Australia's Woodside Energy and rival Santos are unlikely to announce any agreement on a proposed A$80 billion ($52 billion) tie-up to create a global oil and gas giant until at least February, said a person with direct knowledge of the talks.
Woodside (WDS.AX) and Santos (STO.AX) last week confirmed speculation they were in preliminary discussions to create a joint entity that would have assets stretching from Australia to Alaska, the Gulf of Mexico, Papua New Guinea, Senegal and Trinidad and Tobago.
Bankers are currently getting data and details on both companies, and work on a potential deal has only just started, the person said on condition of anonymity because the talks are private.
There is no fixed due diligence period or timetable at the moment, the person added.
Many Australians take holidays in December and January, the peak of the southern hemisphere summer, making it harder to complete transactions during the period.
Santos is being advised on the deal by Citigroup (C.N) and Goldman Sachs (GS.N), while Morgan Stanley (MS.N) is advising Woodside, sources confirmed.
Santos, Woodside and Goldman Sachs declined to comment, while the other banks did not immediately respond to requests for comment.
A second person with direct knowledge of the talks said only about 5% of the progress needed has been made so far, and Woodside has been driving the talks between both companies.
Woodside's first approach to Santos was made shortly after Santos' investor day on Nov. 22, the first person said.
Perth-based Woodside, the larger of the two companies, has said the talks with Adelaide-based Santos were confidential and there was no certainty an agreement would materialise. Its market capitalisation stands at A$56.91 billion, while Santos is valued at A$22.1 billion.
In an end-of-year video message to staff on Wednesday, Santos CEO Kevin Gallagher said Woodside had approached his company "a number of times" over the past year or so about a deal, according to a company source who confirmed comments first reported by the Australian Financial Review.
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The proposed tie-up comes amid a wave of consolidation in the global energy sector, which has seen oil majors Exxon Mobil Corp (XOM.N) and Chevron (CVX.N) paying more than $50 billion each to acquire two U.S. producers.
Santos and its advisers have started reaching out to shareholders to get their perspective on a potential deal.
"We've been speaking to bucketloads of investment bankers," said Matthew Haupt, a portfolio manager at long-time Santos shareholder Wilson Asset Management.
"They're all trying to work out a successful price for Santos, the least Woodside can pay that will still make Santos shareholders happy."
Macquarie analysts said on Thursday that Woodside would need to offer between A$8.70 to A$9 per share for Santos based on synergies unlocked from the merger. The longer it took Woodside to convince its shareholders of the deal's merits, the greater the risk it would fail, as happened during its 2015 bid for Oil Search, they added.
Santos shares closed 2.9% higher at A$7.51 on Thursday.
Discussions with Santos come less than 18 months after Woodside acquired BHP Group's (BHP.AX) oil and gas business, and as it grapples to get final approvals for its A$16.5 billion Scarborough liquefied natural gas (LNG) venture in Western Australia, its biggest growth project.
The proposed all-stock Santos deal would give Woodside the advantage of even more considerable scale, both people said, adding it was very hard for the company to find an appropriate acquisition target elsewhere in the world given the industry consolidation already underway.
Santos, meanwhile, is fighting a legal challenge against its flagship Barossa gas project that has stalled the $4.3 billion investment for over a year and rattled investors. The company has also flagged soaring capital spending.
A combined Woodside-Santos would be expected to have access to cheaper funding and more exposure to international investors.
