Australian energy companies Woodside Energy Group and Santos announced last Thursday they are in preliminary talks regarding a potential merger, which could mark a significant consolidation in the global oil and gas sector, Reuters reported.

The combined market value of the two companies stands at approximately $52 billion. The potential merger comes amidst challenges faced by both companies in their domestic projects, including opposition from Indigenous communities and increasing pressure for decarbonization.

Woodside recently reduced its 2023 production outlook and missed third-quarter revenue estimates. The company also received an order from the Australian federal court to seek new approval for seismic blasting under the seabed for its $12 billion Scarborough gas project after a legal challenge by an Indigenous woman.

Santos is facing legal challenges from a traditional landowner from the Tiwi Islands regarding undersea pipeline works for its $3.6 billion Barossa gas project. Additionally, the company has forecast lower output in 2024 due to the end of life for its Bayu-Undan gas field and declining production at its West Australian offshore field.

Woodside currently operates major liquefied natural gas (LNG) export facilities in Australia, including North West Shelf and Pluto LNG, and three floating production storage and offloading (FPSO) facilities in Western Australia. The company also owns a stake in the Chevron-operated Wheatstone LNG project.

Woodside is involved in oil-gas joint ventures in the Bass Strait and partners with Santos at Macedon, a gas field off Western Australia. The company has been looking to sell off ageing domestic oil and gas assets with declining production and high decommissioning costs.

Woodside received approval for its Scarborough and Pluto Train 2 projects in Australia in 2021, with the first LNG cargo expected in 2026.

The potential merger of Woodside and Santos would create a major player in the global oil and gas industry, with a significant presence in Australia and other key markets. However, the deal is still in its early stages and faces regulatory hurdles and potential challenges from stakeholders.