Australia’s Woodside Energy, which has a secondary listing on the London Stock Exchange, and Santos said on Thursday they were in preliminary talks to create an global oil and gas giant, as consolidation among international energy firms escalates.
Combining two of Australia’s largest oil and gas producers would be the largest corporate deal in the country for several years, during which buyout activity has been subdued by rising interest rates and financial market volatility.
Both companies face rising pressures of decarbonisation as well as challenges in their current projects.
Perth-based Woodside, the larger of the two, said the talks with Santos were confidential and incomplete and that there was no certainty a deal would materialise.
“Woodside continuously assesses a range of opportunities to create and deliver value for shareholders,” it said in a statement to the London Stock Exchange.
Woodside’s market capitalisation stands at A$57bn (£29.7bn), while Santos is valued at A$22bn (£11.5bn).
There have been existing pressures to simplify the Australian oil and gas sector, which has seen two recent big-cap mergers with Woodside combining with BHP Group’s oil and gas business and Santos acquiring Oil Search.
Deal discussions with Santos come less than 18 months after Woodside completed the BHP deal and as it grapples to get final approvals for its A$16.5bn (£8.6bn) Scarborough venture in Western Australia, its biggest growth project.
“Woodside has already been looking outward after the BHP acquisition and both companies have had good runs with the high oil and gas price environment of the past two years,” said Kaushal Ramesh, vice president of LNG Research at Rystad Energy.
Both Woodside and Santos had in annual investor briefings flagged challenging near-term production along with soaring capital expenditure and regulatory hurdles to ongoing projects.
Santos wants to restart work on the Barossa project once it finishes a fresh round of talks with conventional landowners.
Firms trying to create value through better funding options and cost reductions amid depressed share prices could also be a potential factor behind the energy majors’ possible merger.
Woodside’s share price has dropped 15.4% this year so far, while Santos’ stock is down 4.3%.
By Scott Murdoch and Emily Chow for Reuters.