DEALTALK-BP, Shell eye Santos; China bid unlikely

Tue Mar 24, 2009 3:22am GMT

* Energy giants BP, Eni, Shell interested in Santos

* Bid from China’s CNPC highly unlikely

* Santos not distressed; bidder will pay premium (For more Reuters DEALTALKS, click [DEALTALK/])

By Joseph Chaney and Fayen Wong

HONG KONG/PERTH, March 24 (Reuters) – Global energy giants BP (BP.L), Eni (ENI.MI) and Shell (RDSa.L) are eyeing possible bids for Australia’s No.3 oil and gas firm Santos (STO.AX), which one analyst valued at around $7 billion, but a bid from China looks unlikely, dealmakers say.

Takeover speculation has swirled around Santos, which has a strong balance sheet and coveted liquid natural gas (LNG) prospects, since Nov. 29 when a government cap on foreign ownership expired.

Its shares soared 16 percent on Dec. 8 after a media report said China National Petroleum Corp (CNPC), parent of PetroChina (0857.HK)(PTR.N)(601857.SS), may bid.

But with Australia reviewing a raft of Chinese investments, including Chinalco’s contentious $19.5 billion deal with miner Rio Tinto (RIO.L)(RIO.AX), alarm bells are ringing in Canberra that China Inc might end up owning too much of Australia before the global financial crisis ends.

That makes a CNPC bid highly unlikely, dealmakers say.

“The Chinese realise they cannot succeed with a hostile bid,” said a Hong Kong-based investment banker with direct knowledge of the matter.

CNPC spokesman Liu Weijiang said he did not have any knowledge of the situation when contacted by Reuters.

The banker added that BP, Eni and Shell are looking at Santos, but a formal process is not yet in place.

“The hawks are swirling,” the banker said.

BP and Shell declined to comment when contacted by Reuters. Eni did not respond to calls seeking comment.

“All of those companies have business development departments that are fully on top of Santos,” a second Hong Kong-based investment banker said. Both bankers declined to be named because of client sensitivities.

STRONG LNG PROSPECTS

Santos is planning with Petronas [PETR.UL] a A$7.7 billion ($5.4 billion) LNG project in Australia’s Queensland state which has earned it the envy of peers nurturing LNG growth ambitions in the Asia-Pacific region.

It is also a partner in an $11 billion LNG project in Papua New Guinea and holds an 11 percent stake in the producing Bayu-Undan LNG project in northern Australia.

With global companies including Britain’s BG Group (BG.L), U.S. ConocoPhillips (COP.N) and Malaysia’s Petronas [PETR.UL] having invested billions into Australia’s coal seam gas sector with hopes of lucrative exports, analysts say a weakened Australian dollar could help competitors such as Shell to snatch up Santos.

“The Australian dollar has also weakened by about 30 percent from its peak so Santos is looking a lot cheaper now,” said Andrew Williams, an energy analyst at Credit Suisse.

Some analysts say BP is underexposed to LNG and Santos would help it build a portfolio to better rival its peers in the top tier of the oil industry.

Eni is also a credible suitor, analysts say, with the Italian major having said it is keen to expand into Papua New Guinea for its gas potential. It is a partner with Santos in the Bayu-Undan LNG Project.

“It’s company policy not to comment on speculation,” Santos spokesman Matthew Doman told Reuters.

NO NEED FOR A SUITOR?

Santos, unlike many energy firms suffering from plummeting commodity prices, is far from distressed.

In February, it beat expectations with a 42 percent rise in 2008 underlying profit to A$571.6 million. Higher oil and gas prices boosted earnings, though they dropped back sharply in the fourth quarter.

Santos said it had a strong cash balance and a long debt maturity profile. Less than 15 percent of its gross debt will mature in the next two years and more than 25 percent matures in excess of 10 years.

Any successful bidder would have to cough up a premium, dealmakers and analysts say, but for majors the price tag may be worth it.

At Monday’s close, Santos had a market value of $6.5 billion. Its shares are up more than 11 percent so far in 2009, while the broader share index .AXJO is down 3.5 percent.

“Santos has a very strong reserve base so even at about A$10 billion ($7 billion) it’s still considered cheap as an upstream acquisition for these majors,” Credit Suisse’s Williams said. ($1=1.437 Australian Dollar)

(Additional reporting by Jim Bai in BEIJING and Tom Bergin in LONDON) (Editing by Ian Geoghegan)