Big oil: Are Woodside shares about to swallow up Santos?

It only seems like yesterday (June 2022 in fact) that Woodside Petroleum shares became Woodside Energy Group Ltd (ASX: WDS) shares.

Thanks to one of the biggest demergers in ASX history, Woodside bought up the petroleum assets of BHP Group Ltd (ASX: BHP) in an all-scrip deal last year. Overnight, this deal transformed the oil stock into one of the largest companies on the ASX 200 and a major player in the energy space.

Well, it looks as though Woodside isn't done with growing just yet.

Reporting in the Australian Financial Review (AFR) emerged yesterday that alleged Woodside might be considering a merger with its fellow energy share Santos Ltd (ASX: STO).

Late on Thursday evening, both companies released ASX statements confirming that discussions have taken place.

Here's some of what Woodside told investors:

In response to recent media speculation, Woodside confirms it is in discussions regarding a potential merger with Santos Ltd.

Discussions remain confidential and incomplete, and there is no certainty that the discussions will lead to a transaction.

As a global energy company, Woodside continuously assesses a range of opportunities to create and deliver value for shareholders.

Santos' statement was almost identical. Here's a sample:

Santos confirms it has engaged in preliminary discussions with Woodside regarding a potential
merger. Santos continuously reviews opportunities to create and deliver value for shareholders.

Concurrently, Santos is assessing a range of alternative structural options with a view to unlocking
value as referred to on Santos' investor day on 22 November 2023.

Could Woodside investors own Santos shares soon?

As both companies stated, these discussions are clearly in very early stages.

However, the AFR report claims that "In recent days, both organisations have been considering the implications and logistics of any such deal" and that  "the talks, already involving bankers and internal staff, are happening".

If there is to be a Woodside-Santos marriage, it would indeed be big ASX news. Woodside is a $59.8 billion oil giant. So merging with the $22.7 billion Santos has the potential to create an $82.5 billion energy behemoth. That would make the combined company larger than both ANZ Group Holdings Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC). Big oil indeed.

Of course, that's just speculation. The combined value of both companies if they were joined is difficult to predict. And regardless, the AFR report claims that "many believe Woodside wouldn't be interested in all of Santos' assets, and the Australian Competition and Consumer Commission would surely cast a jaundiced eye over the whole thing".

Even so, this could be some very big news for the S&P/ASX 200 Index (ASX: XJO) to end the year on. Let's see what happens.