Woodside, Santos End Talks on Merger That Had Possible $57 Billion Market Cap
Companies spent two months discussing a merger that aimed to capitalize on the rising demand for natural gas resulting from the war in Ukraine
SYDNEY—Woodside Energy WDS 0.53%increase; green up pointing triangle and Santos STO -5.84%decrease; red down pointing triangle have ended talks over a merger that could have created a gas company worth some $57 billion, representing a rare setback in the global energy sector, where producers have been rushing to do deals.
Woodside and Santos spent two months discussing a merger that aimed to capitalize on the rising demand for natural gas resulting from the war in Ukraine. With interests in gas-export projects in Australia and Papua New Guinea, the two companies appeared well placed to take advantage of any prolonged pause in approvals for new plants to export U.S. liquefied natural gas.
“While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation,” Woodside Chief Executive Meg O’Neill said Wednesday.
Energy companies have been doubling down on fossil fuels in a bet that the world will continue to have an appetite for oil and natural gas for decades, even as many nations are seeking to cut emissions and move toward green energy. In October, Exxon Mobil agreed to buy Pioneer Natural Resources for about $60 billion, while Chevron said it would acquire Hess for $53 billion.
Other companies have sought to get bigger to take advantage of the Ukraine war, which is reshaping the map for global natural-gas supply. The Biden administration’s decision late last month to effectively freeze the approval process for LNG exports further underscores the importance of plants already in operation.
Talks over a merger with Santos had helped to lift Woodside’s shares from a 16-month low in early December, and the stock has risen around 9% since then. Analysts said a merger could have increased Woodside’s earnings even if the Perth, Australia-based company had paid a 20%-30% premium for control of its smaller rival. Being bigger would have enabled Woodside to reduce debt costs and expand its trading business, although combining its Australian assets with those of Santos could have created domestic competition concerns, they said.
“Following an initial exchange of information, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders,” Santos said.
For many investors, natural gas holds appeal as a fuel that can help the power sector to bridge the time it will take from ending coal use to relying heavily on renewables.
In a report published in October, the International Energy Agency said the LNG market balance would likely remain precarious in the near term. New LNG projects, however, could add 250 billion cubic meters a year of liquefaction capacity by 2030, equal to almost half of today’s global LNG supply, the IEA said.
Woodside, already Australia’s 10th-largest company by market capitalization, operates assets throughout Australia as well as international projects including in the Caribbean and the majority owned Shenzi oil-and-gas field, about 120 miles off the coast of Louisiana. It plans to invest $5 billion in new energy projects by 2030, including a proposed hydrogen project in Oklahoma.