The start of work on the multi-billion-dollar Barossa LNG project off northern Australia has moved a step closer with Santos revealing that it has awarded the project’s single largest and most important contract.
Santos said yesterday it had awarded a contract for the construction, connection, and operation of the floating production and storage offtake vessels for the Barossa project, planned offshore north of Darwin.
Santos is also currently finalising an agreement to sell a 12.5% stake in Barossa to DLNG partner JERA and has a binding agreement to sell 25% interests in Bayu-Undan and DLNG to SK E&S.
Analysts said yesterday that the sell-downs are contingent on an investment greenlight at Barossa, which is now expected in the next few weeks.
These sell-downs are contingent on an financial investment decision at Barossa, which is now expected in the coming weeks.
The contract was awarded to international vessel builder and operator BW Offshore (BWO) and is subject to that final investment decision on Barossa.
Santos said it represents the largest capital expenditure component of the approximately $US3.6 billion ($A4.7 billion) Barossa offshore gas and condensate project to backfill Darwin LNG.
“The contract contains an upfront pre-payment and an option to buyout, and achieves an overall reduction of approximately US$1 billion in capital expenditure, Santos said.
Santos CEO Kevin Gallagher said in the statement that through extensive and intensive contract review processes, the company had achieved a significant financial saving as well as significant energy efficiency improvements.
“The decision to proceed with an FPSO services contract maintains a low ongoing operating cost while engineering enhancements have significantly reduced the project’s carbon footprint,” Mr Gallagher said.
“This reduction in capital expenditure makes Barossa one of the lowest cost of supply projects in the world for LNG and will provide new supply into a tightening LNG market.”
The FPSO will be built in South Korea and Singapore before being towed and permanently located in the field where it will process natural gas prior to its transport via pipeline to Darwin LNG. Condensate will be stored on the FPSO for periodic offloading.
Barossa will provide the next source of gas for the existing Santos-operated Darwin LNG plant once current reserves from the Santos-operated Bayu-Undan field in the Timor Sea have been depleted.
Mr Gallagher said the awarding of this contract builds on the momentum of the Barossa project over the past six months and is the final milestone ahead of FID.
“At the end of last year, we announced that transport and processing agreements had been finalised for Barossa gas to be tolled through Darwin LNG and we signed a long-term LNG sales agreement with Diamond Gas International, a wholly-owned subsidiary of Japan’s Mitsubishi Corporation,” he said.
Santos shares fell 1.5% to $7.05 yesterday, not because of this announcement but a near 7% slump in global oil prices on Tuesday.
