ADNOC Will Need More Than Money to Seal the Santos Deal

Abu Dhabi National Oil Company’s (ADNOC) $18.7 billion bid for Australian liquefied natural gas producer Santos faces far greater challenges than simply putting up the cash.

The politics of what would be Australia’s largest-ever cash takeover are proving increasingly difficult to navigate.

ADNOC launched its bid in June for Santos (STO.AX), the country’s second-largest oil and gas producer, with initial due diligence scheduled for completion by August. While no major hurdles were uncovered, the deal was pushed back to September 19.

That delay—along with the fact that Santos shares continue to trade well below the indicative offer price of A$7.85, closing there on Thursday—suggests the deal is on shaky ground.

The proposed acquisition was a central talking point this week at the Southeast Asia Australia Offshore and Onshore Conference in Darwin, home to Santos’ LNG plant that is soon to restart operations.

Industry and government insiders widely expressed the view that, from an Australian perspective, ADNOC’s offer was not compelling enough. What stood out even more was the silence: although people were clearly discussing the deal, no one was willing to comment publicly—a sign that ADNOC’s proposal is a political minefield where discretion seems the safer path.

Beyond a healthy payout for Santos shareholders, fundamental questions remain: why would Australia want to sell off some of its prized LNG assets, and why add complexity to a domestic gas market already grappling with high prices and fears of future shortages?

Treasurer Jim Chalmers will ultimately decide whether to approve the deal. While he may wish to preserve Australia’s reputation as a safe and welcoming destination for foreign investment, there would be little political upside in approving the sale of a key domestic energy company to a state-owned foreign buyer.

More Than a Buyout

So what will ADNOC need to do to get this deal across the line?

The main issue is that ADNOC appears intent on purchasing existing, producing assets rather than laying out a clear plan for how it would expand operations and invest further in Australia. That stands in stark contrast to the $200 billion invested by foreign oil majors during the 2010s and early 2020s to make Australia the world’s top LNG exporter.

Santos’ appeal lies in its stakes in two LNG plants in Australia and another in Papua New Guinea, along with a share in a second PNG project awaiting a final investment decision early next year.

ADNOC may have little interest in Santos’ domestic gas assets that supply the Australian market. Although the company has not said so explicitly, it would not be surprising if it sought to divest those onshore operations to another operator.

But if ADNOC wants to demonstrate that it is committed to expanding Santos’ portfolio—not just controlling its current LNG assets—it has clear opportunities to do so.

One of the most significant lies in the Beetaloo Basin in Australia’s Northern Territory, where Santos holds exploration acreage. Geologically richer than many U.S. shale plays, Beetaloo is estimated to hold some 500 trillion cubic feet of gas and is widely seen as Australia’s next major gas frontier.

Committing to develop Beetaloo—complete with the necessary pipeline infrastructure and an additional LNG train alongside Santos’ existing Darwin plant—would go a long way toward convincing Australians that ADNOC seeks to build, not just buy.

If ADNOC wants political backing for the deal, it will need to articulate its plans and commitments far more clearly. Without that, it would be all too easy for Chalmers and the ruling Labor government to reject the bid on grounds of national interest.