China's largest private gas company ENN Group is set to become Santos' biggest shareholder with a 11.7 per cent, $1b, stake acquired from Hony Capital.
China's largest private gas company will buy a $1 billion stake in Santos, making it the Australian energy company's biggest shareholder.
Gas distributor ENN Group announced its subsidiary ENN Ecological Holdings will acquire Hony Capital's 11.7 per cent shareholding in Santos for $US750 million ($A996.68 million), while Hony will buy a $US380 million stake in ENN through a private placement.
Santos shares rose 11 cents, or 2.8 per cent, to $4.03 at 1345 AEDT despite the oil price weakening overnight to around $US40 a barrel.
Santos says the increased share holding is subject to approval by ENN shareholders and other conditions.
"Santos welcomes the ENN Group onto the register, as a shareholder with obvious knowledge of the gas business across the region," the embattled oil and gas producer said in a statement on Thursday.
ENN Group, which sold 11 billion cubic metres of natural gas in 2015, said the acquisition was consistent with its strategy to develop into a vertically integrated international natural gas company.
"This introduction to the upstream sector takes us a step forward in our aim to generate value across the entire natural gas value chain, and allows us to learn and build experience," ENN Group chairman Wang Yusuo said.
He said the company was gaining a strategic investor and partner in Hony Capital whose deep experience in China and global outlook could help accelerate growth overseas.
Hony Capital acquired the Santos stake through a share sale by Santos in November, when it outlined plans to raise $3.5 billion through share and asset sales.
Hony raised its stake further in February.
Hony chairman John Zhao said the company chose to invest in Santos because of its strategic position in Australia and synergies with China's rapidly growing energy market.
"Bringing in ENN as a strategic investor will help Santos connect to that opportunity in China, and at the same time we are helping a Chinese company expand internationally," he said.
Mr Zhao said Hony supported ENN's national and international growth.
Last month Santos said it believes it can weather weak oil prices after posting a $2.7 billion full year loss.
Investment bank Morgan Stanley said ENN Group's first exposure to upstream oil and gas could be beneficial longer-term for Santos as it opened new markets in Asia.
"For ENN Group it provides exposure to the upstream oil and gas business and the ability to learn and develop upstream expertise over time," Morgan Stanley said in a research note.
Meanwhile, investment bank UBS said the announcement should provide some comfort to Santos investors that other buyers are willing to pay a premium for Santos stock.