1 00:00:05,880 --> 00:00:08,640 Speaker 1: Welcome to the Fear and Greed business Interview. I'm Sean Almer. 2 00:00:08,800 --> 00:00:12,080 Speaker 1: A thirty billion dollar bid for Santos by the Abu 3 00:00:12,119 --> 00:00:15,840 Speaker 1: Dhabi National Oil Company sent shares in the Australian oil 4 00:00:15,920 --> 00:00:19,400 Speaker 1: and gas giant soaring. On the surface, the offer from 5 00:00:19,440 --> 00:00:24,240 Speaker 1: the consortium led by adno's investment arm XRG seems pretty good, 6 00:00:24,640 --> 00:00:27,080 Speaker 1: but there's plenty of barnacles on this one, including the 7 00:00:27,120 --> 00:00:30,360 Speaker 1: need for the federal government to approve it. Jim Chalmers 8 00:00:30,600 --> 00:00:32,519 Speaker 1: recently said there's a long way to go before a 9 00:00:32,560 --> 00:00:34,760 Speaker 1: deal can be done. So what's it mean for Santos, 10 00:00:34,800 --> 00:00:36,960 Speaker 1: for investors, the local market, and for the state of 11 00:00:37,000 --> 00:00:39,559 Speaker 1: the oil and gas industry more broadly? Remember this is 12 00:00:39,600 --> 00:00:42,560 Speaker 1: general information only and you should see professional advice before 13 00:00:42,600 --> 00:00:46,160 Speaker 1: making investment decisions. Nick Burns is the head of energy 14 00:00:46,280 --> 00:00:48,760 Speaker 1: research at Jarda. Nick, welcome to Fear and Greed. 15 00:00:49,080 --> 00:00:50,720 Speaker 2: Thank you for having me Sean appreciate it. 16 00:00:51,440 --> 00:00:54,920 Speaker 1: First up, was this a surprise that ad nook the 17 00:00:55,000 --> 00:00:57,320 Speaker 1: Abu Dhabi group bid. 18 00:00:57,080 --> 00:01:02,640 Speaker 2: For Santos Look in a nutshell? Yes, Whilst Santos a 19 00:01:02,640 --> 00:01:07,360 Speaker 2: couple of years ago made its intentions known that it 20 00:01:07,560 --> 00:01:12,400 Speaker 2: was open to offers that would realize value for shareholders. 21 00:01:12,560 --> 00:01:16,800 Speaker 2: We subsequently saw an approach by Woodside. They walked away 22 00:01:16,800 --> 00:01:20,880 Speaker 2: from that transaction pretty quickly. Since then, it's been pretty quiet, 23 00:01:21,040 --> 00:01:25,400 Speaker 2: and it seemed like Santos was confident enough just to 24 00:01:25,440 --> 00:01:30,959 Speaker 2: progress through its growth strategy, delivering Barrossa, Allen g and 25 00:01:31,160 --> 00:01:35,959 Speaker 2: Pika oil project in Alaska and try and increase its 26 00:01:36,000 --> 00:01:38,920 Speaker 2: share price through the startup of those projects by the 27 00:01:38,959 --> 00:01:42,080 Speaker 2: middle of twenty twenty six and achieving that that outcome. 28 00:01:42,200 --> 00:01:45,319 Speaker 2: So the arrival, if you like, of Adknock on the 29 00:01:45,360 --> 00:01:47,560 Speaker 2: scenes was certainly a bit of a surprise to me, 30 00:01:47,560 --> 00:01:49,320 Speaker 2: and I suspect many in the market as well. 31 00:01:49,960 --> 00:01:53,480 Speaker 1: What is it that adnot likes about Santos? What are 32 00:01:53,520 --> 00:01:55,120 Speaker 1: the assets that the gems? 33 00:01:55,760 --> 00:01:58,760 Speaker 2: Yeah, so look, I mean you can broadly break Santos 34 00:01:58,800 --> 00:02:02,920 Speaker 2: into two group their LNG assets and then their non 35 00:02:03,200 --> 00:02:05,280 Speaker 2: LNG assets, And if you look on the L and 36 00:02:05,320 --> 00:02:08,880 Speaker 2: G side, it's really those assets which would be of 37 00:02:08,960 --> 00:02:12,960 Speaker 2: particular interest to a company like ADNOC, And it's if 38 00:02:13,000 --> 00:02:15,680 Speaker 2: you look back in terms of what ADNOC said, they 39 00:02:15,760 --> 00:02:20,480 Speaker 2: set up XIG as a subsidiary about six months ago 40 00:02:20,560 --> 00:02:25,280 Speaker 2: with a specific goal to grow its international oil, gas 41 00:02:25,280 --> 