Adnoc's XRG Arm Walks Away From US$18.7 Billion Santos Deal

As many expected, a consortium led by XRG, the overseas investment arm of Abu Dhabi National Oil Co. (Adnoc), has withdrawn its US$18.7 billion nonbinding cash offer for Australian independent Santos.

Energy Intelligence understands that the consortium opted to not pursue the deal due to its views that Santos was acting as an "inflexible and unrealistic negotiator," not concerns around domestic political opposition as some observers suggested might nix the deal.

"Politics was absolutely not a consideration. It was purely a commercial reason,” a source familiar with the negotiations told Energy Intelligence, adding that the political and regulatory backdrop surrounding the proposed deal was "constructive and supportive."

The XRG consortium announcement came out after the close of business in Australia, and there was no regulatory or media announcement from Santos as Energy Intelligence went to press.

The source familiar with the negotiations noted that the Abu Dhabi-led consortium held concerns around value, tax and the timeliness of Santos' disclosures.

For example, Energy Intelligence understands that XRG was not pleased to find out about a long-running methane leak at the Darwin LNG export facility from media reports. That disclosure could potentially delay the start of backfill supply to the plant from its Barossa gas project.

The source also noted that Santos asked late in the process for the consortium to pay capital gains tax due on the deal, an item typically borne by existing shareholders in a takeover.

“Following a comprehensive evaluation and taking into account all commercial factors and the terms of the Scheme Implementation Agreement [SIA] required by the Santos board, the consortium has determined that it will not be proceeding with the proposed transaction,” XRG said in a statement on Wednesday.

“It's not the outcome the consortium was hoping for," the source said.

Back to Square One

The bid withdrawal will come as a blow to both companies.

Santos has long been looking for ways to increase what it sees as an undervalued share price, including via M&A. Early last year, local competitor Woodside Energy ran the rule over the Adelaide-based oil, gas and LNG firm and decided against a merger, preferring instead to invest in US LNG.

As speculation mounted that XRG would pull out, analysts suggested failure to secure a deal would lead to a shake-up of Santos' board and the likely replacement of CEO Kevin Gallagher.

Go-it-alone options for Santos will likely center on restructuring around its LNG assets and the sale of gas assets in the Cooper Basin, in Western Australia, and perhaps the sale of all or part of other domestic projects, such as Narrabri and the delayed Dorado oil project.

XRG, which was set up in late 2024, suffered a separate M&A setback in late July when the European Commission opened an “in-depth” probe into its $13 billion December 2024 agreed acquisition of German chemicals firm Covestro.

The other two members of the XRG consortium are US private equity firm Carlyle and the Abu Dhabi Development Holding Co. state investment fund. In June, Carlyle formed a strategic partnership with Diversified Energy that aims to invest up to $2 billion in buying mature, low-decline oil and gas assets in the US.

Revised Deadline Loomed

The XRG consortium's original Jun. 16 offer of A$8.89 (US$5.76 on the day) per share represented a 28% premium to the previous closing price. Santos' stock closed at A$7.65/share in Sydney on Wednesday.

Doubts as to whether the Santos deal would go ahead increased after XRG asked for more time, with the original six-week exclusivity period extended to Sep.19.

Santos has stakes in several world-class assets, notably in the Exxon Mobil-operated PNG LNG facility in Papua New Guinea. Exxon has preemption rights there, although a full corporate takeover would likely sidestep them. Santos also has a minority stake in TotalEnergies’ stalled Papua LNG project, which is now targeting a final investment decision in the first quarter of 2026.