Let’s make a story where there isn’t one.
On Wednesday night, Abu Dhabi’s XRG consortium, led by the Abu Dhabi National Oil Company (ADNOC) and Carlyle, walked away from its $US5.62 ($8.45) a share cash offer. The decision, made just days before an extended due diligence deadline, blindsided Santos’ board.
“Stunning”, really? The odds of this deal getting up were extremely long from the outset.
The failure of the deal is a straightforward confirmation of what any informed observer already knows: Australian gas is uninvestable.
This is not because there isn’t any or it isn’t cheap and profitable.
It isn’t because of greenies or green tape. These are mere annoyances.
It isn’t because there is no need for more gas. There is plenty of demand.
The failure of this deal was guaranteed from the outset for one simple reason: the Australian gas market has failed, and anybody trying to do business within it faces an unnavigable minefield of policy and public rage because of it.
It is especially poetic that this mess should land upon Santos. It is one of the two most toxic gas firms in the country, the other being Origin.
Of all producers, Santos is most responsible for the East Coast gas export cartel and the local shortage.
It was STO that overbuilt export capacity without the local reserves to fill it, and it is STO that has lobbied hardest to prevent any change to the mess it created.
It is also STO that sponsors the most stuff to hide the fact.
STO is an example of control fraud. An evil corporation that repeatedly tries to arbitrage its own assets to benefit executives at the cost of the long-term good of the firm. It should have realised long ago that no significant progress could be made with its business until it cleared up the gas supply insecurity it created in Australia.
There is no hiding this fact, no escaping it, no editorializing it away, no bribing out of it, and no covering it with sponsorship. STO is the centre of one of the two largest economic wounds holding back the Australian economy: an open sore that infects every business and household east of WA in toxic monthly energy bills.
STO has tried to do the country over again, this time with Arab capital, just as it tried only a few years ago via American capital. It can’t be done because the conditions needed to meet public approval embed large future losses for the buyer. Australian energy security must be fixed, whatever the cost, in the foreseeable future.
STO has turned itself, and the East Coast economy, into a zombie. The moment anybody who can think above kindergarten level realises it, they walk away so that their brain isn’t eaten.
If this sick company wants to free itself from the moribund bonds of its own making, it must first address what it did wrong and restore Australian energy security. Only then will it be saleable or in a position to attract the capital needed to expand its wider portfolio of assets so it can create value.
STO must accept that it made an enormous error in overbuilding Gladstone LNG capacity, run it at half capacity, and write the white elephant off. Even better, recycle one LNG train for parts and steel scrap.
Only then will the wider Aussie gas sector be investable again.
The stunning collapse of the $30bn Santos takeover after six months of exhaustive talks and diligence will have investors rightly asking what else is lurking inside the gas play, and why are they still in the dark?