00:02:29,840 Speaker 2: and chemicals operations, and a couple of weeks ago, XIG 42 00:02:30,000 --> 00:02:33,200 Speaker 2: released its five year plan, and in that it had 43 00:02:33,240 --> 00:02:37,120 Speaker 2: a very specific goal of growing its international oil and 44 00:02:37,160 --> 00:02:41,640 Speaker 2: gas footprint, in particular on the LNG side, growing that 45 00:02:41,840 --> 00:02:45,519 Speaker 2: to twenty to twenty five million tons per anim capacity 46 00:02:45,560 --> 00:02:49,639 Speaker 2: by twenty thirty five. So within Santos, if you roll 47 00:02:49,680 --> 00:02:51,960 Speaker 2: the clock forward maybe a year once barosso L ANDG 48 00:02:52,080 --> 00:02:54,680 Speaker 2: is fully up and running, Sandos will be producing around 49 00:02:54,680 --> 00:02:58,120 Speaker 2: seven million tons per annum. So that certainly would be 50 00:02:58,200 --> 00:03:02,240 Speaker 2: attractive too, as if you scale the world and see 51 00:03:02,280 --> 00:03:05,880 Speaker 2: what's for sale or which companies or entities might be 52 00:03:06,000 --> 00:03:08,560 Speaker 2: open to an approach, certainly Santos would have been pretty 53 00:03:08,600 --> 00:03:09,480 Speaker 2: high the list. 54 00:03:09,840 --> 00:03:11,960 Speaker 1: Santos, and I suppose we've been to put woodside into 55 00:03:11,960 --> 00:03:15,680 Speaker 1: this conversation as well in terms of global producers of LNG, 56 00:03:16,520 --> 00:03:19,840 Speaker 1: Are they efficient? Are they highly regarded? Where do we stand? 57 00:03:20,680 --> 00:03:22,959 Speaker 2: Yeah, it's a good question, I think if you take 58 00:03:23,040 --> 00:03:24,960 Speaker 2: the if you look in the broader market, so the 59 00:03:25,000 --> 00:03:29,079 Speaker 2: global LNG industry is around about four hundred and ten 60 00:03:29,320 --> 00:03:33,240 Speaker 2: million tons per anum, so seven million tons on its own, 61 00:03:34,200 --> 00:03:37,360 Speaker 2: you know, represents less than two percent market share, But 62 00:03:38,000 --> 00:03:39,960 Speaker 2: certainly if you look at the quality of the assets 63 00:03:40,000 --> 00:03:44,119 Speaker 2: within the portfolio. Santos has three major LNG exposures. You've 64 00:03:44,120 --> 00:03:47,280 Speaker 2: got P and G LNG obviously in the country of 65 00:03:47,680 --> 00:03:51,360 Speaker 2: P ANDNG. You've got the Gladston LERG project in Queensland 66 00:03:51,400 --> 00:03:54,480 Speaker 2: which has had some supply challenges and it's probably not 67 00:03:55,120 --> 00:03:58,080 Speaker 2: our top quartile project Bony Stretch. And then you've got 68 00:03:58,080 --> 00:04:01,200 Speaker 2: the Bossa LERG project that's due to startup in the 69 00:04:01,240 --> 00:04:05,240 Speaker 2: next six months off the coast of the NT So 70 00:04:05,480 --> 00:04:08,920 Speaker 2: within that certainly P and G Lergy would argue is 71 00:04:09,000 --> 00:04:14,440 Speaker 2: definitely top quarto project. It's very high margin, the fiscal 72 00:04:14,520 --> 00:04:18,120 Speaker 2: terms are fairly bit benign as well. Australia sin is 73 00:04:18,120 --> 00:04:20,479 Speaker 2: a pretty stafe jurisdiction to it to invest in as well, 74 00:04:20,520 --> 00:04:22,520 Speaker 2: and it's on the doorstep of Asia where most of 75 00:04:22,520 --> 00:04:25,400 Speaker 2: the allergy demands due to grow. Similar to it to Woodside, 76 00:04:25,400 --> 00:04:29,719 Speaker 2: Woodside's energy footprint is very much dominated in Australia todate 77 00:04:29,760 --> 00:04:34,240 Speaker 2: Obviously they're making moves to invest and expand their capacity 78 00:04:34,440 --> 00:04:37,479 Speaker 2: in the US, but certainly having a large footprint in 79 00:04:37,480 --> 00:04:41,840 Speaker 2: Australia on the doorstep of Asia is very attractive to 80 00:04:42,200 --> 00:04:43,800 Speaker 2: a number of companies. 