Santos still plans to launch spin-off company, referred to as New QGC, which it says would be a “robust” competitor in the eastern Australian gas industry.

Under the revised offer, formally lodged with QGC yesterday, “New QGC” would now be entitled to sell or cause Santos to buy 100PJ of 2P gas (once that

quantity is certified at ATP 648P).

"This has been increased from 60 PJ and would allow

“new QGC” to quickly become a significant gas producer with more than 5% share of the Queensland gas market," QGC said yesterday.

"The arrangement would also provide the cash to develop “New QGC’s” highly prospective exploration tenements."

In addition, Santos has now included a proposal for a gas transportation and swap agreement that would give “New QGC” access to southern and north-western Queensland markets.

Santos said it had placed a value of at least 50c per share on the New QGC shares, taking the total implied offer consideration to at least $1.80 per share.

The offer involves $1.30 cash per QGC share and the issue of New QGC shares to existing QGC shareholders on a one-for-one basis.

“Santos has structured its offer to provide QGC shareholders with a very attractive cash component and shares in a dynamic new entity that would be led by QGC’s managing director Richard Cottee and his highly successful team,” managing director John Ellice-Flint said.

“New QGC will benefit from unique commercial agreements with Santos, which will enable the new entity to quickly bring new gas supplies to market and be an active independent participant in a very competitive gas market from Day 1.”

Santos said the New QGC would have about 9 trillion cubic feet of original gas in-place.

The spin-off will also be given an interest in the first 100 petajoules of gas discovered in ATP 648P (Undulla Nose) and a put option to sell that gas to Santos. The 100PJ represents a two-thirds increase in the volume of gas as proposed by Santos on January 30 of 60PJ.

Santos said the revised offer was designed to boost New QGC’s exploration and marketing efforts and potential sales across much of Queensland.

It will also be led by the current QGC board, senior management and technical teams.

Santos aims to win over QGC so that the CSM company’s board and shareholders reject a counter-proposal from AGL Energy – to pump $292 million into QGC for a 27.5% shareholding at $1.44/share and to provide QGC with a major gas contract.

The AGL proposal already has approval from the Australian Competition and Consumer Commission and from the QGC board.

But QGC is still talking with Santos and will be waiting to see how the ACCC rules on Santos’ new proposal at the end of the month.

The takeover target yesterday said the new Santos offer contained “improved terms” and was “superior” to the first, but still contained impractical aspects in relation to AGL’s bid.

“While the commercial terms of the revised Santos offer initially appears to be superior to the commcercial terms of the AGL proposal, it must be noted that the Santos offer is subject to (and cannot be accepted until it receives) approval from the ACCC,” QGC said.

“The offer is also subject to impractical requirements regarding termination of the AGL agreement. The Santos offer is also subject to QGC immediately abiding by a ‘no talk’ provision.

“Given the uncertainty surrounding the ACCC approval, QGC believes a ‘no talk’ provision is impractical and unreasonable in the circumstances and therefore QGC does not consider itself to be bound by it.”

The company said its directors maintain their recommendation that shareholders accept AGL’s proposal, to be reviewed if and when the ACCC announces a finding, which would give QGC shareholders certainty around the Santos offer.

The ACCC has stated that it expects to announce its findings on the new proposal no later than March 1.

In the interim, QGC said it will refer the new Santos offer to Deloitte who acted as the independent expert in considering the AGL offer.

Meanwhile, Santos’ original bid to take over QGC has expired. The Santos Group succeeded in acquiring just 3.86% of QGC shares.