Santos, Australia’s third largest oil and gas producer, has signed a $US2.5 billion ($2.6 billion) partnership with Malaysian group Petronas for a liquefied natural gas (LNG) project in Queensland.
This is a deal with so many possible developments over the next few months such as further expansion, Santos’s plans for the billions of dollars it will receive and the eventual ownership of the country’s third biggest oil and gas group.
Under the deal, Petronas will take a 40% stake in the proposed Gladstone LNG (GLNG) project, which will have an initial capacity of 3 million tonnes per annum, with first exports expected by 2014.
The two companies will also own and operate a 450 kilometre pipeline to Gladstone from the coal fields reserves of Santos.
The plant will use coal seam methane gas from the Bowen Basin and surrounding coal fields.
Santos’ plant is one of three or four being developed or planned for Gladstone. Queensland Gas and its partner, BG group of Britain are planning another operation. BG is also bidding for Origin which has the largest coal seam methane reserves in Queensland.
"Both parties are fully committed to the rapid development of GLNG and our partnership also provides clear scope for broader regional cooperation,” Santos acting chief executive David Knox said yesterday.
Santos shares jumped $2.10 or 11% to $21.08. They peaked at an all time high of $21.75 on the news after coming out of a trading halt yesterday prior to the announcement.
On Wednesday, Santos shares finished down 27c, or 1.4%, at $18.98, so obviously there was no leaking of the information..
Santos said in April it was in talks with a number of potential partners for its Gladstone LNG venture in Queensland that will be one of the first worldwide to use coal-seam gas as a fuel.
Demand for LNG is rising rapidly, as the North West Shelf partners can testify, especially Woodside which has already started work on its Pluto project.
There are at least two other major WA LNG projects in the planning stage: the $A15 billion Gorgon project is one, as is the Sunrise project, which also involves Woodside.
The interesting point about Santos is that it has pushed into the Queensland coal seam methane industry at a time when it has been concentrating on oil and gas projects and exploration in Australia, Indonesia and several other countries. And suddenly the Gladstone project (remember Santos tried to take over Queensland Gas Co ) becomes the number one project for the company.
"While Petronas is already a major LNG player, the Gladstone LNG partnership with Santos is strategically very important to us as it provides and excellent growth opportunity to our LNG business,” Tan Sri Mohd Hassan, president and chief executive officer of Petronas, said in the statement.
The Gladstone LNG project will have a capacity of between 3 million and 4 million tonnes a year, with first shipments scheduled for early 2014, according to statements last month by Santos.
Santos’ CEO, John Ellice-Flint quit in March and suddenly there’s a lot of action in Queensland.
The shareholding cap on Santos finally expires in the last quarter of this year and such is the importance of the Gladstone project, and the size of the investment by Petronas in the deal, that you’d be entitled to ask whether Santos’ future has been decided.
”Petronas is the ideal partner to help develop Santos’ coal seam gas to LNG strategy and their investment significantly advances the project,” Santos chairman Stephen Gerlach said in a statement to the ASX.
Santos said Petronas will make an initial cash investment of $US2.01 billion, plus a further $US500 million on reaching a final investment decision for a second LNG train for the project.
Petronas is the third-largest LNG producer in the world and its appearance in Australia comes hard on the heels of the move by BG to try and buy Origin.
Santos also has a stake in a proposed Exxon Mobil-led LNG project in Papua New Guinea and it now sees that buyers and producers are looking at anything source of hydrocarbon or related energy fuel.
Santos says the Gladstone project will only consume around a third of its coal seam gas proven plus probable reserves and less than 11% of Santos’ total proved and probable oil and gas reserves.
The clear inference here is that Santos has room for another project, or a further expansion of the Gladstone plant down the track.
