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Dec 7 (Reuters) - Australian oil and gas giants Woodside Energy WDS.AX and Santos STO.AX are in preliminary discussions over a potential merger, the companies said on Thursday, in line with a global trend of consolidation among energy firms.
The combination of two of the country's largest listed oil and gas producers would create a merged energy behemoth with a market value of almost A$80 billion ($52.48 billion) amid rising pressures of decarbonisation, with both the firms facing hurdles around their growth projects.
Woodside said the discussions were confidential and incomplete and that there was no certainty if any transaction would eventuate.
There have been existing pressures to simplify the Australian oil and gas sector, which has seen two recent big-cap mergers with Woodside combining with BHP's petroleum division and Santos acquiring Oil Search.
The discussions between Woodside and Santos come less than 18 months after Woodside completed a merger with BHP Group's BHP.AX oil and gas business, while the company grapples in getting final approvals over its A$16.5 billion Scarborough venture in Western Australia, its biggest growth project.
Both Woodside and Santos had in their annual investor briefings flagged challenging near-term production prospects along with soaring capital expenditure and regulatory hurdles to their ongoing projects.
Santos wants to restart work on the Barossa project once it finishes a fresh round of talks with conventional landowners.
Firms trying to create value through better funding options and cost reductions amid depressed share prices could also be a potential factor behind the energy majors' possible merger.
Woodside has dropped 15.4% this year so far, whereas smaller rival Santos is down 4.3%.
($1 = 1.5244 Australian dollars)
(Reporting by Rishav Chatterjee in Bengaluru; Editing by Rashmi Aich)
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