Santos' $30bn Abu Dhabi takeover could put Queensland gas juniors in the fast lane
Acquisition could charge up interest in Queensland's gas assets to top up resources for LNG export
Junior companies operating in the state could also become more attractive for corporate activity
Shares in Santos (ASX:STO) – Australia's second largest gas producer – surged 11% to $7.72 on Monday after it received a non-binding indicative takeover offer from a consortium led by Abu Dhabi National Oil Company subsidiary XRG valuing it at close to $30bn.
The cash offer of US$5.76 ($8.89) per share from the consortium, which also includes Abu Dhabi Development Holding Company and Carlyle, represents a 34% premium to the one-month volume weighted average price of $6.61.
It is also expressed as a 'final non-binding indicative offer', with STO noting that it follows two confidential, non-binding and indicative proposals from the consortium of US$5.04 per share on March 21, 2025 and another of US$5.42 per share on March 28, 2025.
Subject to reaching agreement on acceptable terms of a binding agreement, the Santos board plans to unanimously recommend shareholders vote in favour of the transaction.
Morgans energy expert and deputy head of research Adrian Prendergast certainly agrees, telling Stockhead the $8.89 per share bid was a fair starting point as it valued Santos at around 5.5 times its EBITDA (earnings before interest, taxes, depreciation, and amortisation).
'The offer covers Santos' entire business, but the strategic aim is quite clearly to secure long-dated LNG export capacity as ADNOC seeks to diversify its portfolio,' he added.
Santos' 30% operated Gladstone LNG plant in Queensland has two trains capable of producing 7.8 million tonnes per annum of supercooled natural gas for export – most of which is under long-term contracts.
Lowell Resources Fund (ASX:LRT) chief investment officer John Forwood flagged the potential for Australia's Foreign Investment Review Board to block the bid, though this might just clear the way for Woodside Energy Group (ASX:WDS), which had held discussions with Santos about a potential merger between late 2023 and early 2024, to re-enter the picture.
It also comes as oil prices climb on the back of the conflict between Israel and Iran, which has raised concerns about crude oil and liquefied natural gas exports from the region.
'You could see this conflict affecting Qatar and certainly shipping through the Straits of Hormuz and shipping in the region more generally,' Forwood said.
He added that while gas prices might move up, it would be limited to a 'more localised geography specific sort of thing, as it always is with gas'.
Prendergast believes that Australian LNG exporters could benefit from a sudden shift in Middle East risk profiles with global customers incentivised to diversify supply to manage the heightened risk to the region.
It is not a stretch to extrapolate this further and suggest that a wish to diversify its export capability might be behind ADNOC's move to acquire Santos.
Impact on Queensland gas
While much of the attention has been on Santos and its intention to accept the offer, it's the impact on the junior gas space in Queensland we're interested in.
Forwood said that should ADNOC's focus really be Santos' LNG assets – particularly its plant at Gladstone – then it would likely be a positive for gas juniors.
Prendergast agreed, saying the material reserve constraints faced by GLNG meant that any sizeable gas assets in the region would remain a high priority for development, particularly as third-party gas contracts start to meaningfully roll off.
Both flagged the Santos and Comet Ridge (ASX:COI) owned Mahalo Gas Project joint venture, which has proved and probable (2P) gas reserves of 266 petajoules and a further 315PJ in best estimate (2C) contingent gas resources, as a potential beneficiary.
'A successful takeover would very likely remove Santos' cash constraints and could free up funding for (the) Mahalo JV development,' Prendergast said.
'While the Mahalo assets on their own may not be a long-term solution to fixing GLNG's gas constraints, they are certainly meaningful relative to GLNG's remaining 2P reserves, which in our view increases the corporate appeal held by Comet Ridge.'
Forwood agrees, saying that an acquisition focused on STO's LNG assets would be accompanied by a need to get more gas to Gladstone.
'If that's the case, then you would think that there would be great emphasis on the Mahalo project with Comet Ridge. It's quite possible that is one of the outcomes,' he added.
'I would also think that it would make Comet Ridge (more of a) takeover target as rolling up Comet Ridge to get 100% of the Mahalo project would be a fairly obvious next step.'
While that's what trained industry observers say, the market is yet to fully cotton on to the potential play here. Comet Ridge shares lifted 3.33% to 16c yesterday, with the $185m capped junior up a touch over 10% YTD.
Santos has already been progressing front-end engineering and design on the wells, compression and gathering system for its 42.86%-owned project while pipeline partner Jemena has been progressing FEED for a 10 inch pipeline over about 80 kilometres that will go initially into Jemena's pipeline for domestic supply before connecting to STO's GLNG line.
Any company acquiring Comet Ridge would also get with it the company's 100% interests in the Mahalo North and East projects, which are expected to be developed through the central Mahalo JV system.
Mahalo North has 2P reserves of 43PJ and proven gas production with the Mahalo North-1 pilot having produced 1.75 million cubic feet per day of gas during testing.
Flow testing of the Mahalo East pilot is currently underway with success expected to allow the company to convert most if not all of Mahalo East's existing (2C) contingent resource of 31 petajoules into 2P reserves.
Other companies, such as those operating in the up and coming Taroom Trough within the southern Bowen Basin, could also benefit from interest in new gas resources.
While these are still in early stage exploration, that supermajor Shell is reported to be expanding investment while companies such as Omega Oil & Gas (ASX:OMA) and Elixir Energy (ASX:EXR) have seen promising results so far in the nascent oil and gas district.
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