Origin made an off-market bid at the beginning of the week priced at $4.25 per share. Santos has already agreed to accept for 2.9 million shares leaving about 11.8 million shares or about 10% of OCA's paper on issue.

"In our view, Santos needs to wait for the outcome of the IER that will accompany the Target's Statement, before deciding on what to do with its remaining shareholding," UBS said in a global equity research note to investors.

"If the report has a higher valuation than $4.25/share and the bid is raised, then Santos could receive the higher price for the 2.9 million shares already committed."

UBS said Santos' stake in OCA was non-core and the company's decision to partially accept the Origin offer was a possible flag that the major was keen to liquidate the stake which it has held since 1987.

The broker maintains a "neutral" rating on Santos.

"In our valuation, the values of Santos's share investments are aligned with current market values," UBS said. "The valuation is unchanged at $5.05 per share, a discount of 8.2% to our share price target of $5.50 per share. The share price target is at a discount of 9.4% to the current share price of $6.07.

"By accepting the $4.25 per share offer for 2.9m OCA shares, Santos should receive $12.3 million. The carrying value of Santos' holding in OCA is $1.13 per share. Therefore, we estimate an after-tax increase in forecast reported profit for 2003E of $6.3 million to $344.5m.

"On a pre-abnormal basis, net profit forecast for 2003E remains at $296.2 million, with very small increases for 2004E and 2005E."