Santos (STO) – Game on

Santos produces oil and gas from assets located in Alaska, the Cooper Basin, Queensland and NSW, Papua New Guinea, Western Australia, northern Australia and Timor-Leste. Santos Limited was incorporated in 1954 and is headquartered in Adelaide, Australia.

Santos (STO) is in play after a consortium led by the Abu Dhabi National Oil Co (ADNOC) made a US$5.76 ($8.89) a share, or $29 billion, indicative takeover offer for Australia's second-largest oil and gas producer. The offer from XRG consortium, which also includes Abu Dhabi sovereign wealth fund ADC and US investment giant Carlyle Group, follows two previously rejected offers.

‍

The shortfall of the Santos price to the offer price since the bid is likely driven by the risks of the Foreign Investment Review Board (FIRB) rejecting the takeover, and the extended timeline required to receive FIRB and other regulatory approvals before the offer can even proceed to a shareholder vote, where the board has said it will recommend acceptance of the offer, subject to a final binding price and terms.

‍

In Ord Minnett’s view, however, the regulatory risks to completion of the deal are overstated, as the consortium’s plans to boost gas production should allay political concerns over supply of what the federal government considers a crucial fuel in the clean energy transition, while contracts already in place mean it is very unlikely a change in ownership will lead to a reduction in domestic gas supply.

‍

We expect a formal binding bid from XRG within several weeks and estimate the deal should be completed in the March quarter of 2026. Many Santos shareholders have chosen to exit the stock given the prices on offer on Monday, but we maintain a positive bias on Santos, even as we trim our recommendation to Accumulate from Buy. Our target price rises to $7.90 from $7.50.

‍