R8��������

(Bloomberg) – Woodside Energy Group Ltd. and Santos Ltd. have ended tie-up talks that would have created an Australian gas export powerhouse, leaving the smaller Adelaide-based producer under pressure to consider asset sales and other options to boost its lagging valuation.

Santos shares tumbled as much as 8.6% in Sydney, before paring losses, following confirmation that the two oil and gas producers had failed to agree on a price, drawing a line under weeks of merger discussions to create an entity with a combined market capitalization of about $56 billion. Woodside rose to its highest level since November.

Adding Santos’s portfolio would have positioned Woodside as one of the biggest liquefied natural gas (LNG) producers in the Asia-Pacific — a region poised for further demand growth. However, executives had warned any pact would need to reflect the low premiums in recent oil and gas sector deals.

“Santos’s board and management are now under even more pressure to fix the wallowing share price,” said Harriet Kater, a special adviser at the Australasian Centre for Corporate Responsibility, which holds shares in both companies.

Santos had flagged in November it was working with advisers on potential changes to strategy after seeing its market valuation lag behind peers. After announcing on Wednesday that “sufficient combination benefits were not identified to support a merger,” Santos said it would continue to review “options to unlock value.”

One route previously identified by investors is to separate its LNG assets — prized for their proximity to Asia’s growing demand centers — from other operations in Australia and Alaska. That could attract large suitors eager for LNG growth.

Santos has “some world class assets and I think value will be realized whatever form it comes by: sales of assets, or a separation,” said Matthew Haupt a portfolio manager at Wilson Asset Management, which holds shares.

Still, with no other suitors coming forward with alternative proposals for Santos, and a development pipeline that will add to capital expenditure and project risks, the outlook is challenging, according to Saul Kavonic, an energy analyst at MST Marquee.

“Santos faces a tough slog ahead,” he said, adding sales or a breakup option would be difficult to achieve.

Woodside, which has lifted production over the past two years and is developing projects including the Scarborough operation, continues to see favor growth in LNG. “The global LNG sector provides significant potential for value creation,” Chief Executive Officer Meg O’Neill said in a statement, adding the company would “be disciplined in our approach to mergers and acquisitions.”

LNG is expected to play a long-term role in the energy transition, particularly as developing nations seek to meet rising power demand and limit reliance on coal.