Own Santos (ASX:STO) shares? Here's why the company could be in for some good news this week

Could Santos be in for a greater bargain than previously thought?

| More on:
An oil miner with his thumbs up.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

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.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares

Worker inspecting oil and gas pipeline.
Energy Shares

Are Santos shares higher on quarterly update?

Let’s find out how the share price is moving following today’s announcement.

Read more »

Man with rocket wings which have flames coming out of them.
Energy Shares

Macquarie forecasts 61% upside for this ASX All Ords energy stock

Here's why the broker is so positive on the stock.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

Why this ASX uranium stock could rocket 100%+

Let's see why this speculative stock is being tipped to double in value by Bell Potter.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Energy Shares

Macquarie tips 23% upside for this ASX All Ords mining stock

Let's see why the broker thinks this stock could be a top buy.

Read more »

a group of three electricity workers stand smiling wearing hard hats and high visibility vests in front of an array of high voltage power equipment.
Energy Shares

Macquarie raises price target on Origin Energy shares

The broker just raised it's price target. Here's why.

Read more »

A smiling woman holds a Facebook like sign above her head.
Energy Shares

Bell Potter says this ASX 200 uranium stock is a top buy

Let's find out why the broker is feeling bullish on this stock.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Boss Energy shares have surged 93% since April. Here's what Macquarie expects now

Boss Energy shares remain a favourite for ASX short sellers. Are they in a for a payday or headed for…

Read more »

A young man wearing glasses writes down his stock picks in his living room.
Energy Shares

3 reasons to buy this beaten down ASX 200 coal stock today

A leading expert forecasts a big potential rebound ahead for this quality ASX 200 coal stock.

Read more »