Santos, which is Australia's second-biggest CSM producer, surged 9.3% yesterday to reach $17.36. Investors were either betting on its CSM-LNG proposal, which lacks a much-needed partnership arrangement, or they were punting that Santos would become a takeover target once its 15% ownership cap is lifted on November 29.
At first glance, a BG takeover of Origin Energy could help safeguard Santos against a foreign takeover. After all, would Australia want both of its two largest coal seam methane producers taken over by foreign interests?
However, Tolhurst director Jurgen Hendrich says this argument doesn't hold water.
"There's no shortage of coal in Australia, especially Queensland," he said.
"There are plenty of strong, up-and-coming Australian players in this sector, so I can't see a case for protectionism here."
Nor does he believe that any of Santos's assets are vital to the national interest.
"Once the company asked to have its shareholding cap removed, it made itself fair game," Hendrich said. "Now it's just a question of who's been doing their homework and who can make the best offer."
Santos's large reserves base and strong position in CSM and LNG make it a very attractive morsel for hungry predators.
The Australian said potential bidders for Santos included supermajors ExxonMobil, Shell, BP and Total, as well as Chinese national oil company Sinopec, and Japanese players Osaka Gas, Itochu and Mitsui, which all have histories of investment in Australian upstream petroleum.
US major Apache Energy has long been rumoured to be interested in taking over Santos, possibly in partnership with AGL Energy. Under this scenario, Apache would take the offshore assets, while AGL took the onshore oil and gas. However, AGL has also been cited by some analysts as a possible takeover target.
(Perhaps Santos and AGL should think about friendly merger, and quickly.)
In response to a query from the Australian Securities Exchange, Santos acknowledged the interest in its future
"There has been significant speculation reported in the media regarding the BG Group proposal to acquire Origin Energy and the ramifications to Santos of that proposal," Santos said.
The company also said it was discussing potential participation in the company's Gladstone LNG project with "a number of parties".
If Santos did want to takeover-proof itself, one way would be to join up with a technology partner such as ConocoPhillips or Shell and a marketing partner, such as a large Asian utility, and have both those companies take, say, 30% equity in the LNG project and a 15% stake in Santos.
Even if it failed to stitch up such a deal, finding a credible partner in the next few months is vital if the company is to maximise its value before any takeover bid.
PNN can't help but feel that Santos put the cart before the horse in seeking to have the shareholding cap lifted before it has secured a partner for Gladstone LNG.
At its annual general meeting in Adelaide on Friday, chairman Stephen Gerlach said the removal of the cap would mark "an exciting new era" for Santos as the company pursues its growth initiatives.
"It will provide us with greater flexibility in implementing our capital management strategies," Gerlach said.
"The removal of the cap will also place the company in a similar marketplace position to most other significant ASX-listed companies."
Gerlach said BG Group's bid for Origin Energy "represents further recognition of the value of Australian gas resources, and of coal seam gas resources in particular".
Hendrich agreed, but stated the case more strongly, saying BG's bid for Origin is "a watershed event in the evolution of Australian coal seam gas and LNG".
"The game to take advantage of the window of opportunity for LNG markets is seriously on," he said.
"Santos must be starting to feel increasingly vulnerable as the clock runs down to the removal of the 15% shareholder cap and it is left without a major partner in its proposed Gladstone LNG project."
