Jim Chalmers faces a mission-critical national security test
Santos controls material critical gas infrastructure on the east and west coasts – including vital gas infrastructure supplying the markets on the south-east coast of Australia.
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First on Santos' critical infrastructure list is the Cooper Basin that houses strategically important assets at Moomba in South Australia which are pivotal to the processing and transport of natural gas and ethane around the east coast of Australia.
Next is Santos' stake in Queensland's major LNG project, GLNG, supported by substantial underground storage facilities suitable for natural gas, ethane and carbon dioxide. Plus Santos is a big player in the Western Australian market.
Whether to entrust these assets to any foreign government is a big decision.
None of this should suggest that this bid by XRG – a subsidiary of Abu Dhabi National Oil Company and including Abu Dhabi Development Holding Company and US-based investment company Carlyle – is doomed to fail.
But the fact that Santos' shares have not risen to anywhere near the $8.89 share-offer price reflects both uncertainty and the length of time this deal will take until completion.
There is a conga line of other approvals this deal must pass through, including regulators from PNG and Alaska – where Santos also holds significant assets.
And everyone with the ability to block this deal will be looking to extract (or legally extort) some advantage.
The bidder has already committed to keeping the Santos name and its head office in South Australia.
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But that might be just the first of many hoops that need to be jumped through.
The Australian government could also demand conditions to aid the domestic gas market.
'This is a huge opportunity for Labor to extract domestic gas concessions and remedy their failure to impose [gas] reservation a decade ago,' according to Kavonic.
Kavonic also says pressure may be applied by the government to spin out some of Santos' domestic gas assets into a company controlled by Carlyle, which is the privately owned US member of the XRG consortium.
The only cohort that won't be playing politics with this deal is the Santos board and shareholders.
This company has had the 'for sale' sign plastered on it for so long that it's faded in the sunlight.
Plenty of tyre-kickers have come and gone, and experts reckon that the current bidding consortium is the only party left in the auction room.
This represents the third overture this year – with the first two being rejected by the board for under-balling on price.
The new bid has landed at a price that Santos shareholders haven't seen in more than 10 years, so there is understandable excitement that their ship has finally come in.
Shareholders should be very happy with the job the Santos board has done to attract a party willing to bid against itself. It is what investment bank advisers dream about.
Now comes the arduous job of cutting deals with regulators that want to extract a few pounds of flesh.
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