Woodside and Santos call off merger talks to create Australian LNG giant

Australia’s two largest oil and gas companies have called off merger talks, ending months-long negotiations to create a $52bn liquefied natural gas company.

Perth-based Woodside and Adelaide’s Santos entered negotiations three months ago over a merger that would have all but consolidated Australia’s independent LNG sector into one company.

Woodside, the larger of the two companies, said on Wednesday that it had “ceased discussion regarding a potential merger with Santos”. Woodside shares edged up 1 per cent, while Santos’ fell 6 per cent.

A combination of the two Australian companies would have created an LNG group with similar volumes to those of BP. The talks followed moves by US majors including ExxonMobil and Chevron to acquire smaller rivals and bulk up their portfolios as a consolidation wave has hit the sector.

A deal to bring together Woodside and Santos would have combined their assets in US oil, Senegal and Papua New Guinea, but analysts questioned whether the combination would have merit.

Some investors have publicly expressed concern that Woodside would have to pay too big a premium to secure a merger with Santos, which has struggled in recent years as its large Barossa gas project in the Timor Sea has faced significant opposition from indigenous groups and environmentalists.

Woodside merged with BHP’s oil and gas business in 2022 and has thrived as LNG prices soared in the wake of Russia’s invasion of Ukraine. Meg O’Neill, Woodside’s chief executive, has stressed in recent weeks that the company would be careful in judging the benefits of a merger with Santos.

“We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders,” she said in a statement after the Santos talks collapsed.

“While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.”

Santos said in a statement that the two companies had not found “sufficient combination benefits” to support a deal that would have been in the best interest of its shareholders. It said it would continue to review options to unlock value.

Saul Kavonic, an analyst with research company MST Marquee, said the talks’ collapse showed the two companies’ diverging paths. He expects investors to support Woodside if it wants to make other acquisitions, particularly in the US, because it has a record of being disciplined.

Kavonic added that Santos could continue to “languish” for some time and might consider asset sales or a break-up to strengthen its balance sheet in the absence of other bidders, he said.