Australian oil and gas firm Santos Ltd. agreed on Aug. 22 to buy privately held Quadrant Energy for at least $2.15 billion, grabbing what may be the biggest oil find off Western Australia in over two decades.

The deal comes less than three months after Santos' board rejected a $10.8 billion takeover from private firm Harbour Energy and bet instead on CEO Kevin Gallagher's growth strategy.

The Quadrant takeover gives Santos a business that is the leading supplier of gas into the Western Australian market with strong and stable cash flows. It makes Santos the operator of gas assets where it already has a stake, and lowers its average costs.

The big potential prize could be Quadrant's 80% stake in the Dorado oil find, which Quadrant's partner Carnarvon Petroleum recently called a "truly incredible" oil discovery.

"These are exactly the kind of assets we need more of," Gallagher told analysts on a conference call.

Energy consultants Wood Mackenzie estimated the Dorado find could hold above 150 million barrels of oil, albeit without knowing the boundaries of the reservoir.

Quadrant's owners, Brookfield Business Partners, Macquarie Capital, Wesfarmers, mining heiress Angela Bennett and Quadrant management, said now was a good time to sell the business to a long-term owner who could develop its assets.

"With an increasing focus on exploration and development activities, including the assessment and development of the exciting Dorado opportunity, the owners believe Santos is an ideal party to optimize the future prospects of the company," Brookfield and its partners said in a statement.

Analysts congratulated Gallagher on the deal, which was announced a day ahead of the company's half-year results.

"Well done on a great transaction," Merrill Lynch analyst James Redfern said on a conference call with Gallagher.

Santos plans to fund the deal from cash and $1.2 billion in new debt facilities.

Beyond the $2.15 billion base price, it has agreed to pay $50 million for certified resources of 100 million barrels for the Dorado field, and then $2 a barrel extra for reserves of between 100 million and 125 million barrels, and $2.50 a barrel for reserves above 125 million.

"That's an upside outcome that we'll all be happy to write a cheque for if indeed it occurs," Gallagher said.

Santos said the acquisition would boost its annual production by 32%, adding 19 million barrels of oil equivalent (boe) and would lift its reserves by 26%, adding 220 million boe.

Fund managers said Quadrant's sale did not come as a surprise, as Brookfield had been looking several months ago to sell its 48% stake in the business, which it bought with Macquarie from Apache Corp. (NYSE: APA) in 2015 for $2.1 billion.

"This financial year, all else being equal, Macquarie will book an outsize profit for the sale of this asset," said Prasad Patkar, chief investment officer of Platypus Asset Management, a shareholder in Macquarie.

Conglomerate Wesfarmers said in a separate statement it expects to bank a $98 million pre-tax profit on the deal's completion.

Offshore