Owners of Santos Ltd (ASX: STO) shares might want to keep an eye out for big news from Oil Search Ltd (ASX: OSH) in the coming weeks.
Long-awaited governmental approval to develop Oil Search’s 38.5%-owned P’nyang gas field could reportedly be just days away.
The green light could see the planned all-scrip merger of Santos and Oil Search skewed further in Santos’ favour.
At the time of writing, the Santos share price is $6.39, the same as its previous close.
For context, the S&P/ASX 200 Index (ASX: XJO) is in the green, boasting a 0.68% gain.
Let’s take a closer look at the news that could reportedly increase the value of Oil Search.
Could this boost the Santos share price?
Santos is set to walk away with a bigger share of the merged entity than it’s brought to the table. An announcement, reportedly expected to be released shortly, could further tip the balance.
The Papua New Guinean government has been in talks with the P’nyang gas field’s operator, Exxon Mobil Corp (NYSE: XOM), for months. According to reporting by The Australian, the pair are getting ready to announce the project has been given the green light.
The approval could see development works begin at the gas fields.
Though, Papua New Guinea Minister for Petroleum, the Hon Kerenga Kua, previously said phasing construction over an 8-year period would benefit the country and its economy.
It could also boost the value of Oil Search’s stake in the project, increasing the company’s value.
That’s worth noting as an independent expert’s report found Oil Search’s value wasn’t reflected in the merger terms. They said:
Oil Search shareholders are contributing around 43-44% of the aggregate estimated underlying value of the merged group compared to the 38.5% of the merged group that they will receive.
They said, even after acknowledging cost savings from the merger, it will lower the value attributed to Oil Search shareholders. However, the expert concluded the merger is in the best interests of Oil Search shareholders.
Also noteworthy, Santos also owns a small share of the P’nyang gas fields. The entity resulting in the companies’ fusion will own a 42.5% stake.
The companies have already indicated they plan to sell the stake down to around 30% following the merger. Doing so will ensure the merged entity has a smaller share than Exxon Mobil.
Oil Search shareholders are expected to vote on its proposed merger with Santos in early December. To get the scheme across the line, 75% must vote in favour.
