Woodside Energy has confirmed it is in discussions with oil and gas player Santos over a potential merger which could create a mega-player with a market cap of up to $80 billion. Perth-based Woodside said discussions remained confidential and incomplete — and there was no guarantee the talks would lead to a transaction. “As a global energy company, Woodside continuously assess a range of opportunities to create and deliver value for shareholders,” a statement lodged with the ASX late on Thursday said, adding the company would update the market in accordance with continuous disclosure obligations. In a separate statement, Adelaide-headquartered Santos said it was assessing “a range of alternative structural options with a view to unlocking value” concurrently with its preliminary discussions with Woodside. Any deal is likely to bring significant competition and regulatory scrutiny given the market dominance of both players, especially in domestic gas. Woodside has a market capitalisation of about $57 billion, and is the operator of the North West Shelf Venture and Pluto plants in the Pilbara. At Pluto, the company is building a second LNG Train to process gas from the Scarborough field in the Carnarvon Basin, and is expected to ship its first cargo of LNG in 2026. North West Shelf is the country’s oldest LNG production plant, and is partly owned by BP, Chevron, Japan Australia LNG and Shell. The company also has assets offshore in North America. Santos has a market cap of about $23b. News of its talks with Woodside comes just two weeks after Santos boss Kevin Gallagher declared the company’s shares “cheap” at its investor day. The company has key LNG operations in Queensland and Papua New Guinea. It also runs domestic gas plants in WA. Industry experts, who did not want to be named so they could speak freely, said Santos’ advisers had been shopping the company around for some time. But they had struggled to attract interest. Mr Gallagher’s comments at the investor day hinted that the business was assessing potential break up options, yet appeared to be in early stages. Woodside would be keen for Santos’s LNG assets in Papua New Guinea, one expert said, yet would have ongoing reservations about coal seam gas in Queensland and the high carbon emissions Barossa field which will be pumped to Darwin. Another big question hanging over the deal will be valuation. Santos investors would view the company as undervalued, with shares near their lowest point this year. Rick Wilkinson, chief executive at analysts EnergyQuest, said the strategic rationale of the mega-deal was not yet clear, but could make the combined business a stronger competitor in LNG markets. Mr Wilkinson said a merged company would be able to have greater depth and flexibility supplying LNG cargoes. He said it was not a foregone conclusion the ACCC would wave through a deal. The impact on domestic gas markets could be a big challenge, as the two companies operate some of the biggest production plants for local supply in WA. They are also the two biggest suppliers in the country’s south-east — with Santos’ assets in the Cooper Basin and Woodside in Victoria’s Gippsland Basin. That might mean the deal sees some assets spun off, but it was too early to tell, he said. Mr Gallagher in 2021 was paid a $6m retention bonus by the company to stay in the role, after the Woodside top job became vacant following Peter Coleman’s departure. Woodside’s latest major deal was in 2022 when it acquired BHP’s petroleum assets in a transaction valued at about $40b. Santos in late 2021 acquired Papua New Guinea company Oil Search in an all-scrip deal worth about $20b. Santos took on a raft of assets across Australia, Timor-Leste, Papua New Guinea and North America. Santos’ Barossa project is currently engulfed in a legal stoush with traditional owners, while Woodside’s Scarborough project has also faced similar legal tussles. Woodside shares closed trading on Thursday up 0.4 per cent to $29.97, earlier this week falling to its lowest since February 2022. Santos closed 0.7 per cent higher to $6.83, its lowest since March.