Meanwhile Santos, which already owns 21% of Eastern Star Gas, will take control of the company via an agreed bid and then sell 20% of its permits to TRUenergy.
TRUenegy, a power generator, currently holds a 4% stake in the target company.
The takeover will lead to Santos holding the largest natural gas reserves in NSW, once the shuffling of Eastern Star’s assets in the Gunnedah Basin, northwest of Sydney, is completed.
TRUenergy gets its hands on potential gas reserves for its nSW power stations bought from the State Government earlier this year.
The directors of Eastern Star Gas have unanimously recommended the deal to shareholders.
Under a scheme of arrangement, Eastern Star Gas shareholders will receive 0.06803 Santos shares for every share they hold.
Based on the last closing price of Santos shares of $13.23 last Friday, this equates to 90 cents for each Eastern Star Gas share, valuing the company at $924 million.
But Santos shares fell by more than 3.7% to $12.74 in trading yesterday, which cut the Eastern Star price to 86.3c.
Eastern Star shares though closed up more than 40% at 84c.
So like Sundance, the market believes this deal will go through, especially with Santos sitting on that 21% stake.
The deal is subject to shareholder and court approval and is expected to be completed by the end of October.
Santos denied a few days ago that it was stalking Eastern Star gas after taking a initial 19.9% stake in the group two years ago, then building that to around 21%.
Yesterday it popped up with an offer for the remaining 80% of Eastern Star Gas
Shares of Eastern Star ended the last Friday week at 59.5c
Santos said that once these transactions were finished it would assume operatorship and own 80% of ESG’s coal seam gas (CSG) permits with TRUenergy owning the remaining 20%.
"The acquisition of ESG builds on Santos’ existing interests in the Gunnedah Basin. Following completion, Santos will have the largest natural gas reserves position in NSW, with 1,216 PJ of 2P reserves and 2,238 PJ of 3P reserves.
"TRUenergy, a leading energy retailer with significant power generation interests in Eastern Australia, represents an ideal partner to develop ESG’s permits in joint venture with Santos," Santos said.
Santos Chief Executive, David Knox, said in yesterday’s statement: “This transaction represents the next major step in Santos’ eastern Australia gas strategy and positions the company to meet the expected increase in demand for natural gas from both domestic power generation and export LNG markets.”
“The acquisition of ESG is a unique opportunity to consolidate our Gunnedah Basin interests and establish the leading position in Australia’s next major natural gas province.”
Santos already has significant coal seam gas assets in Queensland where it is pursuing a multi-billion LNG export project.
It also controls the Cooper Basin gas and oil project which has been running for the best part of 40 years.
It also has LNG and oil interests in the northwestern offshore regions of WA and in several other countries.
Two years ago this month Santos took a stake Eastern Star Gas Ltd and acquired additional CSG acreage in the state under a separate deal.
The total value of the deals was $476 million, including $176 million for Hillgrove Resources’ 19.9% stake in Eastern Star.
Santos also acquired Gastar Exploration Ltd’s 35% interest in various Gunnedah Basin Coal Seam Gas permits and production areas operated by Eastern Star for $300 million.
Santos said the deals will consolidate the leadership position of both Santos and Eastern Star among the 15 companies active in NSW’s CSG sector.
Santos and Eastern Star’s combination of operated CSG permits in the Gunnedah Basin will cover an area of about 63,000 square kilometres, containing resource potential estimated to exceed 50 trillion cubic feet.
