Santos is pleased to announce that it has reached binding agreements to give effect to:
• the acquisition of 100% of the outstanding ordinary shares in Eastern Star Gas Limited (ESG); and
• the subsequent sale of a 20% working level interest in ESG’s permits in the Gunnedah Basin, northern New South Wales, for A$284 million to TRUenergy Holdings Pty Ltd (TRUenergy).
Pursuant to these transactions, Santos will assume operatorship and own 80% of ESG’s coal seam gas (CSG) permits with TRUenergy owning the remaining 20%.
The acquisition of ESG will be conducted via a recommended Scheme of Arrangement (Scheme) under which ESG shareholders will receive 0.06803 Santos shares for every 1 ESG share held1.
Based on Santos’ closing price of A$13.23 on 15 July, the transaction values ESG at A$0.90 per ESG share or A$924 million, and represents a 3P reserves multiple of A$0.50 per gigajoule.
The acquisition of ESG builds on Santos’ existing interests in the Gunnedah Basin. Following completion, Santos will have the largest natural gas reserves position in NSW, with 1,216 PJ of 2P reserves and 2,238 PJ of 3P reserves.
TRUenergy, a leading energy retailer with significant power generation interests in Eastern Australia, represents an ideal partner to develop ESG’s permits in joint venture with Santos.
Santos is one of Australia’s largest domestic natural gas producers and has a long track record of working with local communities to safely and sustainably produce natural gas.
Santos Chief Executive, David Knox, said: “This transaction represents the next major step in Santos’ eastern Australia gas strategy and positions the company to meet the expected increase in demand for natural gas from both domestic power generation and export LNG markets.”
“The acquisition of ESG is a unique opportunity to consolidate our Gunnedah Basin interests and establish the leading position in Australia’s next major natural gas province.”
1 Subject to adjustment in the event Santos declares a dividend prior to the Scheme Implementation Date and ESG shareholders do not become entitled to receive that dividend.
“Santos has been working in regional Australia for more than 50 years, including 15 years exploring for and developing coal seam gas.”
“Santos is committed to developing the coal seam gas industry in the Gunnedah Basin without impacting the important role the region plays as an agricultural producer. The growth of the natural gas industry in the Gunnedah Basin will bring new jobs and additional investment to local communities across the region,” Mr Knox said.
Proposed Acquisition of ESG
Santos and ESG have entered into a Scheme Implementation Deed (SID) under which it is proposed that Santos will acquire all of the issued and outstanding ordinary shares of ESG, other than the shares already held by Santos and TRUenergy.
Santos currently owns approximately 20.9% of the issued and outstanding ordinary shares of ESG and TRUenergy owns approximately 3.8%.
Under the Scheme, ESG shareholders will receive 0.06803 Santos shares for every 1 ESG share held.2
The implied offer price of A$0.90 per ESG share represents a premium of:
• 51% to ESG’s closing price of $0.595 on 15 July 2011; and
• 48% to the volume weighted average price of ESG shares for the 30-day period up to and including 15 July 2011.
Additional benefits for ESG shareholders include:
• the ability to retain exposure to the growing eastern Australian natural gas market;
• the ability to obtain scrip-for-scrip CGT rollover relief for eligible shareholders;
• the receipt of an attractive dividend yielding stock;
• exposure to Santos’ exploration, development and production portfolio, with potential for substantial additional growth; and
• Santos’ long track record of project delivery and leadership in community engagement.
Unanimous Recommendation by ESG Board
The directors of ESG unanimously recommend that ESG shareholders vote in favour of the Scheme and have each stated that they intend to vote the shares they control in favour of the Scheme, in the absence of a superior proposal and subject to an Independent Expert’s opinion that the Scheme is in the best interests of ESG shareholders.
It is anticipated that ESG shareholders will receive Scheme documents containing full details of the Scheme by mid-September. The Scheme is subject to ESG shareholder and Court approval and satisfaction of certain ordinary closing conditions including no material adverse change to ESG and no material breach of the SID by ESG. It is expected that the Scheme will be completed by the end of October.
2 Subject to adjustment in the event Santos declares a dividend prior to the Scheme Implementation Date and ESG shareholders do not become entitled to receive that dividend.
ESG has agreed to a number of deal protection mechanisms including a no-talk and no-shop obligation, a matching right and a reimbursement fee provision.
A copy of the SID will be released to the ASX today.
Deutsche Bank acted as exclusive financial adviser to Santos and Freehills acted as exclusive legal adviser in relation to this transaction.
