Australia's Santos flags delay in finalising $18.7 billion ADNOC-led buyout

By Scott Murdoch and Christine Chen

Aug 19 (Reuters) - Santos STO.AX said on Tuesday the Abu Dhabi National Oil Company (ADNOC)-led consortium will not be able to finalise its $18.7 billion bid for the Australian gas producer for at least a month, well past the exclusive due diligence deadline.

Shares in Santos, Australia's second-largest independent gas producer, fell as much as 3.5% to a more than five-week low of A$7.68 as investors questioned whether the delay could kill the deal.

"The market is telling you there's increased risk and uncertainty," said James Hood, Regal Funds Management's senior energy analyst.

Santos shares have traded consistently well below the proposed offer of A$8.89 from the consortium led by ADNOC's international investment arm XRG on June 16, which analysts have attributed to scepticism the transaction will proceed.

Exclusive talks between Santos and the consortium, which includes Abu Dhabi Development Holding Company (ADQ) and private equity firm Carlyle, were due to finish on Friday.

The consortium told Santos it would need at least four more weeks to secure all required approvals for its bid to be formalised.

XRG said in a separate statement it would continue its due diligence and progress negotiations to reach a formalised offer.

Taking into account net debt, the deal would give Santos an enterprise value of A$36.4 billion, which would make it the largest all-cash corporate buyout in Australian history, according to FactSet data.

"This was never going to be an easy transaction to pull off with the confluence of domestic energy security and national interest considerations as well as the multitude of hard to please stakeholders involved," said Kaushal Ramesh, vice president, gas and LNG research at Rystad Energy.

The deal requires approval from regulators in Australia, Papua New Guinea, and the U.S. given Santos holds assets in each of those jurisdictions.

Approval from Australia's Foreign Investment Review Board could be a major hurdle for the transaction with the government likely to be wary to hand control of key energy assets to Middle Eastern investors, analysts said.

"I don't think (the delay) is going to change the overall risk to the takeover, and that's still the Foreign Investment Review Board. I think that's probably the biggest risk to the whole takeover," said Jamie Hannah, deputy investment director at Van Eck, which is a Santos shareholder.

Australia's gas market is politically sensitive as the country's competition regulator has warned that the populous eastern states face a shortfall of gas from 2028 without new investment.

Santos has long said its long-delayed Narrabri gas project in New South Wales state could help fill the supply gap.

Woodside WDS.AX and Santos last year scrapped $52 billion merger talks after failing to reach an agreement. Woodside Chief Executive Meg O'Neill said on Tuesday the company was not interested in making a rival bid.

If successful, the consortium would gain control of two Australian liquefied natural gas operations - Gladstone LNG and Darwin LNG - as well as stakes in PNG LNG and the undeveloped Papua LNG. Santos' interests in Papua New Guinea are considered its most prized assets.

The company is also developing an oil project in Alaska, Pikka, due to start producing in mid-2026.

Meanwhile, Santos said it would defer its interim earnings report to August 25 from August 20.