Energy Group Santos has announced it has agreed to purchase Eastern Star Gas (ESG) in an all-share deal valued at a total $924 million.


The deal will see Santos, which already owned 20.9 per cent of ESG, move into majority ownership of the company and will give the energy group access to the largest natural gas reserves in New South Wales.


The deal will also involve selling 20 per cent of ESG’s permits in the Gunnedah Basin to TRUenergy Holdings for $284 million.


Santos shares dropped 42 cents following the announcement, while ESG shares surged 42 per cent.


"The Eastern Star Gas board believes the Santos proposal reflects the strategic value implicit in Eastern Star Gas's resource position, will immediately crystallise the long term value of the Narrabri gas project and addresses the commercialisation and funding challenges associated with bringing the Narrabri gas project to fruition," ESG said.