Santos takeover faces major hurdles, switch to Woodside Energy says broker

Santos (ASX: STO) has received a US$5.76 per share cash takeover offer from a consortium consisting of Abu Dhabi National Oil Company (ADNOC) and the XRG Consortium (which includes Abu Dhabi Development Holding Company and private equity group Carlyle).

At the AUDUSD exchange rate at the time of writing (0.6478), the bid values Santos at approximately $8.89. This a 27.7% premium to the stock’s closing price of $6.96 on Friday. The offer is subject to key conditions including confirmatory due diligence and regulatory approvals.

Media reports (Reuters) had suggested ADNOC was weighing a bid for the ASX’s second largest energy company as early as July last year. Saudi Arabia’s Aramco was also mooted to be in the mix, but the company subsequently publicly denied this. As far as potential rival bidders that could emerge, it’s also worth pointing out the ASX’s number one energy company, Woodside Energy (ASX: WDS), failed to come to merger terms with Santos early last year.

Looking at Santos' $7.80 share price at the time of writing (vs $8.89 bid price), it could be argued that investors potentially believe a combination of factors may be reducing its attractiveness:

1. No rival bidder is in the mix; and
2. ADNOC’s deal is likely to fail to receive the necessary regulatory approvals

Let’s investigate further the likelihood a rival bid for Santos will emerge, as well as the substantial hurdles ADNOC’s offer faces to be approved.

Will there be a rival bidder for Santos?

Since both companies mutually agreed to walk away from merger talks in February last year, Woodside has embarked on a major US-focussed investment campaign, spending US$1.2 billion to acquire the Driftwood LNG project in Louisiana (now Woodside Louisiana LNG). It’s also continuing to invest heavily in bringing its flagship Scarborough LNG project into production by 2026, and spent US$2.35 billion on a low-carbon ammonia plant under construction in Texas. In conclusion, the rival bidder probably won’t be Woodside.

As for Aramco, it’s arguably actively on the hunt for global LNG assets. Only last month it signed a memorandum of understanding with Woodside to potentially acquire an equity stake in Woodside Louisiana as well as an LNG offtake deal from the project. This deal was the fifth of similar deals Aramco has inked in US LNG projects over the last 18-months. It has also taken interests in Australian LNG assets, though, via its 49% stake in MidOcean Energy which spent US$2.15 billion on Tokyo Gas’s Australian LNG assets including stakes in Chevron’s Gorgon LNG, Woodside Energy-operated Pluto LNG, and Shell’s Queensland Curtis LNG in 2023.

Aramco has so far been content to secure minority stakes in global LNG projects and offtake agreements, so perhaps a +$30 billion tilt at Santos doesn’t fit with its recent activities. There’s also the public denial it had even run the ruler under the company as at July 2024. However, whilst Aramco may not be pursuing a direct acquisition of Santos, its strategic objectives and recent investments suggest that some involvement in Santos' LNG assets, either directly or indirectly, aligns with its global expansion goals. Let’s put Aramco in the “not impossible, just unlikely” basket.

As for everyone else, local stockbroker Evans & Partners released a research report today in which it downgraded its rating on Santos from “Positive” to “Neutral”. The report cited earlier research from the broker that postulated major energy companies like France’s TotalEnergies, the UK’s BP, and US-based ConocoPhillips “stand-out” as potential Santos suitors when considering “asset overlap and recent trends”. The global energy majors want to increase their exposure to LNG, E&P notes, as LNG is increasingly being viewed as a key “transition fuel over the medium to long term”.

Now does feel like an opportune time to acquire Santos with risks building on energy prices and Santos entering a free cash inflection phase with the completion of several major growth projects.

– E&P, 16 June 2025 "Santos Limited (STO): Better late than never - downgrade to Neutral"

E&P’s current research report stopped short of anointing a rival bidder, but if the broker’s rating downgrade is anything to go by, arguably it believes a competing bid is unlikely. In fact, E&P recommended clients consider taking profits on their Santos shares and switching into Woodside. “We would advise investors to switch into Woodside which has better oil price leverage and catalysts,” the broker said. E&P estimate that each US$10/bbl move in the crude oil price equates to an approximate 40% change in Woodside’s net profit.

Will ADNOC’s bid for Santos receive regulatory approval?

This is arguably where ADNOC’s bid for Santos is likely to fail, and therefore is likely the main reason for Santos' share price trading at such a large discount to ADNOC’s bid price today. The deal will be subject to approval by the Foreign Investment Review Board (FIRB) and the Australian Treasurer, the National Offshore Petroleum Titles Administrator (NOPTA), and the Papua New Guinea government.

1. Foreign Investment Review Board (FIRB) & Australian Treasurer Approval

• The FIRB assesses foreign investment proposals to ensure they are not contrary to Australia's national interest. Key considerations include national security as Santos controls critical energy infrastructure such as the Moomba Gas Plant and Darwin LNG facility, as well as the economic impact of the transaction via employment and competition.

• The FIRB provides advice, but the final decision rests with the Australian Treasurer, who can block the deal if it is deemed contrary to the national interest – particularly if the acquisition involves critical energy infrastructure or raises geopolitical sensitivities (this is likely the greatest hurdle the deal faces given the political hot potato that is national energy security and domestic energy prices).

2. National Offshore Petroleum Titles Administrator (NOPTA)

• NOPTA oversees the administration of offshore petroleum titles in Commonwealth waters. For the acquisition ADNOC must apply for the transfer of Santos' offshore petroleum titles, demonstrate technical and financial capacity to operate the projects, and that it can comply with existing environmental and safety regulations.

3. Papua New Guinea

• Santos holds significant interests in PNG's LNG sector, including stakes in the PNG LNG and Papua LNG projects. The acquisition would require approvals from several PNG regulatory bodies including:

• Securities Commission of Papua New Guinea
• Independent Consumer and Competition Commission (ICCC)
• PNG Government

• The PNG government has previously expressed concerns over foreign ownership of key energy assets. For example, during Santos' merger with Oil Search, PNG officials scrutinised the deal's potential impact on national interests, including employment and revenue distribution. Securing these approvals will require ADNOC to demonstrate commitment to PNG's economic development and adherence to local regulations.

Conclusion – "Done deal ✅" or "Done deal ☠️"?

While ADNOC’s bid offers a sizeable premium and headline appeal, the market’s cool reaction, with Santos shares still trading well below the offer price, reflects a healthy degree of scepticism. Much of that likely stems from the regulatory complexity the deal will inevitably face.

Between Australia’s FIRB and NOPTA, a web of approvals required from the Papua New Guinea government, and the fact that all three have demonstrated in past transactions that national interest, asset control, and development outcomes matter – particularly when it comes to critical infrastructure and sovereign energy security – this deal faces a major uphill battle to succeed.

On the bidder front, major players like Woodside and Aramco seem too committed elsewhere to mount a full-scale takeover. The pool of credible rival suitors is shrinking, and even the optimistic case for a TotalEnergies, BP or ConocoPhillips stepping in remains speculative. As it stands, the ADNOC offer likely sets a ceiling for Santos' valuation – but it’s the probability of its ratification, not its price, that shapes present investor sentiment.

This article first appeared on Market Index on 16 June 2025.