Resources nationalism is emerging as an obstacle to an attempt by the oil-rich middle east emirate of Abu Dhabi to acquire Santos, Australia’s second biggest oil and gas company.

Working with a consortium which includes Carlyle, a specialist U.S. buy-out group, the Abu Dhabi National Oil Company (Adnoc) first proposed a takeover in mid-June priced at an indicative $5.76, a 28% price premium at the time of the bid.

The Moomba petroleum and natural gas plant in the Cooper Basin, South Australia Picture by Brendan Esposito (Fairfax Media via Getty Images)

Fairfax Media via Getty Images

Santos operates the Cooper Basin gas project based at Moomba in central Australia as well as being a shareholder in a number of liquefied natural gas (LNG) export projects.

The $24 billion offer had been months in the planning and was described as a “non-binding indicative proposal” which the Santos directors said they would recommend to shareholders subject to due diligence analysis scheduled for completion on August 8.

Adnoc and Carlyle, working as the XRG Consortium, were granted exclusive rights by Santos to work on its proposed bid but when the deadline arrived the deal had to be extended for two weeks to last Friday (August 22) a date which also passed without finalization of the deal.

Growing Opposition

Initial opposition to the possible sale of a major Australian oil and gas business to a foreign country was muted but has grown louder as concern grows over foreign control of declining domestic gas supply and rising (LNG) exports.

The chances of the bid succeeding took a turn for the worse last week as the second deadline approached with Santos announcing that XRG would be given another four weeks to finalize its offer.

Santos said it was working collaboratively with XRG but also surprised investors by revealing that even if acceptable terms were reached for a binding Scheme Implementation Agreement (SIA) it could take a minimum of another four weeks after that point was reached for XRG to obtain approvals from members of its bidding consortium.

The latest extension to the timetable was accepted by investors who continue buying Santos shares which have risen by 5 cents over the past week to $5.03.

But the prolonged bidding process has started to flush out critics who question whether Santos, under foreign control, would make investments to expand domestic gas supply, or invest where investment returns were more attractive.

An ominous development for the deal is the emergence of the powerful labor movement, led by the Australian Workers Union (AWU) which represents some employees on Santos sites.

The national secretary of the AWU, Paul Farrow, was reported by Australian media earlier today as being critical of the high level of Australian LNG exports being made by foreign companies.

He told The Australian newspaper that companies had been able to sell gas to the highest foreign bidder without restriction.

Fairer Deal

“These multinationals should be kissing the boots of every Australian taxpayer for the run they’ve had over the last 10 years, but it’s time for a fairer deal,” Farrow said.

The AWU is understood to be close to the man who will make the final decision on XRG’s attempt to acquire Santos, the Australian Treasurer (Finance Minister) Jim Chalmers who will be advised by the Foreign Investment Review Board.

Time, which can be the worst enemy of any corporate deal, is not favoring the XRG move on Santos, which earlier today reported a 22% decline in profit for the six months to June 30.

The underlying profit fall from $654 million to $508 million did not prevent management from declaring a small increase in the half-year dividend, which was lifted from 13c to 13.4c.