US28c per share special dividend, with the offer worth $6.50 per share in Australian dollar terms.

Any bid would likely need the support of 75 per cent of shareholders and would also require approval from the Foreign Investment review Board.

Santos CEO Kevin Gallagher. Hollie Adams/The Australian
Santos CEO Kevin Gallagher. Hollie Adams/The Australian

It has been a wild ride for Santos shareholders over the past decade, with the shares reaching more than $18 in 2008, before plunging below $3 in 2016 as the company struggled with high debt levels, forcing it to cut thousands of jobs.

Many Santos shareholders have held the stock for decades, with the company founded in 1954 by prominent South Australians including John Bonython and Sir Douglas Mawson.

Ms Cook said she spoke with Premier Steven Marshall Tuesday, assuring him that the company was committed to keeping Santos based in SA, and told The Advertiser Harbour expected to maintain Santos's commitments in terms of the amount of money it spent in the community.

She said it was too early to talk about specific commitments such as the sponsorship of the Tour Down Under however.

Ms Cook said: "We think our offer is compelling for shareholders.

"We also believe that our strategy will be beneficial for the broader stakeholder base.

"So our plan is one of growth in Australia, Papua New Guinea and beyond.

"The result of that should be increased investment, further contributions to the domestic natural gas market in Australia, an expansion of the Santos portfolio internationally.''

Ms Cook said the Harbour bid was fully funded and the company "looks forward to completing the transaction as soon as possible''.

A gas flare from a Santos-owned Tintsfield pilot well in WA.
A gas flare from a Santos-owned Tintsfield pilot well in WA.

Santos's liquefied natural gas projects at Gladstone in Queensland, at Darwin and in Papua New Guinea, were seen as the jewels in the crown which Harbour would use as a base to grow.

Ms Cook said Harbour was "not a private equity vehicle", stressing that her company was a long-term investor, rather than one looking to make a quick turnaround on its investment.

"We're funded with permanent capital and we don't have a defined investment horizon as is common with a lot of private equity vehicles,'' she said.

"This allows us to take a long-term, more strategic view when it comes to our strategy and our investment decisions.''

Ms Cook said the company was now the largest investor in the North Sea off the UK coast and had been investing heavily there, and it would hope to replicate that with Santos.

In SA Ms Cook said Harbour would seek to quickly move from three to four drill rigs in the Cooper Basin.

Asked whether further investment meant more local jobs Ms Cook said: "Normally that's what happens right?

"We'll bring access to the company to fresh sources of capital, we see opportunities for increased investment. One example of that would be drilling in the Cooper Basin.

"Normally when that happens the natural result is an increased need for services and job creation in the local economy so I would anticipate that could be the case.''

Santos’ liquefied natural gas project at Gladstone in Queensland. Picture: Santos
Santos’ liquefied natural gas project at Gladstone in Queensland. Picture: Santos

No decisions had been made about retaining the current management team but Ms Cook said she held their work in high regard.

Santos told its shareholders to "take no action'' in relation to the bid at this stage. It has formed a committee including its chairman and managing director to consider the bid and make recommendations to the board.

Under the Harbour takeover bid shareholders could be able to retain shares in the company, which would not be listed on the Australian Securities Exchange, up to a maximum of 20 per cent of shareholders taking part.

Santos's two largest shareholders currently are Chinese companies ENN and Hony Capital, which together own 15.1 per cent of the company.

RBC Capital Markets analyst ben Wilson said Harbour's offer was compelling.

"We do see this latest Harbour Energy approach as a knockout bid, one which the board of Santos will struggle to turn down,'' he said in a note to investors.

The Santos Moomba gas plant.
The Santos Moomba gas plant.

"A new owner of the assets represents a clean break as well as a healthy premium for recent equity investors. We expect Santos to trade close to the bid price of $6.50.''

In 2015 former chief executive John Ellice-flint led a takeover bid at $6.88 per share, with many conditions, however that bid was rejected.

State Minister for Energy and Mining Dan van Holst Pellekaan said the Premier "has impressed upon senior representatives of Harbour Energy the importance of retaining the head office in Adelaide and growing resource jobs in South Australia.

"The Premier's priorities were received positively by Harbour Energy.''

Opposition energy spokesman Tom Koutsantonis said the government needed to extract an "iron-clad" guarantee from the company that it would retain its head office here and also commit to supplying gas to SA, rather than selling it to the highest bidder.

Santos is due to hold its annual general meeting next month.

 

Harbour Energy's Plans for Santos

 

In a separate statement, Harbour Energy said it is providing for Santos' existing shareholders to remain invested in Santos, should they so desire, via an option to elect to accept unlisted scrip in the new, private company, subject to a minimum 15 per cent of shareholders electing to do so and a maximum participation of 20 per cent.

