$2bn Conoco deal fires up Santos projects
Energy company Santos plans to kick-start engineering work on the giant Dorado discovery in Western Australia.
Energy company Santos plans to kick-start engineering work on the giant Dorado discovery in Western Australia and make a final investment decision on its Barossa development in northern Australia by early 2020 after its $2bn Conoco buyout this week.
After delivering record production in the September quarter, the energy producer expects to move towards initial engineering and design in early 2020 on the hugely prospective Dorado discovery — billed as the largest oil find made in the state in 30 years — following a successful appraisal campaign this month.
Santos picked up its 80 per cent stake in Dorado in the Bedout Basin after buying WA’s Quadrant Energy in 2018 for $US2.15bn, with junior Carnarvon Petroleum owning the 20 per cent balance in the field.
The acquisition by Santos this week of Conoco’s dominant stake in Darwin LNG and the Bayu-Undan, Barossa and Poseidon gas fields off northern Australia clears the way for Santos and its partners to make a final investment decision on Barossa in early 2020 and process its gas through the existing plant at Darwin.
The Bayu-Undan fields currently feeding Darwin should run out of gas around 2022.
Barossa contains the equivalent of about 800 million barrels of oil and is expected to cost around $US4.7bn to develop. Signing off on Barossa early next year would put it on track to produce its first gas in 2024.
Its blockbuster Conoco deal announced this week will allow it to reduce its free cash-flow break-even oil price in 2020 by $US4 ($5.90) a barrel. Santos currently holds a 2019 break-even forecast of US$31 a barrel. The deal will increase Santos’s earnings by 16 per cent and its pro-forma production by about 25 per cent.
Santos on Thursday delivered a more than 7 per cent rise in sales revenue in the latest quarter due to record production for the period. The energy company said revenue rose to $US1.03bn in the third quarter from $US959m in the April-June period and $US973m in the same quarter last year. It was the second highest quarterly sales revenue on record, Santos said. Production was 6.5 per cent higher on a quarter-over-quarter basis at 19.8m barrels of oil equivalent, and up 32 per cent year-to-date at 56.8m barrels.
“Santos’s third quarter result is largely consistent with our standing assumptions, with a small production and sales beat attributable to stronger WA gas production,” RBC analyst Ben Wilson said. “Revenue was in line with forecasts despite higher than expected sales volumes attributable to product mix skewed more towards WA domestic gas than liquids/LNG.”
Santos last year laid out ambitious plans to nearly double production to more than 100m barrels a year by 2025, leveraging existing oil and gas assets in Australia and Papua New Guinea.
Santos said its average realised oil price was down 11 per cent on the second quarter at $US70.20 a barrel, although the average oil-linked LNG price was higher due to the lagged reference price.
Additional reporting: Dow Jones Newswires