Adnoc Proposes $187 Billion Acquisition of Santos, Offering 28% Premium

Adnoc, the Abu Dhabi National Oil Company, has proposed a significant acquisition of Santos Ltd., an Australian fossil fuel producer, for 187 billion dollars. This move is part of Adnoc's strategy to expand its liquefied natural gas (LNG) production capabilities on a global scale. The acquisition, if approved by regulatory authorities, would grant Adnoc a substantial stake in Santos' primary operations in Australia and Papua New Guinea.

The offer, made by Adnoc's investment subsidiary XRG PJSC, values Santos at 5.76 dollars per share in cash, representing a 28% premium over the company's closing price from the previous Friday. Santos' board of directors has recommended accepting the offer, which has been met with enthusiasm by investors. The company's stock price surged by 11% on Monday, marking its largest single-day gain since November 2020. However, the stock remains below Adnoc's offer price, largely due to the regulatory hurdles that still need to be cleared, including approval from Australia's Foreign Investment Review Board.

The acquisition aligns with Adnoc's broader strategy to build a leading global integrated gas and LNG company. XRG, which has been actively seeking deals in the natural gas and chemicals sectors, aims to achieve an enterprise value of 800 billion dollars. The proposed transaction is seen as a strategic move to enhance XRG's capabilities in the LNG market, one of the fastest-growing segments in the fossil fuel industry.

Santos, under the leadership of CEO Kevin Gallagher, has been a target for numerous acquisition attempts in recent years. Gallagher's resistance to these offers has sometimes frustrated investors seeking higher returns. However, his strategic vision to increase production by approximately 50% by the end of the decade has ultimately attracted a consortium seeking high growth potential. The consortium, led by XRG, includes Abu Dhabi Development Holding Co. and Carlyle Group Inc.

The acquisition faces potential challenges, particularly from regulatory bodies. Fereidun Fesharaki, founder and chairman of the energy consulting firm FGE, expressed concerns about the approval process. He noted that Australia's Foreign Investment Review Board has historically been reluctant to approve such acquisitions, and the current proposal may face significant hurdles. One potential solution, according to Fesharaki, could be to retain the existing management team and operate Santos as an independent entity under foreign ownership.

The Australian government has stated that foreign investment matters will be reviewed on a case-by-case basis to ensure they do not compromise national interests or security. This cautious approach reflects the sensitivity surrounding foreign acquisitions in the energy sector.

The proposed acquisition is part of a broader trend of international energy companies seeking to expand their LNG portfolios. Santos, with its significant LNG assets, has long been an attractive target for competitors. In 2018, the company rejected multiple offers from Harbour Energy Ltd., and negotiations with Woodside Energy Group Ltd. collapsed last year. Adnoc's interest in Santos was first reported in 2022, as the company sought to increase its overseas gas investments.

The acquisition, if successful, would mark a significant milestone for Adnoc and XRG, solidifying their positions in the global LNG market. The deal underscores the strategic importance of LNG in the energy landscape and the growing interest of international players in securing long-term supply and production capabilities.