I feel it's a difficult space @Jimmy in that major capex is usually involved most years and their fortunes are based on where oil and gas prices go, which depends on a lot of stuff that is very hard to predict with any degree of confidence.

I remember @mikebrisy confirming to me here last year that he would only buy companies like Woodside and Santos when oil prices have been absolutely smashed and are clearly at or near rock bottom with only one way to go from there - and he has real world experience in this industry.

While oil prices aren't super high, they're also clearly not bombed out and at or near rock bottom either, so we're not there yet.

And this deal might well be blocked, as you say Jimmy, and that was my own assessment earlier when I wrote that straw, so with that in mind, if we don't get interest from a third party, then the risk is that the M&A premium being applied today evaporates back out of the STO share price, i.e. it returns to pre-bid levels.

High risk, as I said before.

• [I've removed two paragraphs here that were factually incorrect - concerning Woodside being almost entirely WA-focused - which I've since realised is no longer the case. I don't follow them closely and had forgotten about them buying the BHP Energy assets and Woodside's prior tilt at Santos. See @Longpar5 comments below for further details.]

I'm not sure there would be a willingness there with Woodside's management to match or better the indicative offer that the Abu Dhabi oil company has made for Santos.

I would imagine that if there was, it would not be positive for the Woodside share price, and I reckon Woodside's management know that too.

But, like I said, plenty of opinions but no real industry knowledge on my part, so I'm just guessing.

@Bear77 ,@Jimmy I don't think Woodside will come again for Santos. They made it pretty clear after the last tilt that they'd move on....and they did, paying something like $1bn for a permit to build an LNG plant in Louisiana, which will tie up a lot of capital for them now they've taken FID (Phase 1 will cost something like $16bn US gross).

Woodside is actually a little more diverse than just WA. Since they bought BHPs oil and gas assets a couple of yrs ago they have a major presence in Aus East Coast gas (Bass Strait) and a bunch more in the US and elsewhere. They also have their new oil project in Senegal and now the aforementioned Louisiana LNG.

ADNOC/XRG are chasing LNG, its actually interesting why they didn't go for Woodside instead of Santos. Maybe too big to swallow, a few more non-LNG assets to deal with and lower chance of success with FIRB.

Tend to agree with your sentiment around these companies, pretty low risk at this point, but so much capex just to stand still that they really only offer much value as a dividend play, or cyclical trade if that's your bag.

Excellent points @Longpar5 - I've just now edited my earlier post in this thread to reflect Woodside's prior tilt at Santos and their geographical diversification since buying BHP's energy assets. [Which I'd forgotten about until you mentioned it]

One question: Why do you consider them low risk? It's not within my circle of competence clearly, but I reckon buying Santos as an arb opp now is fraught with danger based on the likelihood of this deal falling through or being blocked, and I don't see clear value outside of that M&A either, but I'm probably missing something. Or a number of things.

Disc: Not held.

Hi @Bear77, fair question, there’s probably a few facets to that low risk tag. Variant perception of risk might be the main one really! Risk means something different to everyone, so I should probably be more careful throwing the term around.

I agree with you there’s higher risk to an arb trade now, but that’s only ~10% or so, I was more considering on a medium term time frame (say about 5 years), the risk of losing say 50% and more in reference to WDS really. Energy can be volatile of course, so these shares can rise and fall on that, but to me that’s not really medium-longer term risk.

Another reason, and it relates to the commodity price cycle is that I think that the mid-low US$60’s/barrel of oil is fairly low in the cycle. If you consider all the cost inflation that’s gone on in the world the last few years, $60 oil is more like $40 oil from 10 years ago. For sure it could go lower for periods, but I don’t think for too long before it would recover to these type of levels. Therefore, if you again take that medium term view, relatively low risk.

Finally, is I would say the companies mentioned have relatively strong balance sheets, in fact most large fossil fuel companies do these days. Since being caught out around 2015 when prices crashed, most have de-prioritised spending on exploration and prioritised low break even models that mean even if oil was around $40 for a whole year they’d roughly break-even. So while the share price might cause a bit of pain for sure - ie. short term risk - I don’t think there’s risk of massive capital raisings, dilution, fire-sale of assets etc that are the sort of scenario I’d see as medium-longer term risk. As sure as there will be down years there will be up years too, so I think in terms of true business risk, I think this all nets out. In the case of WDS especially, you receive a pretty juicy dividend on average through the cycle to compensate for the potential volatility.

In the true long term, there are risks around the demand for oil and gas of course in relation to the energy transition. These are real but hard to quantify and honestly, exist for a lot of businesses - the possibility that the world will move past what you’re selling and you’ll need to adapt or die.

That’s my view on risk, while i might consider these stocks low risk they’re not my style for long term investments. Like you mentioned maybe as a cyclical opportunity, but ultimately, too capital intensive and the proof is kind of in the pudding of long term flat share prices, no compounding, multi-bagging type potential.