The merger of Santos and Oil Search would create “a regional champion of size and scale” which would position the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies.

With offices in Sydney, Port Moresby, Alaska, Tokyo and Abu Dhabi, Oil Search has a history of active exploration and production in Papua New Guinea dating back to the 1920s.

It also acquired oil leases on the Alaskan North Slope in 2018.

The proposed merger would result in combined 2021 production of about 116 million barrels of oil equivalent and also create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG.

Santos revealed to the Australian Securities Exchange on July 20 it put a confidential merger proposal to Sydney-based Oil Search on June 25.

Oil Search rejected the initial offer as it did not offer appropriate value for shareholders but said it was open to further approaches.

The revised merger proposal implies a transaction price of A$4.29 per Oil Search share, based on the closing price of Santos and Oil Search shares on 19 July 2021 –  the day before disclosure of the first proposal.

It is a 16.8 per cent premium to the Oil Search July 19 closing price of $3.67.

Following approval of the scheme, Oil Search shareholders will own approximately 38.5 per cent of the merged group and Santos shareholders will own approximately 61.5 per cent.

Oil Search has a market capitalisation of $7.91 billion while Santos is valued at $13.43 billion.

Santos and Oil Search have committed to conduct due diligence over the next four weeks with the aim of entering into a merger implementation agreement, which would contain conditions to complete the merger such as regulatory approvals.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said the potential merger represented an extremely attractive opportunity to deliver compelling value to both Santos and Oil Search shareholders.

“It represents a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets,” he said in a statement to the ASX this morning.

“The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.

“The merger also builds on our industry-leading approach to ESG through the combination of Santos’ net-zero 2040 pathway, including its sector-leading CCS projects, and Oil Search’s unique social programs in PNG, underpinned by a strong balance sheet to fund the transition to a lower carbon future.”

Oil Search shares were up more than 5 per cent this morning to $4.01 at 11am while Santos shares were up 9 cents to $6.54.

With its origins in the Cooper Basin, Santos has one of the largest exploration and production acreages in Australia and extensive infrastructure.

It is already Australia’s largest domestic gas supplier and aims to be a leading Asia-Pacific LNG supplier.

In March, Santos approved its $4.7 billion Barossa project north-west of Darwin, which it says represents the biggest investment in Australia’s oil and gas sector since 2012.

Santos ranked No. 1 in InDaily’s 2020 South Australian Business Index – an annual review of the top private and public companies in the state.