Santos-operated Moomba gas plant in Moomba, South Australia. The embattled oil and gas producer put itself on the block in August, looking to sell assets in a bid to cut its A$8.8bn net debt as its Gladstone liquefied natural gas (LNG) project begins operations amid a sharp slump in oil prices.

Reuters/Melbourne

Embattled Australian oil and gas producer Santos yesterday rejected a A$7.1bn ($5.1bn) takeover proposal from a fund backed by the ruling families of Brunei and the United Arab Emirates.
Santos effectively put itself on the block in August, looking to sell assets in a bid to cut its A$8.8bn net debt as its Gladstone liquefied natural gas (LNG) project begins operations amid a sharp slump in oil prices.
It said the bid from Bermuda-headquartered Scepter, pitched at a 26% premium to its close on Wednesday, was “opportunistic” and included conditions that would hurt its consideration of asset sales and a wider strategic review.
Santos shares, which hit a 15-year low last month, jumped on news of the offer but were still worth only half as much as a year ago and closed at A$6.32, well below the proposed offer of A$6.88 a share.
Three analysts said the bid value was in line with or above their valuations, although Santos’s key asset, a stake in the Papua New Guinea LNG project, could attract a premium based on a recent bid for a fellow stakeholder in the project.
“It looks a fairly punchy price relative to value of the assets,” said Bernstein analyst Neil Beveridge. “It looks to be a pretty decent bid.”
Scepter said it has tapped former Santos chief executive John Ellice-Flint, who led the company from 2000 to 2008, to run the company as executive chairman if a bid succeeds, and planned to build it into an Asian oil and gas leader.
Incorporated this year, the fund describes itself as a syndicate of ruling families, sovereign wealth funds and ultra-high net worth industrialists who have committed more than $14bn to back large transactions.
Prince Abdul Ali Yil Kabier, a member of Brunei’s ruling royal family, is a founder and director of the firm alongside financier Rayo Withanage. Other directors include Brunei’s Prince Bahar Bin Jefri Bolkiah, the United Arab Emirates’ Sheikh Juma al Maktoum, former HSBC chairman John Bond and former US ambassador to Qatar Patrick Theros.
“Scepter considers that this indicative proposal, if implemented, would provide Santos shareholders with an attractive premium and the certainty of cash in the face of significant future uncertainty,” its head of merchant banking, Anthony Steains, said in a statement.  Scepter confirmed it wanted exclusive access to Santos’ books. A spokesman declined to comment on whether the firm was considering making a higher offer.
“It’s a little surprising the market is certainly not factoring an acceptance of a bid or a higher bid coming in,” said UBS analyst Nik Burns, who said the bid was in line with his valuation on Santos.
He said that might reflect fears that Santos may see the spike in its share price as an opportunity to launch a sale of new shares to raise capital.
Santos’ spokesman declined to comment on any other alternatives the company was considering.
Two other analysts said they thought shareholders would welcome the bid, given that the stock dipped below A$4 less than a month ago, but said valuations hinge on a long-term view of oil prices.
Santos has stakes in oil and gas production in Australia, Papua New Guinea, Indonesia and Vietnam, with the jewel in its crown considered to be its 13.5% stake in the Papua New Guinea LNG project.
A shareholder said it made sense for Santos to reject Scepter’s bid. The PNG LNG stake alone could be worth A$6.5bn, based on the value implied in a recent takeover bid by Woodside Petroleum for Oil Search Ltd, a bigger stakeholder in PNG LNG.
“If you’re prepared to auction off your assets, why would you offer someone exclusivity if they didn’t offer a cracking (takeover) price?” said Jason Beddow, chief executive of Argo Investments, Santos’ eighth largest shareholder.
Scepter is being advised by Australian boutique firm Highbury Partnership. Santos is being advised by Deutsche Bank.