Australia wants more foreign investment. That’s why a $29 billion bid for Santos puts the Treasurer in a tricky position
- Written by Shumi Akhtar, Associate Professor, University of Sydney
The Australian origins of Santos have made an indelible mark on the company’s very name. The energy giant was first incorporated in 1954 under the acronym for “South Australia Northern Territory Oil Search”. It was publicly listed on the Adelaide Stock Exchange that same year.
Fast forward to today, there are pressing questions about whether Santos could serve Australia’s national interest if it was largely in the hands of a foreign government.
This week, it was announced a consortium led by the investment division of state-owned Abu Dhabi National Oil Company (ADNOC) had made an all-cash takeover bid of almost A$29 billion for Santos. This would value the company at $36.4 billion (including its debt).
Santos’ board has said it will support the deal if there isn’t a better offer on the table. But it will first have to clear a raft of regulatory approvals – not only in Australia but also Papua New Guinea and the United States, where Santos has operations.
The acquisition would be a monumental event in Australia’s corporate history. Key elements of this country’s critical energy infrastructure are at stake.
But it’s set to put a difficult decision before the Foreign Investment Review Board (FIRB) and Treasurer Jim Chalmers. On the FIRB’s advice, Chalmers will have to balance Australia’s stated desire to attract foreign investment with the need to protect national interests.
Who’s trying to buy – and why?
Also in the ADNOC-led consortium of prospective buyers are US private equity firm Carlyle and a sovereign wealth fund of the United Arab Emirates, Abu Dhabi Development Holding Company (ADQ). There are a few key reasons for their interest.
First, ADNOC is keenly interested in expanding its footprint in gas and liquefied natural gas (LNG). Acquiring Santos would give it a stake in much of Australia’s gas production and established LNG export facilities. This includes major operations at Gladstone and Darwin.
They would also gain a share in two important Papua New Guinean projects: PNG LNG and the yet-to-be-developed Papua LNG. These assets are particularly attractive because they offer direct access to the growing Asian LNG markets, where future demand is projected to be strong.
Second, the acquisition would allow ADNOC to diversify its portfolio and gain control of export capacity from Australia and PNG to the Asia Pacific region. Santos’s Gladstone LNG plant, for example, has significant export capacity. Much of Santos’ LNG capacity is under medium and long-term contracts.
And third, the timing of this bid is strategic. Santos has recently been in a period of high capital expenditure. A number of major projects are nearing completion. A successful takeover could free up funding for further development.
Defining national interest
For regulators assessing the move, the potential takeover touches upon many national security, energy supply, and economic concerns for Australia.
One of the primary concerns is the potential loss of control over critical energy infrastructure.
Foreign ownership, especially by a state-linked investor such as ADNOC, raises questions about whose interests will ultimately shape strategic decisions about Australia’s essential gas flows, pricing, or even the integrity of operational technology systems.
There’s also concern that a foreign owner could prioritise LNG exports over domestic supply. That could potentially exacerbate domestic gas shortages and price hikes. In the eastern states of Australia, such issues are already a concern.
This is not the first time the Australian government has faced a tough decision on a foreign takeover bid in the oil and gas sector. In 2018, the Morrison government blocked a $13 billion Chinese bid for gas pipeline operator APA Group. It said a single foreign owner should not control Australia’s largest pipeline business.
And the then-Treasurer Peter Costello blocked Royal Dutch/Shell’s $10 billion blockbuster offer for Woodside Petroleum in 2001, also in the national interest.
The national interest checklist
On the other hand, Australia generally welcomes foreign investment. It brings capital, creates jobs, and supports economic growth.
If this deal proceeds to final stages, the decision could become a “test case” for Australia. Can we still attract global capital while also diligently safeguarding our sovereign interests?
The consortium has made commitments to maintain Santos’s headquarters in South Australia, preserve jobs and invest in growth and decarbonisation initiatives. But this is only part of the picture.
The FIRB and the Treasurer will need to consider how the deal would affect:
- national security and critical infrastructure, including ownership and control risk, system integrity and supply chain vulnerability
- the economy (such as on jobs and investment, tax revenues)
- energy security and domestic gas supply
- other Australian government policies, such as climate targets
- the character of the investor
- the complexity of regulation.
The FIRB and the Treasurer must be acutely aware that few other nations have extended the same generosity to foreign investors as Australia has over recent decades.
This generosity, while attracting capital, has also raised concerns about the nation’s control over its vital assets.
The SA government has already signalled it won’t stand idly by if the deal is “not in the interests of South Australians”.
All of this sits in the context of ongoing questions about how little tax is being paid by some multinationals while exploiting Australia’s natural resources.
It is paramount the Australian government makes a forward-looking, informed decision. This should serve Australia’s best interests, rather than those of foreign entities.
Authors: Shumi Akhtar, Associate Professor, University of Sydney
