Santos is not letting grass grow near any of its plans. The company is a hive of activity, no doubt stimulated by the impending completion of the review of the 15 per cent ownership cap by the South Australian Government.
Earlier this week, it confirmed the completion of the sale of US interests for some $70 million and yesterday revealed plans for yet another Liquefied Natural Gas (LNG) project.
This one has been suggested for the Central Queensland industrial city of Gladstone.
It will be the third LNG project Santos wants to become involved with: it is already in the Darwin LNG project and supports a PNG LNG project (with Oil Search and other partners).
Now it sees a Gladstone LNG plant.
Santos said in a statement to the ASX yesterday that it was proposing an LNG plant supplied by coal seam gas at a cost of up to $7 billion.
The idea of the plant would be to take advantage of higher export prices for the LNG. It would be another way of using the company's methane gas reserves in Queensland which would otherwise take longer to bring into production if the company was to rely on domestic demand.
Santos said the proposed Gladstone project would have a capacity of 3-4 million tonnes per year of LNG and a final decision may be made by the end of 2009 to allow deliveries to start in early 2014.
Santos says the project has the strong support of the Queensland Government (which is nosurprise).
Santos says it produces about a quarter of Australia's natural gas from coal seams, which until now has been used to supply local customers. Prices for LNG supplied for export are higher than natural gas prices in the domestic market.
Santos tried late last year and in the first quarter of 2007 to convince Queensland Gas shareholders to agree to a takeover offer that always seemed too cheap and underweight. QGC accepted a deal from AGL which made the latter the major shareholder with 27.5 per cent at $1.60 a share. QGC shares were trading at $3.04 yesterday. Santos should have been more generous.
Santos CEO, John Ellice-Flint, said: "Gladstone LNG is a natural extension of Santos's core gas business. Santos is committed to building a diverse LNG supply portfolio.''
Shares in Santos rose as much as 36 cents to $14.36 on the ASX after the statement was released, but the run faded and the shares ended 6c up at $14.06.
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Santos said in its statement that the announcement follows extensive feasibility and site selection studies over the past 18 months, which have culminated in an agreement with the Port of Gladstone Authority for Santos to secure a site to construct an LNG export facility on Curtis Island.
Mr John Ellice-Flint said this was "a landmark project for Santos which will underwrite the continued growth of the coal seam gas industry in Queensland and is a major step forward in the development of a new export industry for the state.
"Gladstone LNG is a natural extension of Santos' core gas business, in line with our strength as Australia's largest producer of domestic natural gas, including coal seam gas.
"Queensland has the majority of Australia's abundant CSG resources. Santos' CSG reserves and contingent resources currently total over 5,000 petajoules with significant upside potential.
"Constructing and operating major onshore gas installations is a core competency for Santos, and we are already involved in the LNG industry by virtue of our interests in Darwin LNG, the most recent greenfield LNG project constructed in Australia.
"Conceptual engineering and preliminary financial analysis have confirmed that Gladstone LNG will generate acceptable rates of return for shareholders, whilst at the same time providing significant benefits for Queensland in terms of employment and royalties," he said.
Key parameters for the proposed facility are:
• A single processing train of approximately 3-4 million tonnes per annum of LNG; • Capital costs in the range of A$5-A$7 billion, including upstream field development, liquefaction plant and associated infrastructure. Half of the investment is expected to be in the Gladstone plant, with the other half in regional Queensland's Bowen and Surat Basins;
• Final Investment Decision by the end of 2009 to enable first cargoes to be exported in early 2014;
• Gas supply of 170-220 PJ per annum sourced from Santos' CSG fields in Queensland's Bowen and Surat Basins.
Santos said the next steps include:
• Appointment of a suitable engineering contractor to undertake detailed engineering studies;
• Continued accelerated exploration and appraisal drilling program to prove up additional CSG reserves;
• Completion of planning and environmental studies, including community consultation processes;
• Preliminary LNG marketing.
Santos said it will invest approximately $150 million in expanding its CSG business this year and subject to progress and Santos Board approvals, it expects to invest a further $200 million to move the project forward during 2008.
