What Santos Expects On Completing The Acquisition Of Quadrant Energy?

  • Nov 27, 2018 AEDT
  • Team Kalkine
What Santos Expects On Completing The Acquisition Of Quadrant Energy?

Santos completes the acquisition of 100% of Quadrant Energy Holdings Private Limited today at a purchase price of US$2.15 billion. The news comes after the ACCC approved the transaction on 16 November 2018.

As per today’s market announcement, Santos Limited (ASX: STO) has paid US$1.93 billion on completion that was fully backed by the Santos’ existing cash resources and US$1.2 billion of new debt facilities.

Santos’ acquisition-led growth strategy underscores the takeover of Quadrant that will significantly increase the production and supply of natural gas and crude oil in Western Australia. The management told that biggest advantage of the transaction is associated with the diversification of Santos revenue as Quadrant’s CPI-linked offtake agreements will provide strong and stable cash flows to the combined group, especially at the time of oil price fluctuations.

Quadrant holds the portfolio of high-margin conventional domestic natural gas assets along with highly prospective Bedout Basin and the recently discovered oil well at Dorado. Santos eyes the acquisition to be value accretive for Santos shareholders with approximately 17% estimated free cash flow accretive on every share held for the complete year. With the combined synergies of these two natural gas and oil producers, proforma production of Santos is expected to go up by ~31% while its proforma 2P reserves is anticipated to increase by ~26%.

Kevin Gallagher Santos’ Chief Executive Officer and Managing Director stated that acquisition of Quadrant Energy has pulled down the Santos forecast for 2018 proforma free cash flow breakeven oil price by $4 per barrel to approximately $32 per barrel.

The partnership of Quadrant and Santos is not new as they were already engaged in the joint ventures based in Western Australia. It includes domestic gas processing unit Devil Creek gas hub, 55% held by Quadrant and remaining 45% by Santos, and production facility Varanus Island gas hub that is held in the same ratio as Devil Creek. Through these long-standing partnerships, Quadrants has operated Santos Western Australia natural gas assets, positioning Santos to capture value from backfill and third party gas opportunities with stable cash flows.

Quadrant’s acquisition comes in line with Santos’ strategy to grow its core assets around existing infrastructure and become Australia’s leading domestic natural gas supplier.

Mr. Gallagher stated that the acquisitions has strengthened the company’s potential to fund its growth initiatives in Western Australia, northern Australia, and PNG.

Santos told that the company has witnessed a stronger operating performance and greater generation of free cash flow from which gearing is expected to be approximately 33% at 2018 year-end. It has been reported that the transaction came into effect from 1 January 2018.

With this update, Santos’ stock traded at higher level with share price up by 2.004% to last trade at $5.60 on 27 November 2018. Moreover, the stock last traded at a PE of 33.660 x with market capitalization of $11.44 billion.

On historical performance front, STO stock has witnessed a performance change of +9.15% over the past one year, but the stock price has slipped 19.26% in the past three months.


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