81 00:04:44,080 --> 00:04:46,480 Speaker 1: At this point the price that they're offering, so it's 82 00:04:46,480 --> 00:04:50,440 Speaker 1: the equivalent of about eighty nine eight ninety is share ossie, 83 00:04:51,240 --> 00:04:54,120 Speaker 1: it's training about seven seventy seven to seventy five at 84 00:04:54,160 --> 00:04:58,560 Speaker 1: the moment, isn't an attractive price? And is the uppertrage 85 00:04:58,640 --> 00:05:02,920 Speaker 1: or the difference between the offer and the what it's 86 00:05:02,960 --> 00:05:05,520 Speaker 1: training at. Just to reflection the fact that it's a 87 00:05:05,520 --> 00:05:07,320 Speaker 1: long way to go before this deal is done. 88 00:05:07,680 --> 00:05:09,440 Speaker 2: Yeah, look, I think of there's a couple of things 89 00:05:09,440 --> 00:05:11,479 Speaker 2: in there, Sean. First of all, to your point, like 90 00:05:11,640 --> 00:05:13,479 Speaker 2: there is a long way to go, and everyone's trying 91 00:05:13,520 --> 00:05:16,960 Speaker 2: to work out exactly how long the process will run 92 00:05:17,000 --> 00:05:20,360 Speaker 2: from here. We estimate that both there is the key 93 00:05:20,360 --> 00:05:24,320 Speaker 2: steps ahead is due diligence, and that's likely to kick 94 00:05:24,320 --> 00:05:26,520 Speaker 2: off shortly and that could last a couple of months, 95 00:05:26,960 --> 00:05:30,000 Speaker 2: and that will then lead to the two groups signing 96 00:05:30,000 --> 00:05:33,960 Speaker 2: a scheme implementation agreement. But ultimately they can't move ahead 97 00:05:34,000 --> 00:05:37,599 Speaker 2: to a scheme meeting where Santo Sheldles would vote on 98 00:05:37,839 --> 00:05:40,920 Speaker 2: the scheme, and therefore there's this price until they receive 99 00:05:40,960 --> 00:05:44,080 Speaker 2: all the relevant regulatory approvals, including FERB. And it's really 100 00:05:44,360 --> 00:05:47,080 Speaker 2: I think people are focusing quite rightly on FERB approval 101 00:05:47,920 --> 00:05:51,440 Speaker 2: and that will take realistically at least six months in 102 00:05:51,480 --> 00:05:54,760 Speaker 2: our view to be done. So you're probably looking at 103 00:05:54,760 --> 00:05:58,040 Speaker 2: some time at Q one twenty twenty six before we'll 104 00:05:58,040 --> 00:06:01,680 Speaker 2: know whether the Australian government is on board with this takeover. 105 00:06:02,279 --> 00:06:05,320 Speaker 2: So that's probably one element that people are looking at. 106 00:06:06,440 --> 00:06:08,840 Speaker 2: So there is a time value of money and then 107 00:06:08,880 --> 00:06:12,800 Speaker 2: the probability of the government actually signing off and allowing 108 00:06:12,839 --> 00:06:15,000 Speaker 2: for this takeover to go through. 109 00:06:15,600 --> 00:06:21,960 Speaker 1: Stay with me, Nick, we'll be back in a minute. 110 00:06:24,880 --> 00:06:27,320 Speaker 1: My guest this morning is Nick Burns, head of Energy 111 00:06:27,400 --> 00:06:31,880 Speaker 1: research at Jarden. We've been talking about Santos ahead of 112 00:06:31,880 --> 00:06:34,120 Speaker 1: the break there. What about the state of the oil 113 00:06:34,120 --> 00:06:36,960 Speaker 1: and gas industry generally, certainly gas seems to be the 114 00:06:37,720 --> 00:06:40,880 Speaker 1: you know, it's not quite the commodity djure, but sort 115 00:06:40,880 --> 00:06:43,000 Speaker 1: of gas wasn't so popular a little while ago and 116 00:06:43,000 --> 00:06:48,600 Speaker 1: now everyone realizes that it's the transition energy commodity. Do 117 00:06:48,640 --> 00:06:50,760 Speaker 1: we expect to see more of these sorts of deals 118 00:06:51,040 --> 00:06:51,720 Speaker 1: going forward? 