SA Government Poised to Block Santos Takeover if State Interests Are Jeopardised

In Brief

• Abu Dhabi National Oil Company’s investment arm, XRG, backed by Carlyle, has tabled a $28.8 billion bid for Santos at $8.89 per share—a 28 per cent premium.
• South Australian Premier Peter Malinauskas and Energy Minister Tom Koutsantonis warn they will withhold consent under new state resources legislation if the deal does not benefit South Australians.
• The bid must clear approvals from the Foreign Investment Review Board (FIRB), ASIC, NOPTA, and overseas regulators in Papua New Guinea and the United States.
• Energy analysts caution that foreign-state ownership of strategic gas infrastructure heightens the need for rigorous national-interest scrutiny.

Background: Santos, South Australia’s Corporate Flagbearer
Founded in 1954 as South Australia and Northern Territory Oil Search, Santos has grown into South Australia’s largest publicly listed company and a top-20 ASX heavyweight. Its core operations span:

• Onshore gas production in the Cooper Basin (SA)
• Liquefied natural gas (LNG) infrastructure in Gladstone (QLD)
• Offshore gas fields in Western Australia and strategic interests in Papua New Guinea

With annual revenues in excess of $7 billion and a market capitalization approaching $30 billion, Santos is not only a pivotal regional employer—supporting thousands of direct and indirect jobs—but also a key supplier underpinning Australia’s east-coast gas markets.

The Takeover Bid: Consortium Seeks Control of Santos
On Monday, Santos notified the ASX that XRG—a wholly owned investment arm of the state-owned Abu Dhabi National Oil Company—together with global private-equity heavyweight Carlyle, had made a non-binding proposal to acquire all Santos shares at $8.89 each. Key terms include:

• Offer Price: $8.89 per share, representing a 28 per cent premium to the pre-bid closing price of $6.96.
• Transaction Value: Approximately $28.8 billion on a fully diluted basis.
• Due Diligence: The consortium seeks confirmatory access to confidential information, conditional upon a signed confidentiality and exclusivity deed.
• Board Recommendation: Santos’s board has signaled its intention to unanimously endorse the bid, subject to due diligence and absent a superior proposal.

Despite the positive reception from Santos’s Board, the takeover remains contingent on securing:

1. FIRB Approval: The federal government’s gateway to foreign investments deemed to affect national interests.
2. ASIC Clearance: Ensuring compliance with corporate governance and disclosure obligations.
3. NOPTA Consent: The National Offshore Petroleum Titles Administrator must approve title transfers for offshore assets.
4. Overseas Regulatory Consents: Approvals from Papua New Guinea’s Department of Petroleum and Energy and relevant U.S. authorities for Santos’s PNG and U.S. interests.

State Government Response: “We’re at the Table”
South Australian Premier Peter Malinauskas characterized the bid as “a matter of strategic importance” for the state. In a statement following a briefing from XRG executives, Malinauskas said: “We welcome the opportunity to continue this positive engagement—but make no mistake, the government will not hesitate to use its new legislative powers if this transaction fails to protect South Australian interests.”

Energy and Mining Minister Tom Koutsantonis elaborated on those powers:

• Change of Ownership Consent: Recent amendments to South Australia’s Petroleum and Geothermal Energy Act require ministerial approval for any transfer of exploration or production licenses.
• Strategic Headquarters Requirement: The government expects Santos to retain its global headquarters in Adelaide, ensuring the continuation of local management, employment and community investment.
• Community and Regional Development: Any buyer must commit to economic participation, support for apprenticeships, and funding for regional infrastructure in the Cooper Basin and beyond.

Koutsantonis stressed, “We’re prepared to veto the deal under our state resources legislation if it undermines local jobs, governance or downstream investment. If it benefits South Australia, we’ll back it; if not, we won’t.”

Federal Oversight: FIRB and National Interest Considerations
At the Commonwealth level, Treasurer Jim Chalmers confirmed the takeover would undergo FIRB scrutiny. While he welcomed state input, Chalmers declined to prejudge the outcome: “I won’t pre-empt FIRB’s advice. Ultimately, the decision must balance national security, energy security and economic competitiveness.”

Under the Foreign Acquisitions and Takeovers Act, FIRB assesses transactions against “national interest” criteria, including:

• Energy Security: Control of domestic gas reserves, LNG facilities and crucial pipeline networks.
• Economic Impact: Foreign investments that may affect competition, transparency and downward pressure on Australian shareholder returns.
• Strategic Sovereignty: Assets deemed critical to national infrastructure—particularly fuel reserves—must remain accessible in emergencies.
• Governance and Control: Ownership by a foreign state entity raises questions about decision-making alignment with Australian regulatory frameworks and the public interest.

