Australian law change puts miner Santos into play

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The Independent Online

Natural resources giants including BHP Billiton could soon swoop on Australia's No 2 energy company Santos, with a market value of £3.1bn, after a government block on a takeover was removed at the end of last month. On 29 November, the government of Australia's Adelaide prov-ince removed a law which has limited any one shareholder to a 15 per cent stake in the business.

Santos is an oil and gas exploration and production company with operations in every major Australian petroleum province, as well as in Indonesia, Papua New Guinea, Vietnam, India, Bangladesh, Kyrgyzstan and Egypt.

The removal of the share cap coincides with Santos shares having lost almost half their value since July, amid a slump in the price of oil, making it a potentially attractive takeover target for larger rivals. The global recession and associated fears of a fall in demand have cut the price of oil by about a fifth this month alone.

Among companies that may enter the fray are France's Total and Anglo-Australian listed BHP, which is Australia's largest oil and gas producer and sees additional scope for expansion in its home market. BHP is also cash-rich after pulling out of a lengthy $66bn hostile bid for rival miner Rio Tinto last month. But it could face competition from rivals including Total, which is seeking expansion abroad and whose recent takeover interest in Canada's No 4 exploration firm Nexen is understood to have cooled.

Consolidation is widely expected to take place in the oil and gas sector as the falling price of oil makes cost-cutting, which is a typical merger benefit, an attractive proposition and hammers share prices across the sector, creating cheaper targets. But any bidder for Santos would need to reckon with the company's board. With the cap removal known about for the last year, its chief exec-utive, David Knox, has already undertaken moves that shore up the company's share price and make it harder to buy. Last May, the company sold a 40 per cent interest in a liquefied natural gas exploration project for $2.5 bn to Malaysia's state oil firm, Petronas.