Santos Ltd. (Nasdaq: STOXY) is continuing its significant U.S. growth, with plans to acquire Houston independent Esenjay Exploration Inc. (Nasdaq: ESNJ) for approximately $80 million, including approximately $24.2 million of debt net of working capital. Adelaide, Australia-based Santos is offering $2.84 per Esenjay common share-a 5.5% premium to its price prior to the offer, through its Santos Americas & Europe Corp. subsidiary. Initial market reaction was positive. Santos' common stock closed 40 cents higher the day of the announcement. Esenjay chairman David W. Berry and two other major shareholders have agreed to tender their 10 million shares, or 52% of Esenjay's total outstanding common stock. Esenjay directors also agreed to accept and support the transaction. The companies expect to close the deal during this quarter. The purchase will increase Santos' U.S. exploration opportunities substantially, boost its reserves and production, increase the number of wells it operates and strategically align with its current U.S. operations. Daily U.S. production will grow by approximately 16 million cu. ft. of gas equivalent (MMcfe). The combination also will give Santos 32 exploration prospects, with an average working interest of 40% (approximately 80% operated), and more than 40,000 net acres of leases in the Frio, Wilcox, Yegua and Deep Vicksburg trends of South Texas (an increase from its current 11,500 net acres in the U.S.). Santos' U.S. proved and probable reserves will grow to 107 billion cu. ft. (Bcf) of gas and 2.25 million bbl. of liquids, with the Esenjay acquisition. Total U.S. production will grow 200% to more than 3 million BOE. John Ellice-Flint, Santos managing director, says, "The U.S., with a 23-trillion-cubic-foot-per-year gas market, provides world competitive opportunities and attractive gas-market fundamentals. In particular, U.S. gas margins generally are better than in Australia." The acquisition follows several onshore gas discoveries for Santos along the Texas Gulf Coast in 2000 and 2001 and a recent purchase of a range of interests and assets in the Frio gas trend. The purchase will continue Santos' reposition of its U.S. operations and is consistent with its strategy to operate assets and concentrate efforts on basins that combined moderate risk with high-reward prospects, Ellice-Flint maintains. The acquisition includes some noncore interests, which Santos expects to divest by year-end, he adds. Santos will finance the purchase with existing cash. Merrill Lynch & Co. advised Santos. Hibernia Southcoast Capital Inc. advised Esenjay. Esenjay has been unable to obtain sufficient capital at an acceptable cost to fully exploit its sizable asset base. Ellice-Flint suggests the application of Santos' fracture-stimulation experience in Australia's Cooper Basin could add value to Esenjay's South Texas assets. "This expertise already has been applied successful to the U.S. assets that Santos currently operates," he says. -Nick Snow