The required majority of shareholders of Papua New Guinea's Oil Search have voted in favour of the planned all-share merger with Australia's Santos, which has made certain new commitments to the PNG government to help settle concerns about the transaction.
The merger will create a company with a market capitalisation of more than A$20 billion, making it one of the largest regional oil and gas companies.
Oil Search said the merger was approved on 7 December "by the requisite majority of Oil Search shareholders".
Under the scheme of arrangement, Santos will acquire all of the shares in Oil Search in return for the issue of new Santos shares to Oil Search shareholders.
Oil Search shareholders will own 38.5% of the merged entity and Santos shareholders will own 61.5%.
Prior to today's vote, shareholders were told the Oil Search board had "identified several reasons why you might vote in favour of the scheme and various reasons why you might vote against it".
Grant Samuel, the independent expert hired by Oil Search, had suggested that Oil Search shareholders would be contributing a greater proportion to the underlying value of the merged group than the 38.5% which they would receive.
However, Grant Samuel also noted "the strategic, commercial and funding benefits of the merger", concluding that Oil Search shareholders were likely to be better off if the merger proceeded.
Implementation of the scheme is now conditional on approval of the PNG Independent Consumer and Competition Commission; and the National Court of PNG approving the scheme when it sits on 9 December.
Santos said last week it has made new pledges to the PNG government as part of the merger.
Critics of the combination had argued that Santos' plan to delist Oil Search from the PNG and Australian Stock Exchanges would cause destruction to PNG's capital markets, as well as disadvantaging PNG shareholders.
In response, Santos intends to seek to establish a secondary listing on the PNG exchange for an exempt foreign listing.
"This will importantly allow PNG-based shareholders to trade their Santos shares on the local exchange," said Santos chief executive Kevin Gallagher, adding there are in excess of 4000 Oil Search shareholders in PNG.
Other new pledges that Gallagher said have been made include:
• no planned employee job losses for the PNG-based national workforce;
• a PNG national having a seat on the Santos board;
• maintaining the work of the Oil Search Foundation, which is a not-for-profit organisation established for charitable purposes in PNG;
• establishing the leadership of the PNG business in-country;
• implementing a capability building programme for high potential PNG national employees;
• maintaining a focus on exploration activities in PNG;
• identifying and developing carbon abatement projects in PNG, and pursuing future clean fuels opportunities;
• identifying and pursuing CCS opportunities in PNG.
LNG growth opportunities
Oil Search has been in existence since 1929, has its headquarters in Port Moresby, employs about 650 PNG citizens including 25% women, and has been a dynamic and influential company.
Oil Search is the operator all PNG's oilfields and it has major shareholdings in the PNG LNG project, and the proposed Papua LNG and P'nyang projects. Oil Search also has undeveloped oil reserves in Alaksa, but Santos' intentions for Alaska are not yet clear.
It is the PNG asset base that attracted Santos, and the decades of LNG production those assets can underpin.
As well as Papua LNG and P'nyang, there are significant undeveloped PNG gas resources including Muruk and Juha that can be tied in to the PNG LNG facilties, and a host of discoveries in the Elk-Antelope area including Raptor, Triceratops and Bobcat as future feedstock for Papua LNG.
Oil Search has also mentioned the significant remaining exploration potential in the Southern Highlands near its existing fields and discoveries, and in the Elk-Antelope region.
Santos has been an investor in PNG's upstream sector for about four decades.
"We have a proud history in PNG. We know PNG and PNG knows us," says Gallagher. "This merger will create an entity that will have the balance sheet to fund major projects in PNG and will facilitate the creation of a highly skilled workforce and progress the long-term wealth and prosperity of the people of PNG."