Usual contenders set to line up for Santos assets: analysts

Western Australia assets are believed to be up for sale by Santos. Picture: iStock

Jadestone Energy, Beach Energy and Hibiscus Petroleum as well as The Carlyle Group are among the parties that are likely to line up for Santos Western Australia-based assets, says MST Financial.

MST Financial analyst Saul Kavonic said in a note to investors that the same parties that looked at Woodside’s Macedon oil and gas asset when it was for sale would assess an acquisition of WA assets owned by Santos.

Believed to be on offer from Santos are domestic gas plants at Varanus Island, Devils Creek and Macedon and gas, condensate and oilfield offshore projects John Brookes and Reindeer fields.

Mr Kavonic said perhaps a price tag of $US500m was achievable, but it was a hard deal to do and would leave Santos with the liabilities of decommissioning the projects.

He said the rationale for the sale was part of a strategy to remove legacy domestic assets to leave a cleaner long life LNG and oil play.

This would have enhanced equity market and mergers and acquisitions appeal to global players.

It would also provide more balance sheet room, as Santos approaches a riskier balance sheet position in 2025 amid execution risks.

Mr Kavonic said a clean exit from Western Australia was probably impossible, as including decommissioning liabilities would leave a material negative valuation.

Santos may be able to sell some of the still producing assets including Macedon, Pyrenees and Varanus Island, but would need to keep a lot of legacy decommissioning liabilities on its books that are well over $US1bn.

It could prove complicated to split out the decommissioning liabilities from its Harriot Joint Venture in the Carnarvon Basin off the coast of Western Australia.

The decommissioning costs of Harriet were $US700m to $US1bn, and if it was included in the sale, the price could be negative.

“We might expect $US400m to $US600m may be achievable for the assets that may be sellable (Varanus Island, Macedon and Pyrenees) once factoring in some of the later life risks,” Mr Kavonic said.

“But Santos would still be left with at least $US1.7bn of WA decommissioning liabilities.”