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Santos to acquire ConocoPhillips’ northern Australia business for US$1.4 billion

All eyes will be on the Santos Ltd (ASX: STO) share price on Monday after a major announcement.

What did Santos announce?

This morning the energy producer announced the acquisition of ConocoPhillips’ northern Australia business for US$1.39 billion. This includes operating interests in Darwin LNG, Bayu-Undan, Barossa and Poseidon. The deal also comes with a US$75 million contingent payment subject to the final investment decision (FID) on Barossa.

This will be funded from its existing cash reserves and a new debt facility.

Management expects the deal to be materially accretive to earnings. It has forecast ~16% earnings per share accretion and ~19% EBITDAX accretion in 2020.

It will also increase its pro-forma production by ~25%, pro-forma 2P reserves by ~5%, and pro-forma 2C contingent resources by ~27%. Furthermore, it is expected to reduce its forecast 2020 free cash flow breakeven oil price by ~US$4 per barrel.

Santos managing director and chief executive officer, Kevin Gallagher, advised that the acquisition of these assets fully aligns with its growth strategy to build on existing infrastructure positions while advancing its aim to be a leading regional LNG supplier.

“These assets are well known to Santos. It also continues to strengthen our offshore operating and development expertise and capabilities to drive growth in offshore northern and Western Australia.”

 “Santos is also committed to be Australia’s leading domestic gas supplier and we will be pursuing domestic gas opportunities in the Northern Territory from our broader northern Australia gas portfolio where we have significant resource potential both onshore and offshore,” he added.

Another positive is that management is confident that the acquisition is financially compelling and value accretive for shareholders. It is targeting material synergies of US$50-75 million per annum (pre-tax).

What now?

I think this is a great acquisition by Santos and suspect the market will react very positively to it. 

Overall, it could make Santos worth considering, along with Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL), if you’re looking for exposure to the energy sector.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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