https://www.copyright link/street-talk/santos-taps-goldman-sachs-for-dorado-selldown-strategic-advice-20230614-p5dgec

"Although Dorado is seen as a future growth generator by sell-side analysts, dealmakers know Santos boss Kevin Gallagher is in no rush to make it happen."



Australian Financial Review

• Companies
• Street Talk

Santos taps Goldman Sachs for Dorado selldown, strategic advice

Sarah Thompson, Kanika Sood and Emma Rapaport

Jun 14, 2023 – 7.55pm

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Oil and gas heavyweight Santos is understood to be working with Goldman Sachs on a mooted sell down of its 80 per cent stake in West Australian oil discovery Dorado, just as its 10 per cent share price drop in the past year lands it on dealmakers’ M&A radars.

Santos CEO Kevin Gallagher. Ben Searcy

It is understood Santos has had Goldman Sachs trying different deal structures for a fit at Dorado which – together with its neighbouring field Pavo – gives it ownership of 147 million barrels of oil and 401 petajoules of gas.

The challenge would be to sell down just enough to help Santos pay its share of Dorado’s $US2 billion-plus Phase 1 development bill, while making sure it gets to keep the upside when the fields start to spout oil. (Santos’ 20 per cent joint venture partner at Dorado, listed small-cap Carnarvon Energy, has had Azure Capital sell down half its stake to Taiwan’s national oil and gas company CPC Corporation. The deal also included Pavo and two other Bedout assets for a $US1.5 billion valuation.)

Although Dorado is seen as a future growth generator by sell-side analysts, dealmakers know Santos boss Kevin Gallagher is in no rush to make it happen.

Gallagher has had his eyes trained on what he sees as Santos’ twin peaks of upside: the Barossa offshore gas field in the Northern Territory and the Pikka oil project in Alaska.

Barossa is due to resume drilling in the fourth quarter, and Santos approved Pikka’s final investment decision in August while it delayed the same at Dorado. Between then and now, it also hammered down a binding deal to sell 5 per cent of PNG LNG to Kumul Petroleum for $US1.4 billion.

So, it’s fair to say things are ticking along relatively nicely at Santos. Yet, the stock is down 10 per cent over the past 12 months. Investor and bankers have taken notice, and so has Santos’ top brass.

Keeping its bankers close

Sources said Santos has had a strategic adviser on standby. Going by its advisory pick for Dorado, Goldman Sachs would be the one with the role.

Street Talk is not suggesting Santos has received an approach; its strategic adviser’s job would most likely be limited to sending regular valuation updates to the board. But it is clear Santos has been keeping its advisers close, should M&A interest firm into a proposal.

Macquarie’s research boffins, writing in a June 5 note, said Gallagher’s long-term incentives are heavily tied to Santos’ share-price performance relative to peers (locals and globals measured separately), its free cashflow break-even and corporate returns.

“In addition to ordinary [long-term incentives], Santos’ CEO was also retained in 2021 [until December 2025] on a specific growth payment which at face value appeared to incentivise a decision on Dorado; however, the board [appropriately, in our view] has substituted this for the progress that has been made on the Pikka oil project since the Oil Search acquisition,” the sell-side analysts said.

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