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PNG warns $22b Santos-Oil Search merger ‘must be in national interest’

“Any proposed merger must satisfy the national interest test,” Mr Marape said.

While not commenting on specific aspects of the merger, a Santos spokesman said the company was committed to Oil Search’s unique social and community programs in PNG, and the ongoing economic and internationally competitive development of PNG’s resources.

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Any merger agreement would be subject to conditions including Oil Search shareholder approval and PNG government approval.

Under the terms of Santos’ offer, which Oil Search’s board intends to unanimously recommend for approval, Oil Search investors would receive 0.6275 new Santos shares for each Oil Search share held, implying $4.29 per Oil Search share based on July 19 prices. If the tie-up goes ahead, Oil Search shareholders would own approximately 38.5 per cent of the merged group and Santos shareholders will own 61.5 per cent.

Investors and analysts are predicting a wave of merger-and-acquisition activity to sweep the oil and gas industry in coming years, as elevated concerns about global warming cause lenders to flee the sector and push the cost of capital higher.

A landmark report by the International Energy Agency in May recommended investors must avoid funding any new oil and gas fields for the world to achieve the Paris agreement’s goal of limiting global temperature rises to 1.5 degrees.

“We’ve been expecting to see more consolidation among international exploration and production companies, following the lead of the US independents that have sought strength and resilience in scale,” Wood Mackenzie research director Andrew Harwood said.

“The Santos-Oil Search merger follows the consolidation template, bringing together two firms with overlapping interests, building scale in a strategic resource theme, LNG in this case, and on terms that provide additional value upside potential for both sets of shareholders.”

Oil Search said it had briefed Mr Marape on its management changes and appreciated the continued “constructive engagement” with his government.

“We recognise the importance of Oil Search to the PNG economy and will maintain our ongoing commitment to the country and communities in which we operate,” a company spokesman said.

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