119 00:06:52,480 --> 00:06:54,839 Speaker 2: Look, it's a good question, I think through in the 120 00:06:54,839 --> 00:06:58,359 Speaker 2: Australian contact, certainly, gas has been through a bit of 121 00:06:58,360 --> 00:07:01,640 Speaker 2: a rollercoaster ride in the last ten years. You know, 122 00:07:01,880 --> 00:07:06,279 Speaker 2: it's provided a lot of heat and energy to large 123 00:07:06,440 --> 00:07:10,800 Speaker 2: industrial companies in Australia and overseas, and it obviously provides 124 00:07:10,800 --> 00:07:13,680 Speaker 2: a bit of a backstop to to companies on the 125 00:07:14,360 --> 00:07:17,280 Speaker 2: electricity market, so it certainly plays a key role there. 126 00:07:17,320 --> 00:07:20,520 Speaker 2: But you know, there was a growing concern around global 127 00:07:20,520 --> 00:07:25,840 Speaker 2: warming and the desire to decarbonize Australia, pushing head initially 128 00:07:26,360 --> 00:07:29,920 Speaker 2: removing coal from the Elicioucy grid, but gas is sort 129 00:07:29,920 --> 00:07:32,720 Speaker 2: of thrown in the same conversation, and I think it 130 00:07:32,800 --> 00:07:36,560 Speaker 2: probably took Russia Ukraine events and a real bit large 131 00:07:36,560 --> 00:07:39,560 Speaker 2: spike and gas prices for the market to realize that 132 00:07:39,640 --> 00:07:44,000 Speaker 2: the consequence of higher energy cost effects everyone and everything, 133 00:07:44,040 --> 00:07:48,960 Speaker 2: and including driving higher inflation which was still struggling to tame. 134 00:07:49,200 --> 00:07:53,200 Speaker 2: So through that context, it feels like it's through an 135 00:07:53,240 --> 00:07:56,360 Speaker 2: Australian lens if you like. Australian companies here feel like 136 00:07:56,360 --> 00:08:00,440 Speaker 2: they've got more of a mandate now to invest in gas, 137 00:08:01,520 --> 00:08:04,480 Speaker 2: and that's something which I think the Federal Labor government 138 00:08:04,520 --> 00:08:08,440 Speaker 2: has embraced as well. They had the Future Gas Strategy 139 00:08:08,480 --> 00:08:11,600 Speaker 2: Report released last year which effectively acknowledged what I think 140 00:08:11,600 --> 00:08:14,640 Speaker 2: most people realize is that gas will need to be 141 00:08:14,680 --> 00:08:18,200 Speaker 2: around for the foreseeable future, particularly just to back up 142 00:08:18,400 --> 00:08:22,120 Speaker 2: renewables in the grid. So that certainly provided a positive 143 00:08:22,160 --> 00:08:26,480 Speaker 2: backdrop for anyone looking to invest in gas in Australia. 144 00:08:26,560 --> 00:08:30,560 Speaker 1: What about woodside, I think I'm right saying that they 145 00:08:30,560 --> 00:08:32,440 Speaker 1: did to deal with Saudi Aramco or sort of an 146 00:08:32,440 --> 00:08:37,080 Speaker 1: agreement with Stadi rem created to pursue potential jvs together 147 00:08:37,200 --> 00:08:41,559 Speaker 1: going forward. It just seems that that oil and gas industry, 148 00:08:41,679 --> 00:08:43,960 Speaker 1: I suppose it has always been really global, but those 149 00:08:44,120 --> 00:08:47,559 Speaker 1: Middle Eastern powers just seem to dominate such that you've 150 00:08:47,600 --> 00:08:49,360 Speaker 1: got the wood size of the world trying to jump 151 00:08:49,360 --> 00:08:50,199 Speaker 1: on board almost. 152 00:08:50,720 --> 00:08:52,680 Speaker 2: Yeah. Look, I mean if you've been through the Middle 153 00:08:52,679 --> 00:08:55,440 Speaker 2: East recently, you can see the power of the petro 154 00:08:55,520 --> 00:08:58,000 Speaker 2: dollar there in terms of what it's done from a 155 00:08:58,040 --> 00:09:03,080 Speaker 2: transformational perspective to the respective economies of countries like UAE 156 00:09:03,679 --> 00:09:07,280 Speaker 2: and others. So certainly there's a lot of cash out there, 157 00:09:07,280 --> 00:09:10,360 Speaker 2: and I think they're also they're realizing that they are 158 00:09:11,840 --> 00:09:14,319 Speaker 2: the source of their wealth has been from their oil 