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

Papua New Guinea’s Prime Minister has warned Australian energy giants Santos and Oil Search he expects them to maintain a significant local presence of senior management in the country if their $22 billion merger proceeds.

“We do not wish for the largest oil and gas company operating in our country to simply be a branch office of a foreign company,” PNG Prime Minister James Marape said.

“It is important that the merged entity ensures significant local influence on decisions affecting Papua New Guinea assets, jobs and the broader community.”

Australia-listed Oil Search is an $8 billion oil and gas company whose activities are centred in PNG, comprising a large percentage of the country’s gross domestic product and providing direct and indirect jobs for thousands of PNG residents.

Under a deal announced on Monday, Oil Search and larger ASX-listed rival Santos are set to merge into a $22 billion industry juggernaut, becoming the top oil and gas producer in Australia and one of the 20 biggest globally. The companies are undertaking four weeks of due diligence on each other.

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Santos and Oil Search are already joint-venture partners in the ExxonMobil-operated PNG LNG project in Papua New Guinea. If their merger proceeds, Santos and Oil Search’s combined 42.5 per cent stake in the venture would be larger than Exxon’s 33 per cent holding.

“With Oil Search already operating the PNG oil producing assets, this would place [the merged entity] in a position for it to possibly move to operatorship, should ExxonMobil possibly exit in the future,” Royal Bank of Canada analyst Gordon Ramsay said.

Mr Marape said his government’s top priority was ensuring that projects such as Papua LNG and the P’nyang gas projects proceeded as soon as possible to supply the PNG LNG venture, and it “strongly recognised” the proposed merger could deliver higher capacity and value to PNG projects. However, he cautioned he was closely monitoring the merger developments.