16th June 2025: XRG-Consortium-nonbinding-indicative-proposal-to-acquire-STO.PDF

I note that the XRG Consortium has yet to do their DD, so this deal has a number of conditions, including that DD being satisfactory to the Consortium, plus FIRB approval, plus other approvals as detailed above in the "Key conditions" section. However, for now, the STO Board is agreeable and intends to recommend that STO shareholders vote this one up as detailed below (in the absence of a superior offer).

I don't follow the Energy sector closely at all, so a couple of questions for those who do, please:

1. How likely do you think FIRB and the Aust Federal Gov in general is likely to wave this one through considering Santos owns the Moomba oil and gas hub in central Australia (near where the SA, NSW & Qld borders meet) and have shares in various LNG JVs around Australia as well?
2. Is having a UAE entity - the Abu Dhabi government owned National Oil Company - becoming the owner of a large swathe of Australia's oil and gas reserves and infrastructure a problem?
3. What do you think the chances are of a third party lobbing in an alternative bid now that Santos is "in play" ?

Disc: Not holding, but interested in how this is likely to play out.

The offer price - remembering that this is still a non-binding indicative offer (proposal) is  US$5.76 which is A$8.89 based on Friday's exchange rate of 0.6480 AUD:USD. And Santos has risen today, but not to the offer price - currently $7.77 as I write this - so still over $1 below the offer price, so the market clearly sees this deal as far from a fait accompli - i.e. plenty of things could scuttle this deal.

No guarantees and plenty of things could block this or otherwise cause it to fall apart. So still plenty of arbitrage here IF this one does go through. And if there is a bidding war and the offer prices rise...

I'm not getting involved. I know too little about the industry and I see this one as high risk TBH.

Also, I note that the highest STO has been today after this NBIO was announced has been $8.02, still below the $8.18/share year-high SP that they set almost 12 months ago.

10-June-2020:  https://www.oilandgastoday.com.au/nsw-government-contests-csg-bill/

Oil and Gas News

NSW Government contests CSG bill (9-June-2020)

NSW Independent Justin Field has passed a coal seam gas (CSG) moratorium bill through the NSW Legislative Council, with the support of the Labor opposition; the Shooters, Fishers and Farmers Party and the Australian Greens.

However, the Liberal Government, alongside the Nationals, has rushed to defeat the bill, which aims to derail Santos’ Narrabri gas project.

The bill is proposing to ban the prospecting for, or the mining of CSG in NSW, and will now go before the Legislative Assembly.

Field said it was madness to put the state’s land and water at risk when the world was quickly moving to new and exciting alternatives in renewable energy.

“We have an opportunity in this place to take a different path. For that reason I am proud to introduce a bill that will place a moratorium on coal seam gas development across the state,” Field said.

Santos achieved an approvals milestone in April with the Narrabri gas project after being referred to the Independent Planning Commission (IPC) in NSW.

The NSW Department of Planning is set to complete its assessment report on the project and provide it to the IPC for consideration, which the IPC making a decision within 12 weeks of receiving the report.

Santos has outlined that the Narrabri project has the potential to supply enough natural gas to meet up to half of the demand in NSW.

However, Field added that “we do not need this project” and “we do not need it for gas supply and it will not reduce the price of gas” during a speech to the Legislative Council.

“All it will do is impact on land, water, communities and industries. By comparison, unconventional gas is expensive gas. Unconventional gas fields are high-cost, low-yield operations in comparison with conventional gas plants that are currently delivering for our domestic needs,” Field said.

“Unconventional gas, fracked gas, coal seam gas, shale gas – whatever you want to call it – takes a lot of infrastructure and hundreds of wells.”

--- click on link above for more ---

Disclosure:  I do not hold Santos (STO) shares, but I do hold shares in other gas producers such as WPL, SXY and COE.  I believe this bill has some merit but will be defeated in the NSW Lower House (the Legislative Assembly).  I don't see this as being too damaging for Santos, but it does underline the risks associated with CSG (Coal Seam Gas) projects, especially new ones. 

While the Morrison federal government is particularly supportive of natural gas as a transitional energy source (as we transition from fossil fuels to an eventual 100% renewable energy future) because natural gas is a far less polluting option (in terms of greenhouse gas produced when gas is used to produce electricity) than coal - natural gas is produced from different sources in different ways, and CSG is always going to be a contentious issue I think. 

Those energy (oil/gas) companies that produce their gas offshore or from arid or otherwise unproductive or undesirable areas of land (well away from prime farmland and towns/cities) are far more likely to have a smoother run and encounter less opposition, so are more likely (IMHO) to prove to be superior investments within the sector, all other things being equal.  Additionally, those energy companies that do NOT need to rely on contentious extraction methods that are thought to often result in environmental damage - will also have a smoother run and will also likely prove to be superior investments (all other things being equal) - in my humble opinion.