Australian energy company Santos is set to buy countryman Quadrant Energy for $2,15 billion, plus possible contingent payments related to resources from the recent Dorado oil discovery.
Quadrant Energy owns natural gas and oil production, development, appraisal and mid- and long-term exploration assets on more than 52.000 square kilometers of acreage, primarily in the Carnarvon Basin, WA, the largest offshore oil and gas province native to Australia.
The company recently hit what is believed to be Australia's biggest oil discovery in years at the Dorado-1 well.
Quadrant's participation in the production of the assets in 2017 was 19 million barrels of oil equivalent (mmboe).
According to Santos, Quadrant 2P reserves at the end of 2017 were 220 mmboe (~75% developed). Quadrant's conventional natural gas assets include significant portfolio overlap with Santos, providing an opportunity to realize material mix synergies estimated at $30 to $50 million per year, Santos said.
Rationale
Santos said the acquisition of Quadrant was "fully in line with Santos' growth strategy to build on existing infrastructure positions around the company's core assets."
The company said, “Quadrant offers operation of Santos' existing gas centers in WA, providing flexibility to streamline operations and position Santos to capture value from backfill and third-party gas opportunities. It also strengthens Santos' operational expertise and offshore operating capability to drive future growth opportunities across offshore WA and northern Australia. ”
"Quadrant's portfolio of high-margin conventional domestic natural gas assets backed by long-term, CPI-linked contracts provide strong, stable cash flows and supplement predominantly oil-related revenues from Santos."
Santos will pay $2,15 billion in cash upfront, plus contingent payments tied to Dorado's 2C oil/liquid resource certification of more than 100 million barrels and future FID decision; and Royalty on any future income from the Bedout Basin project (excluding Dorado oil/liquids production).
For a detailed breakdown of Dorado's contingent payments, see the chart below, as shared by Santos:
As reported last week, Quadrant's partner in the Dorado Carnarvon Petroleum said the Dorado contained around 171 million barrels of oil (2C), making it one of the largest petroleum resources ever found on the North West Shelf.
Santos will fund the acquisition of existing cash resources and $1,2 billion in new committed credit facilities. Santos had $1,5 billion in cash as of June 30, 2018.
Director of Santos: “This quadrant will help us to be the main supplier of gas in Australia”
While the Dorado oil discovery is certainly exciting, commenting on the Quadrant acquisition, Santos' managing director focused on Quadrant Energy's gas assets.
Santos Managing Director and CEO Kevin Gallagher said: “This acquisition provides greater ownership and operation of a high quality portfolio of low cost, long life Australian Western Australia natural gas assets that are well known to Santos and strengthen significantly offshore operational capability”.
“It is a positive material value for Santos shareholders and advances Santos' goal to be Australia's leading domestic supplier of natural gas.”
“The transaction lowers our 2018 forecast free cash flow against the oil price by an additional $4/bbl and the Quadrant's stable cash flows provide added security during the next period of major growth project delivery. ”
“We look forward to welcoming the Quadrant team to the Santos family and integrating our Western Australia operations.”
Quadrant CEO: Exciting New Chapter
Quadrant Energy was established in 2015 following the completion of the acquisition of Apache Energy by Brookfield and Macquarie Capital.
Commenting on the Santos news, Quadrant Energy CEO Brett Darley said he was "extremely proud of the entire team at Quadrant Energy who, over the past three years, have transformed Quadrant into a highly successful standalone business."
“We delivered operational excellence, excellent results in our exploration program and successfully integrated a whole new business model across the company. All of this was achieved with a strong focus on the environment and a commitment to the health and safety of our people,” said Darley.
“On behalf of Quadrant Energy, I would like to say how pleased I am to be part of this agreement with Santos and our businesses and people are well positioned for this exciting new chapter as part of a national and international oil and gas producer.”
Subject to customary consents and regulatory approvals, the transaction is expected to close by the end of 2018.
