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Harbour Energy greenlight to pursue Santos acquisition

US based Harbour Energy has confirmed that Santos Limited (Santos), Australia’s thrid largest energy producer has agreed to grant Harbour access to due diligence pursuant to Harbour’s non-binding offer to acquire 100 per cent of the fully diluted ordinary shares of Santos by way of scheme of arrangement.

The indicative offer price is US$4.98 (A$6.50) per share. Harbour Energy has indicated that for those shareholders able to realise the full value of expected franking credits, the special dividend would represent additional value over and above the indicative offer price of up to A$0.161  per share.

The Harbour proposal also provides for a fixed Australian dollar offer price for the first 10,000 shares held by each individual shareholder.  This price would be fixed by reference to the prevailing exchange rate at the time the companies enter into binding transaction documentation.

Harbour is providing for Santos’ existing shareholders to remain invested in Santos, should they so desire, via an option to elect to accept unlisted scrip in the new, private company, subject to a minimum 15 per cent of shareholders electing to do so and a maximum participation of 20 per cent. The condition related to a minimum of 15% of existing Santos shares outstanding electing to receive scrip would be fulfilled should Santos’ largest shareholder (ENN together with Hony Capital) elect to do so.  Electing to remain invested in Santos would be consistent with ENN and Hony Capital’s stated intention to be long term investors and their strategic relationship with Santos.

The Santos Board has considered that, based on the indicative offer price of A$6.50 per share, it is in the interests of shareholders to engage further with Harbour.  Accordingly, the companies have entered into a confidentiality agreement and Harbour has been granted the opportunity to undertake confirmatory due diligence.  The offer is subject to customary conditions including shareholder and regulatory approvals.

Harbour’s strategy for Santos is to utilise the Company’s core assets and organisational capabilities as a platform for growth in Australia, throughout Asia, and with respect to the global LNG sector.  In support of this strategy, Harbour expects to invest further in Santos’ existing assets and to pursue the acquisition of additional natural gas and LNG-focused assets in Australia and internationally.  These plans are expected to contribute to Australian domestic energy security and economic growth.  As Harbour is focused on investment and expansion, successful execution of our strategy does not rely on staff reductions.  Furthermore, there is no intention to relocate the Santos headquarters from Adelaide.

Chief Executive Officer of Harbour Energy, Linda Z. Cook, said, “Santos has a leading natural gas business in Australia and interests in three operating LNG projects – two in Australia and one in Papua New Guinea – along with an established operating capability and a proven, experienced management team. All of these components are valuable assets and important to the execution of our vision and strategy.  We are pleased with the decision of the Santos Board to engage further and look forward to progressing this transaction towards completion.”

Harbour has mentioned in its press release that its proposal is fully funded with committed debt and equity capital from leading global financial institutions and institutional investors.  Included within this group is a material equity contribution from Mercuria Energy Group (“Mercuria”).  Headquartered in Europe, Mercuria is one of the world’s largest integrated energy and commodity trading companies.  J.P. Morgan and Morgan Stanley have provided an underwritten debt financing package of US$7.75 billion.  These financial institutions are amongst the world’s preeminent providers of debt capital, including specifically to the energy and resources sectors.

Cook said, “With the support of these providers of capital, Harbour stands ready to move expeditiously towards entering into a Scheme Implementation Agreement and to commencing all necessary government and regulatory review processes.”

R. Blair Thomas, Chairman of Harbour and CEO of EIG added, “Global energy markets are changing rapidly as we move to a lower carbon energy mix and we believe natural gas is one of the primary sources of energy for the future.  Harbour has a vision to be a leading global player in natural gas and LNG and the action we are announcing today is an important step in realizing that vision.  If successful, we and our investors will be focused on further growth.”

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