159 00:09:14,360 --> 00:09:16,640 Speaker 2: deposits in their own country, and I think they're all 160 00:09:16,679 --> 00:09:20,400 Speaker 2: taking now a longer term look globally about where they 161 00:09:20,440 --> 00:09:22,840 Speaker 2: need to invest, because are we going to be driving 162 00:09:22,880 --> 00:09:26,440 Speaker 2: you know, petrol cars in fifty years time and what's 163 00:09:26,480 --> 00:09:28,800 Speaker 2: the all outlook looking long term? And they're taking a 164 00:09:28,920 --> 00:09:31,800 Speaker 2: very long term approach here, So it's not a surprise 165 00:09:31,960 --> 00:09:35,600 Speaker 2: in some respect that you're seeing Woodside signing deals with 166 00:09:35,720 --> 00:09:40,079 Speaker 2: the likes of Aramco. They had. It was disclosed in 167 00:09:40,200 --> 00:09:44,280 Speaker 2: the Tellurian takeover that Woodside did last year to get 168 00:09:44,320 --> 00:09:48,160 Speaker 2: its whole hands on the Louisiana Allen g site that 169 00:09:48,240 --> 00:09:51,120 Speaker 2: they were teamed up with mid Ocean Energy, which is 170 00:09:51,679 --> 00:09:56,120 Speaker 2: partly owned by Aramco. So they've certainly been known to 171 00:09:56,160 --> 00:09:59,600 Speaker 2: each other for some time. And I think as the 172 00:09:59,640 --> 00:10:03,680 Speaker 2: middle countries with the balance sheet capacity looks to expand globally, 173 00:10:03,720 --> 00:10:05,959 Speaker 2: you're probably expecting to see more of these types of 174 00:10:06,000 --> 00:10:06,920 Speaker 2: deals rather than less. 175 00:10:07,360 --> 00:10:11,439 Speaker 1: Are these oil and gas companies shifting to renewables? I mean, 176 00:10:11,520 --> 00:10:14,959 Speaker 1: I know Total, which the French group has certainly if 177 00:10:14,960 --> 00:10:17,480 Speaker 1: you read the media, is trying to get into renewables 178 00:10:17,480 --> 00:10:20,559 Speaker 1: more than it ever was before. But are they actually 179 00:10:20,640 --> 00:10:21,240 Speaker 1: doing that or not? 180 00:10:22,120 --> 00:10:25,959 Speaker 2: Look, they've again it's a bit like Australia. Certainly European 181 00:10:26,200 --> 00:10:30,440 Speaker 2: oil and gas companies such as Total, BP etc. They've 182 00:10:30,480 --> 00:10:32,800 Speaker 2: been through their own journeys, if you like, they've been 183 00:10:32,880 --> 00:10:37,280 Speaker 2: under considerable Shaholder pressure to pivot and direct more capital 184 00:10:37,559 --> 00:10:42,160 Speaker 2: into renewabooks, and some of that's been successful, some have not. 185 00:10:42,280 --> 00:10:45,240 Speaker 2: You've seen BP recently acknowledging the fact they've probably gone 186 00:10:45,320 --> 00:10:49,080 Speaker 2: too hard, too quickly into renewables. The returns there are 187 00:10:49,160 --> 00:10:53,480 Speaker 2: just don't compete to oil and gas, so they've realized 188 00:10:53,480 --> 00:10:55,800 Speaker 2: that they need to probably pull back a bit and 189 00:10:55,920 --> 00:10:59,280 Speaker 2: redirect more capital back into oil and gas. So it's 190 00:10:59,320 --> 00:11:01,640 Speaker 2: not just in the alien phenomenon, if you like, it's 191 00:11:01,640 --> 00:11:03,680 Speaker 2: certainly one that we're seeing overseas as well. 192 00:11:04,080 --> 00:11:06,280 Speaker 1: Fascinating, Nick, Thank you for talking to Fear and Greed. 193 00:11:06,520 --> 00:11:08,680 Speaker 2: My pleasure. Thank you very much for having me appreciate it. 194 00:11:08,720 --> 00:11:11,400 Speaker 1: That was Nick Burn's, head of energy research at Jardon. 195 00:11:11,480 --> 00:11:13,719 Speaker 1: This is the Fear and Greed Business Interview. Join us 196 00:11:13,720 --> 00:11:16,000 Speaker 1: every morning for the full episode of Fear and Greed 197 00:11:16,280 --> 00:11:20,640 Speaker 1: business news you can use. I'm Seane Elmer. Enjoy your day.