Santos is currently in discussions with the major shareholder of Orogen, Mineral Resources Development Company Ltd (MRDC), which is a wholly-owned subsidiary of PNG Government. If successful, the $2 per share bid will increase Santos' stake in the pipeline project to 26 per cent with Oil Search having a 27% stake and ExxonMobil having 31% interest.
Pressure mounted on Santos to become a significant player in PNG earlier this year when Australian Gas Light Company agreed to take 50 petajoules of gas annually from PNG from 2006. Analysts have said by acquiring Orogen, Santos would address its lack of growth and reliance on the declining Cooper Basin field.
Many in the market believe the offer will be rejected MRDC, which has a 51% stake in Orogen and remains suspicious of Santos' motives. The Santos proposal also includes an agreement granting it an option to buy a minimum of 14.9% of Orogen shares. The deal would also see Orogen sell some assets to MRDC, if they were not sold to a third party.
"This is simply a bold face attempt to delay the PNG gas project. There is no credibility in it whatsoever and I have no doubt that is how it will be judged by investors," said Oil Search chairman, Mr Trevor Kennedy.
Santos shares closed at $5.97, Orogen moved higher to $2.02 while Oil Search requested a trading halt as the PNG National Executive Council meets to consider the first merger proposal. They were trading at $1.20 before going into pre-open.
