Australian independent Santos Ltd. is set to bolster its global portfolio through a takeover of Papua New Guinea-based Oil Search Ltd.

The deal announced Monday would give Santos a foothold in the Papua New Guinea liquefied natural gas (LNG) scene, considered some of the lowest-cost projects in the world. Oil Search is a partner in the ExxonMobil-operated PNG LNG project as well as the TotalEnergies SE-led Papua LNG development, which is expected to reach a final investment decision in 2023.

Santos would also gain Oil Search’s operating stake in the Pikka Unit on the North Slope of Alaska, which contains the massive Nanushuk conventional oil play.

The announcement follows Oil Search’s rejection of Santos’ initial offer, which had implied a transaction price of A$4.25/share ($3.13), representing a 12.3% premium to Oil Search’s June 24 closing price. The combination would have given Oil Search shareholders 37% of the pro-forma company, with Santos holding 63%. 

The revised offer implies a transaction price of A$4.29/share ($3.16), representing a 16.8% premium to the Oil Search closing price on July 19, Santos said. In addition, Oil Search shareholders would own about 38.5% of the combined company and Santos shareholders would own about 61.5%.

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Santos CEO Kevin Gallagher repeated Santos’ previous assertion that the combination would create a $16 billion “unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets.”

The combined entity would be among the world’s largest 20 oil and gas companies, outpacing fellow Australian producer Woodside Petroleum Ltd. in terms of enterprise value, reserves and production, Santos said.

Wood Mackenzie analysts said the transaction would immediately increase Santos’ production by about one-third to 290,000 boe/d, with its impact growing by the middle of the decade to contribute half of the combined company’s production growth.

“At current commodity prices, the combined entity will generate significant free cash flow through 2021 and 2022,” Wood Mackenzie research director Andrew Harwood said. “A stronger balance sheet will then provide a solid platform from which to invest in new development projects in Australia and PNG.”

Harwood added the merger might not be the last “transformative” deal in the Australian exploration and production scene this year, as reports have surfaced that Woodside might be on the hunt for BHP’s Petroleum business

“The details of that potential deal remain unclear, but what is certain is that the energy transition will continue to drive consolidation within the oil and gas space, with long-term implications for not only the companies involved, but also Australia’s oil and gas investment outlook,” Harwood said.