The acquisition of ESG will make Santos the largest coal seam gas player in NSW.

Santos has said it will on-sell 20 per cent of ESG’s permits in the Basin for $284 million to Eastern Australian energy retailer

TRUenergy.

Chief executive David Knox said the transaction represented the next major step in Santos’s eastern Australia gas strategy and positioned the company to meet the expected increase in demand for natural gas from both domestic power generation and export LNG markets.

“The acquisition of ESG is a unique opportunity to consolidate our Gunnedah Basin interests and establish the leading position in Australia’s next major natural gas province,” he said.

The directors of ESG have unanimously recommended ESG shareholders vote in favour of the sale.

It is still subject to ESG shareholder and court approval.

It is anticipated the sale will be finalised by the end of October.

Santos vice-president Eastern Australia James Baulderstone said Santos would develop its coal seam gas business in co-operation with farmers and existing rural businesses in the region.

“We are aware of a number of important issues raised by local farmers and other land users concerning the longer term development of the Gunnedah Basin, one of which is the proposed Narrabri to Wellington pipeline,” he said.

“We are confident we can address community concerns in that regard and we will be explaining these plans to the community in the near future, once we have completed our review of Eastern Star’s plans.”

He said staff from Eastern Star Gas would be offered positions with Santos.

Eastern Star Gas chairman John Anderson said Eastern Star Gas had a world class resource and a high quality management team underpinning the Narrabri Gas Project but that continuing to develop and commercialise that resource independently entailed a number of challenges, including funding.

“While the company is confident that those challenges can be successfully met, we recommend the Santos proposal as it provides shareholders with the chance to crystallise Eastern Star Gas’s long term value now with the opportunity to continue to participate in the development of Eastern Star Gas’s assets through consideration in the form of Santos shares,” he said.