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Is Santos a takeover target?

Oil and gas producer, Santos Limited (ASX:STO), could be in the sights of a number of global oil giants, according to media speculation.

According to the Australian Financial Review (AFR), nothing unusual has been found, despite strong trading in both price and volume over the past week. Santos shares have risen 6% already this week. But the company and its advisers are reported to be keeping an eye on trading patterns, in an effort to see if one of the oil majors isn’t buying up shares.

US energy giant Chevron recently bought into a Cooper Basin joint venture with Beach Energy (ASX:BPT), as a way of getting exposure to Australia’s Cooper Basin. The region is expected to play a major part in meeting the world’s growing gas needs over the long term, with thousands of gas wells expected to be drilled.

Santos has large land holdings in the Cooper Basin, but it could be the company’s other assets that the oil majors want access to. Santos has a 30% stake in the Gladstone LNG project in Queensland, amongst other oil and gas assets. Buying up Santos gives any potential buyer a major asset, with long term gas offtake agreements, without the development and construction risk. The Gladstone LNG project is over 50% complete, and scheduled to produce first LNG in 2015.

Santos’ other assets could also be attractive to the likes of Chevron, ExxonMobil, Total and Statoil, with a 13.5% stake in PNG LNG, being constructed by ExxonMobil subsidiary Esso Highlands, with a number of other joint venture partners, including Oil Search (ASX:OSH). PNG LNG is over 80% complete and expected to come on stream in 2014.

Along with its gas assets, Santos also has traditional oil producing operations, and all up expects to produce between 53 and 57 million barrels of oil equivalent in the 2013 financial year. Add in its prospective deals, including other oil, gas and LNG projects, and Santos may look very tempting for one of the oil majors.

Foolish takeaway

Over the past month, Santos’ shares are up 9%, compared to the S&P / ASX 200 Index’ (Index:^AXJO) (ASX:XJO) rise of 6%, with much of the gain coming this week. With a suite of valuable oil and gas assets, an oil major may well be stalking Santos.

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Motley Fool writer/analyst Mike King owns shares in Santos.

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