AUSTRALIA'S SANTOS MERGE

SANTOS - 10 TH SEP 2021 - Santos and Oil Search have entered into a definitive agreement to merge the two companies in an all-scrip transaction

Oil Search shareholders are to receive 0.6275 new Santos shares for each Oil Search share held 

Upon completion of the Merger, Oil Search shareholders will own approximately 38.5 per cent of the merged entity and Santos shareholders will own approximately 61.5 per cent

The Merger creates a regional champion of size and scale, with a pro-forma market capitalisation of approximately A$21 billion

Santos expects the Merger to unlock pre-tax synergies of US$90-115 million per annum (excluding integration and other one-off costs) which is expected to benefit both sets of shareholders

The Oil Search Board has unanimously approved the transaction and recommends that shareholders vote in favour of the Merger in the absence of a Superior Proposal, and subject to an Independent Expert concluding that the Merger is in the best interests of Oil Search shareholders

The Merger is subject to a limited number of customary conditions including Oil Search shareholder approval, regulatory approvals and Papua New Guinea court approval

Santos Limited (“Santos”) and Oil Search Limited (“Oil Search”) are pleased to announce that they have entered into a Merger Implementation Deed (“MID”), under which the two companies will combine via an Oil Search Scheme of Arrangement (“the Merger”). This follows both companies successfully completing reciprocal confirmatory due diligence, which commenced on 6 August 2021.

Under the terms of the Merger, Oil Search shareholders will receive 0.6275 new Santos shares for each Oil Search share held on the record date of the Scheme of Arrangement (as per merger terms agreed and released to the ASX on 2 August 2021). Upon implementation of the Merger, Oil Search shareholders will own approximately 38.5 per cent of the merged entity and Santos shareholders will own approximately 61.5 per cent.

The Oil Search Board of Directors unanimously recommends that Oil Search shareholders vote in favour of the Merger and each Oil Search Director intends to vote all the shares they hold or control in Oil Search in favour of the Merger (in the absence of a superior proposal and subject to an Independent Expert concluding that the Merger is in the best interests of the Oil Search shareholders).

The combination of Santos and Oil Search will create a regional champion of size and scale with the following features:

Diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America with significant growth optionality

Pro-forma market capitalisation of approximately A$21 billion which would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies

Pro-forma 2021 production of approximately 116 million barrels of oil equivalent

Pro-forma 2P+2C resource base of 4,867 million barrels of oil equivalent

Investment grade balance sheet with more than US$5.5 billion[4] of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimise the portfolio

Target gearing of less than 30 per cent

Strong ESG credentials including maintaining Santos’ net-zero emissions target by 2040, focus on carbon capture and storage projects and Oil Search’s social and community investment in Papua New Guinea and North America

Santos expects the Merger to unlock pre-tax synergies of US$90-115 million per annum (excluding integration and other one-off costs) creating value for both sets of shareholders. Santos has an excellent track record of integration and recently merged Quadrant Energy’s WA and ConocoPhillips’ NT business units into Santos, delivering more than US$160 million in annual synergies

The Merger is expected to create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG, delivering new jobs, helping to support the local economy, and continuing to support the development of and investment in PNG

Oil Search Chairman Rick Lee said: “Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale, product mix, ESG and geographic diversity, and access to capital. The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.”

Santos Chairman Keith Spence said: “The merger represents an attractive combination of two industry leaders to create a regional champion of quality, size and scale with a unique and diversified portfolio of long-life, low-cost oil and gas assets.

“The merged entity will be well positioned for success in the new era of oil and gas, with strong cashflow generation from a diverse range of assets providing a platform to self-fund growth and deliver shareholder returns.

“We look forward to integrating our businesses to create one high performing team – with a vision of becoming a global leader in the energy transition,” Mr Spence said.

Oil Search Acting Chief Executive Officer Peter Fredricson said: “We see significant benefits for our shareholders in this merger, not least in the access that Santos brings to a broader range of more liquid global debt capital markets to fund growth projects.”

The combined Santos and Oil Search will be led by Santos Managing Director and Chief Executive Officer Kevin Gallagher, who said: “Santos and Oil Search will be stronger together and will have increased scale and capacity to drive a combined disciplined, low-cost operating model and unrivaled growth opportunities over the next decade.

“The merger will create a company with a balance sheet and strong cashflows necessary to successfully navigate the transition to a lower carbon future with the combination of Santos’ leading CCS capability combining with Oil Search’s ESG programs in PNG and Alaska to provide a strong foundation,” Mr Gallagher said.

Following the completion of the Merger, three non-executive directors from Oil Search will join the Santos Board. Santos’ head office will remain in Adelaide.

Transaction Summary

Santos and Oil Search have entered into the attached MID which contains the terms upon which Santos and Oil Search will implement the Merger. Key conditions of the Merger include:

Approval being obtained from shareholders of Oil Search and Papua New Guinea court approval in relation to the Merger;

Customary regulatory approvals;

The Independent Expert concluding that the Merger is in the best interests of Oil Search shareholders, and not changing that conclusion or withdrawing its report;

No material adverse change, prescribed occurrences or regulated events (each as defined in the MID) occurring in relation to either Santos or Oil Search; and

Other conditions customary for a public transaction of this nature.

The MID includes reciprocal exclusivity arrangements (including “no shop”, “no talk” and “no due diligence” restrictions (each subject to a fiduciary out) and notification obligations), matching rights for Santos on market standard terms and reciprocal break fees.

Full details of the terms and conditions of the Merger are set out in the MID, a copy of which is set out in Annexure A.

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