* Santos rejected bid at A$4.55 a share from Harbour Energy
* Santos shares surge to 15-month high of A$4.97
* Private equity-backed Harbour lines up A$11 bln bid - report
* Papua New Guinea prize could attract counter offers - UBS (Adds Hony no comment, analyst comments)
By Sonali Paul
MELBOURNE, Nov 16 (Reuters) - Australian gas producer Santos Ltd said on Thursday it rejected a A$9.5 billion ($7.2 billion) takeover approach in August, sending its shares up 13 percent on speculation another offer was likely to emerge.
Santos, with stakes in three liquefied natural gas (LNG) projects in a region where gas demand is soaring, said it rebuffed the approach from private equity-backed Harbour Energy as too cheap and has not received a further proposal.
It revealed the August approach after a newspaper reported that U.S.-based Harbour, led by a former executive director of Royal Dutch Shell Plc, Linda Cook, was set to make a bid worth around A$11 billion.
Santos said in a statement it had turned down the “non-binding conditional and indicative” takeover proposal from Harbour at A$4.55 a share, but said it had no current proposal from Harbour and was not in talks with the group.
The Australian Financial Review said Harbour is lining up a bid of around A$5.30 a share, well above analysts’ average price target of A$4.26, according to Thomson Reuters data.
Harbour Energy’s general counsel declined to comment.
“Linda was an architect of Shell’s LNG business in Australia and had overseen its development. It is therefore not surprising that Linda would be interested in getting involved in Australian LNG with Harbour,” a source familiar with the matter told Reuters.
Santos, whose shares hit a 15-month high of A$4.97 on Thursday, also rejected a A$7.1 billion proposal in 2015 from a fund backed by the ruling families of Brunei and the United Arab Emirates, at a time when the company was saddled with nearly A$9 billion in debt.
Analysts said a bid even at A$5.30 was unlikely to be accepted by a company that has since slashed debt, cut costs and is poised to benefit from rising oil and gas prices at its Gladstone LNG project, Papua New Guinea LNG, Australia’s Cooper Basin and offshore northern Australia.
“Santos is a considerably improved business, with a strong management team and soon to be fresh set of eyes as Chairman,” said Credit Suisse analyst Mark Samter.
Santos should only consider “serious discussions” at A$6.50 a share, he said.
The main prize in Santos is its stake in the Papua New Guinea LNG project, run by ExxonMobil Corp.
PNG, considered the lowest cost source of LNG growth, has been a hotbed of takeover activity, which could see other bidders emerge for Santos, analysts at UBS said.
Woodside Petroleum was rebuffed in a bid for PNG LNG partner Oil Search Ltd two years ago, while ExxonMobil swallowed another PNG player, InterOil, this year, after trumping a bid from Total SA and Oil Search.
Santos’ biggest shareholder is China’s ENN Ecological Holdings Co, which together with private equity partner Hony Capital holds 15.1 percent of the group.
They have an agreement with Santos that they must accept any takeover recommended by the Santos board, as long as it is pitched above their average entry price into the company, but are not blocked from making a counter offer.
Hony declined to comment on Thursday and ENN was not immediately available for comment.
Harbour Energy was formed in 2014 by private equity firm EIG Global Energy Partners to make investments outside the United States.
Earlier this year Harbour bought Shell’s UK North Sea assets with Chrysaor Holdings Ltd for $3 billion, making it the largest independent oil and gas producer in the North Sea.
EIG has already invested in Australia, taking a 12 percent stake in junior gas producer Senex Energy.
If an A$11 billion ($8.4 billion) for Santos emerges, it will be the biggest U.S. offer for an Australian company ever and Australia’s second-biggest private equity buyout, according to Reuters data. ($1 = 1.3167 Australian dollars)
Reporting by Sonali Paul; Additional reporting by Gary McWilliams, Ron Bousso, Julie Zhu and Byron Kaye; Editing by Richard Pullin