Expert Voices: The Stakes of Foreign-State Ownership
Kevin Morrison, energy analyst at the Institute for Energy Economics and Financial Analysis, emphasized the sensitivity of state-owned-company acquisitions: “This is not just another private equity deal. We’re talking about a sovereign oil company from Abu Dhabi acquiring Australia’s largest upstream gas producer. It poses a unique combination of national-security and commercial-transparency challenges.”

Morrison flagged two primary concerns:

1. Market Concentration: Australia’s gas sector already features significant foreign ownership; further concentration could reduce competitive pricing signals.
2. Asset Transparency: Publicly listed entities like Santos must meet continuous disclosure obligations. A shift to state-owned control could obscure financial and operational data, complicating market oversight.

Dr. Emma Howard, energy policy lecturer at the University of Adelaide, noted that Santos controls crucial domestic gas infrastructure—including the Moomba processing facility and conduits serving East Coast markets. “This infrastructure underpins manufacturing, gas-powered electricity generation and household supply. Any change in control warrants rigorous examination of supply-security guarantees and emergency-response protocols.”

Global Context: Sovereign Investments in Energy Majors
Abu Dhabi’s pursuit of upstream assets in resource-rich democracies is part of a broader diversification strategy among sovereign wealth funds. Over the past decade, Saudi Aramco, QatarEnergy and others have snapped up stakes in international oil and gas fields to secure long-term energy revenues.

While such investments inject capital into host economies, they can shift control of production decisions—lift targets, exploration priorities and carbon-intensity reduction programs—away from local shareholders. In Australia, where gas exports fund upstream development yet domestic consumers often face price spikes during international market tightness, these dynamics become particularly acute.

Santos’s Strategic Pivot: Decarbonisation and Growth
In announcing its support for the takeover process, Santos highlighted potential synergies with XRG and Carlyle’s global expertise:

• Accelerated Growth: Additional capital to pursue exploration in frontier basins and unconventional gas resources.
• Decarbonisation Investments: Funding for carbon capture and storage (CCS) projects in the Cooper Basin—a flagship for Australia’s low-emissions technology ambitions.
• Digital Transformation: Application of artificial intelligence and advanced analytics to optimise operations, reduce methane emissions and enhance safety protocols.

Santos CEO Kevin Gallagher stated: “Partnering with blue-chip investors will bolster our balance sheet, enhance operational resilience and enable us to deliver on our decarbonisation roadmap. We remain committed to supporting Australian energy security and community development.”

Shareholder Reaction: A Premium Bid and Market Rally
Santos shares leapt 12.3 per cent on Monday, closing at $7.82—an undercut of the consortium’s $8.89 offer, yet a significant reversal from recent lows. Retail and institutional investors responded favorably to the 28 per cent premium, banking on a swift regulatory green light and the prospect of buy-out gains.

Nevertheless, some activist shareholders voiced caution. Galaxy Asset Management issued a statement urging a thorough appraisal of the bid’s strategic merits and potential downsides of transitioning to private, state-backed ownership. They called on Santos’s board to secure legally binding undertakings regarding domestic supply commitments and capital-return policies under new ownership.

What Happens Next: Timeline and Possible Scenarios
The road to completion includes several phases:

1. Due Diligence (Next 4–6 Weeks): XRG and Carlyle to review technical, financial and legal data under confidentiality safeguards.
2. Regulatory Filings (Jul–Aug 2025): FIRB application, ASIC notifications and NOPTA consents lodged.
3. State Approval Window (Concurrent): Koutsantonis to advise on licensing legislation outcomes.
4. Shareholder Scheme Meeting (Q3 2025): Vote on the scheme implementation agreement, requiring a majority of votes cast and at least 75 per cent in value.

Possible outcomes include:

• Unconditional Scheme Approval: All consents obtained, state and federal governments sign off, shareholders endorse the deal—Santos becomes private.
• Conditional Compromise: Additional undertakings negotiated (e.g., long-term headquarters obligation, community investments) allow the state government to consent while safeguarding local interests.
• Block or Delay: SA government invokes change of ownership powers; FIRB or federal ministers impose conditions or reject the proposal on national-security grounds.

Conclusion: Balancing Investment and Sovereignty
The proposed takeover of Santos by an Abu Dhabi-led consortium sits at the intersection of global capital flows, national-resource sovereignty and energy security. South Australia’s government has signaled it will not rubber-stamp a transaction that undermines local jobs, governance or community benefits—leveraging new licensing legislation to assert state interests. Meanwhile, the Commonwealth’s FIRB process will weigh broader national concerns: strategic gas infrastructure, market concentration and foreign-state ownership.

As the clock ticks toward due diligence deadlines and regulatory filings, stakeholders from boardroom investors to Cooper Basin communities will watch closely. The ultimate decision will set a precedent for how Australia navigates the evolving global energy landscape, balancing the allure of sovereign-backed capital against the imperatives of transparency, competition and domestic supply security.

READ MORE: The IVF Industry Under Scrutiny After Monash IVF’s Second Embryo Mix-Up: How Rare Are Such Errors?