Santos Limited

Received Revised proposal from Harbour Energy: Santos Limited’s (ASX: STO) stock surged up by 1.76 per cent on May 21, 2018 at the back of a revised conditional proposal from Harbour Energy Australia Pty Ltd to acquire 100% of Santos shares. According to the proposal, US private firm, Harbour Energy has increased its cash bid for oil and gas major Santos from US$4.98 to US$5.21 per share. This is equivalent to A$6.95 per share at an exchange rate of 75 U.S. cents to 1 Australian dollar. The revised Harbour Proposal is conditional on Santos undertaking additional hedging of oil-linked production in 2018 of about 30% and making changes to hedging in 2019. In addition to this, Harbour indicated the offer price would be further increased to a US dollar amount equivalent to A$7.00 per share, if Santos agrees to hedge 30% of oil-linked production in 2020, too. The revised offer is subject to several conditions, including the completion of a final due diligence, and the two parties entering into a scheme implementation agreement, which will require Foreign Investment Review Board (FIRB) and shareholder approvals.

It is worth noting that as per Harbour, the revised proposal at $US5.21 a share ($6.96) was best and final it could offer to STO. On the other hand, STO’s Management stated that its independent directors would consider the revised proposaland advised shareholders to take no action at this time in relation to the Revised Harbour Proposal. Meanwhile, the stock has risen 78.57% in last one year as at May 18, 2018 and is currently trading near its 52-week high levels. Hence, we maintain our “Hold” recommendation on the stock at the current price of $ 6.360, while there are bleak chances that the deal will pass through given the preliminary cold response.


Oil Price Hedging (Source: Company Reports)

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