"The condition related to a minimum of 15 per cent of existing Santos shares outstanding electing to receive scrip would be fulfilled should Santos' largest shareholder (ENN together with Hony Capital) elect to do so," Harbour said.

"Electing to remain invested in Santos would be consistent with ENN and Hony Capital's stated intention to be long term investors and their strategic relationship with Santos."

Harbour said its strategy for Santos is to "use the company's core assets and organisational capabilities as a platform for growth in Australia, throughout Asia, and with respect to the global LNG sector".

"In support of this strategy, Harbour expects to invest further in Santos' existing assets and to pursue the acquisition of additional natural gas and LNG-focused assets in Australia and internationally.

"These plans are expected to contribute to Australian domestic energy security and economic growth.

"As Harbour is focused on investment and expansion, successful execution of our strategy does not rely on staff reductions. Furthermore, there is no intention to relocate the Santos headquarters from Adelaide."

Ms Cook, Harbour Energy's chief executive, said Santos's interest in three operating LNG projects across Australia and Papua New Guinea along with its operating capability and management team were "valuable assets and important to the execution of our vision and strategy".

"We are pleased with the decision of the Santos Board to engage further and look forward to progressing this transaction towards completion."

 

 

 

SANTOS - CORE ASSETS

Cooper Basin: Santos discovered the first natural gas here in 1963 and first oil in 1970. It majority owns and operates the Moomba gas plant which supplies gas to SA and the east coast.

Papua New Guinea: Has a 13.5 per cent equity interest in the 30-year PNG LNG project, operated by ExxonMobil.

Northern Australia: The only Australian partner (11.5 per cent) in Darwin LNG.

WA Gas: Santos made its first discovery in the Carnarvon Basin in 1984 and has a strong portfolio of uncontracted gas.

GLNG: Santos operates and owns 30 per cent of the $US18.5 billion GLNG project, which exports gas overseas and includes development of coal seam gas resources in the Surat and Bowen Basins in southeast Queensland.

Narrabri: In northwest NSW, Santos's Narrabri Gas Project could supply up to half that state's natural gas needs, but has faced strong opposition to development in the past.

 

 

WHO IS HARBOUR ENERGY?

n Harbour Energy was established by EIG Global Energy Partners to make long term investments in the energy sector globally.

n It is headed up by Linda Cook, who was an executive with Royal Dutch Shell for 29 years operating in multiple countries.

n Harbour recently made its first acquisition - a $US3 billion portfolio of oil and gas assets in the North Sea off the UK.

n EIG has offices in Washington, Houston, London, Seoul and Sydney and investments in 36 countries.

 

HARBOUR'S VISION FOR SANTOS

n To increase drilling in Eastern Australia to boost gas supplies.

n To develop Australian gas discoveries and possibly expand existing liquefied natural gas
plants.

n To pursue mergers and acquisitions to grow the company in Australia and overseas.

n To invest in the company's
people to support its growth strategies.

 

The story of Santos

 

1954: Santos was founded in Adelaide by directors including John Bonython AO and Sir Douglas Mawson.

1963: The company's first gas discovery was made in the Cooper Basin in Far North SA.

1966: The Moomba Gas Field is discovered which, together with the Gidgealpa field, provide reserves to satisfy the then SA market.

1968: Construction of gas processing facilities at Moomba begins.

1969: The 790km pipeline to transport natural gas to Adelaide is completed and, on November 10, gas is sold to the first customer - the South Australian Gas Company.

1978: Santos shareholders receive their first dividend, 2c per share.

1979: The State Government imposes a 15 per cent shareholder cap on the company to block corporate raider Alan Bond taking it over and to secure the then only source of gas to SA.

1985: Net operating profit after tax exceeds $100 million.

2000: Shell Australia's Barrow and Thevenard Islands interests in the Carnarvon Basin are acquired.

2007: The Rann Government removes the 15 per cent shareholder cap, opening the way for a takeover for Santos, in return for $60 million dedicated to community benefits over 10 years.

2008: Santos shares hit record levels, $18+ per share.

2009: The Gladstone Liquefied Natural Gas project in Queensland, eventually to be valued at $US18.5 billion, enters front-end engineering and design phase.

2015: Santos rejects a $7.1 billion hostile takeover bid from Bermuda-based Scepter Partners backed by Middle Eastern money and led by former CEO John Ellice-Flint.

2016: Santos shares drop below $3 as the company struggles with high debt levels. Hundreds of jobs are cut.

August 2017: Santos rejects a $4.55 a share bid for the company from Harbour Energy, with rumours it will return with an offer of $5.30.

March 29, 2018: Santos agrees to talk exclusively with Harbour Energy following a bid worth $6.50 per share including a special dividend.