unsolicited $10.4 bln bid@
* Offer price is 28 pct premium to previous Santos close
* Santos shares jump 20 pct
* Bid is Harbour's 4th since Aug 2017
* Analysts highlight government approval as key risk
* Low-cost oil output, LNG the prize for Harbour (Adds offer background, analysts comment)
SYDNEY, April 3 (Reuters) - Australian gas producer Santos Ltd said on Tuesday it would "engage with" Harbour Energy after receiving a $10.4 billion takeover offer from the U.S. company, its fourth unsolicited bid since August 2017.
The bid, valuing Santos at a 28 percent premium to its last close, would give Harbour access to a recently revived company with a low cost of oil production and stakes in liquefied natural gas (LNG) in Asia-Pacific, where demand is soaring.
News of the latest offer sent Santos shares soaring 20 percent. But even if accepted by Santos this time round, a deal may be fraught with political and regulatory risk: Australia's lingering energy supply crisis has stoked fears that companies that come under foreign ownership may ignore domestic needs.
"For a new player looking to establish itself in LNG, Santos is a uniquely attractive target given its portfolio of LNG assets, growth options and bite-sized price tag," said Saul Kavonic of energy consultancy Wood Mackenzie.
However, "given the highly politicised nature of the (Australian) domestic gas landscape and Santos' key role there, risks to the (potential) deal cannot be ruled out," Kavonic said.
Any deal would be subject to government approvals and will be scrutinised by Australia's Foreign Investment Review Board, which provides recommendations to the government.
The offer values Adelaide-based Santos at US$4.98 per share, or A$6.50, per share, a 28 percent premium to the company's last closing share price of A$5.07. Santos' shares were up 18 percent at 0230 GMT.
Santos said it was Harbour Energy's fourth bid, including two in March at A$6.25 and then A$6.37 a share.
"The Santos board considers that, based on the indicative offer price of A$6.50 per share, it is in the interests of shareholders to engage further with Harbour," Santos said in a statement to shareholders.
The bid from Washington-based Harbour, a private equity-backed firm led by a former Royal Dutch Shell Plc executive director Linda Cook, consists of $4.70 per share in cash and a special dividend of $0.28 per share.
The offer allows for majority shareholders Hony Capital and ENN to retain a stake of up to 20 percent in the new company.
Santos was in considerable trouble just a few years ago, struggling with high debt and low oil and gas <LNG-AS> prices. But asset sales, debt reduction and cost-cutting have led it back to health.
As a result, Santos is seen to be able to produce profitably at average oil costs of just over $32 per barrel, versus actual costs of around $68 a barrel.
The company's focus on LNG, which is seen to be a bigger growth markets in coming years than oil, is also seen as attractive for investors.
Harbour plans to fund the takeover through a combination of debt and equity, with J.P. Morgan and Morgan Stanley underwriting $7.75 billion of debt.
Santos is a partner in the Papua New Guinea LNG export project, which was highly profitable before it got knocked out by a strong earthquake in late February. It is expected to resume operations in April.
Santos also has LNG export assets in Australia and gas fields that are key to the domestic market, which has been roiled recently with gas shortages despite the country's huge offshore resources.
"Any buyer of Santos would need to be prepared for ongoing engagement with government and public scrutiny for many years going forward, which may act as a dampener for other potential suitors appetite to enter the fray," Kavonic said.
Santos said last year it had rebuffed a A$9.5 billion takeover approach from Harbour Energy in August, saying it undervalued the company.
($1 = 1.3053 Australian dollars)
(Reporting by Jonathan Barrett and Paulina Duran in SYDNEY; Additional reporting by Henning Gloystein in SINGAPORE and Aditya Soni in BENGULURU; Editing by Stephen Coates and Aaron Sheldrick)