Santos and Origin Energy merger makes sense,

I think you ,ya ring that STO may be looking at offloading mon core assests and focusing on long term plans, the below makes sense and something I have been a bid advocate for some time. Get rid of the dross, concentrate on solidification

The below is provided by SMH or can be referenced in this mornings AFR, link to article below.

As M&A deals go, this would be a big one, but Credit Suisse is pointing to the logic between a mega-merger between Santos and Origin Energy to drive $3 billion of cost synergies and help the companies weather rock-bottom oil prices.

The deal as envisaged by the bank's energy equities team would involve the spin-off of Origin's utilities business, while the oil and gas operations of the two would be combined to create "Soritos E&P".

"We are struck by the beauty of both the industrial and political logic to the deal at a time when the companies are on their knees and the east coast market is staring down the barrel of an uncomfortable date with destiny," the analysts said in a note to clients.

A zero-premium merger of the two would be the most logical structure for the two companies, which are both suffering from the impact of funding large liquefied natural gas projects in Queensland at a time when cash flows are being hit by plunging crude oil prices, they said.

"A more open mindset to a merger could see huge synergies realised at a time when, particularly at the LNG projects, political and industrial logic is compelling to get a deal done," the analysts led by Mark Samter said in the report.

The main driver for such a deal is the combination of the two Queensland LNG projects, which would open the way for one of the four LNG production units to be mothballed, Credit Suisse said.

That would help the contracted LNG buyers who don't want to take all the gas they have committed to, as well as domestic gas buyers on the east coast, which are struggling to source long-term supplies.

Santos and Origin both had to tap shareholders for $2.5 billion in new equity late last year to help reduce debt, but the continued fall in oil prices is putting their balance sheets under renewed pressure. Both have had billions wiped off their market cap in the past 18 months as crude prices headed south.

"Both businesses still need fixing," the analysts said. "We continue to believe that both have shareholder unfriendly balance sheets, particularly at the current oil price. For either to grow, culture change and more capital are needed."

Under the scenario envisaged by the analysts, the spun-out utilities business would take $4.5 billion in debt, leaving the combined "Soritos" oil and gas business with about $10.5 billion. Soritos would have a net present value of $12.8 billion after synergies an savings from combining the LNG ventures and shutting down one train, and from corporate cost savings.

Assuming the utilities business can be spun out at 8.5 times enterprise value over earnings before interest, tax, depreciation and amortisation, current share prices would value Soritos at about $5.1 billion.

Credit Suisse said that up to $3 billion of equity was needed to capitalise Soritos "correctly", while up to $3 billion of synergies made it worth funding.

As they stand, both Santos and Origin remain "extremely challenged" on a stand-alone basis in a  low oil price world, the analysts said.

http://www.smh.com.au/business/ener...sense-credit-suisse-says-20160112-gm4mbx.html