SYDNEY • Harbour Energy Ltd made a final sweetened bid of US$10.9 billion (RM43.6 billion) for Santos Ltd, claiming support from the Australian oil and gas producer’s biggest shareholders.

US-based Harbour improved its bid 4.6% and indicated it could be raised further if Santos expanded its oil hedging programme, the Australian company said in a statement yesterday. At US$5.21 per share, or the equivalent of A$6.95 (RM20.85), it’s an 11% premium to last Friday’s close.

Santos continues to trade below the offer. Shares in Sydney rose as much as 3.4% to A$6.46 after the bid was revealed, then pared those gains following Harbour’s announcement that it was “best and final”, trading up 1.7% as of 1:50pm local time yesterday. The benchmark S&P/ASX 200 Index was little changed.

Harbour’s takeover blitz has faced criticism that it hasn’t accounted for the roughly 12% gain in Brent crude future since the original offer on March 29. As well, there are concerns that foreign investment review may sink any deal as Australia’s struggle to ensure sufficient natural gas supply has raised sensitivity over control of domestic producers.

“We’ve still got uncertainty around the pricing environment around oil,” Adrian Prendergast, a Melbourne-based analyst at Morgans Financial Ltd, said by phone. “Given that uncertainty, we think it’s a really good offer.”

The stock is trading below the bid largely because it’s not clear how the Santos board views the proposal, and any agreement still needs foreign investment approval in Australia, he said.

The revised offer is conditional on Santos undertaking additional hedging of oil-linked production in 2018 of about 30% and changes to hedging in 2019, according to the statement from Santos. Harbour could increase the offer to US$5.25 per share if Santos agrees to hedge 30% of oil-linked production in 2020, according to statements from both companies. Typically, producers use hedging programmes to lock in future sales through derivatives linked to the price of oil.

The additional oil production hedging requirement will enable Harbour to reduce transaction costs and increase the offer price, Harbour said in its statement, adding that it’s not required to support its financing. The offer also has support of ENN Group and Hony Capital, it said. The Chinese companies hold a combined 15.1% of Santos. — Bloomberg