Santos faces gas delay after Barossa appeal loss
The energy producer’s loss of an appeal over insufficient consultation with traditional owners for its Barossa project will impact Australia’s offshore oil and gas industry.
Santos has lost a Federal Court appeal over insufficient consultation with traditional owners for its $US3.6bn Barossa gas project in the Northern Territory, in a decision expected to cause upheaval across Australia’s offshore oil and gas industry.
The ruling upholds a win for Tiwi Island traditional owner Dennis Tipakalippa after he prevailed in a Federal Court case in September that found Santos had erred with the project and not held adequate talks with indigenous people about the development.
The Barossa gas field, 300km north of Darwin, is being developed as a source of gas to keep Santos’ Darwin LNG plant running, with Japanese and South Korean gas companies among investors buying gas from the project.
Analysts and gas producers said the ruling had hiked sovereign risk in Australia with 35 separate environment plans for offshore development affected as a result of the court ruling.
Woodside Energy revealed this week the original ruling has caused delays with its own $16.5bn Scarborough gas project in Western Australia.
“The ramifications of the decision does raise regulatory risk in Australia, which investors should be aware of,” Bernstein analyst Neil Beveridge said.
The decision means investors in Australia’s resources sector face increasing approvals uncertainty, the Australian Petroleum Production & Exploration Association said.
“There is now the risk of more delays and obstacles in the progression of important energy projects, postponing new supply that is needed to deliver energy security, emissions reductions and substantial economic returns for Australians,” Appea chief executive Samantha McCulloch said.
Mr Tipakalippa had sued the national environmental watchdog over its approval of the offshore drilling plans, claiming Santos had not properly consulted the Munupi Clan as a “relevant person” given its spiritual connection to sea country rights.
Santos appealed but the matter was dismissed on Friday in the Federal Court. It may signal companies cannot rely on dealing solely with local land councils and must consult more widely to win environmental approvals.
The original decision forced Santos to suspend drilling activities at the Barossa site, 140km north of the Tiwi Islands, pending a favourable appeal or the approval of a fresh environmental plan.
Analysts had already started to bake in delays following the Federal Court loss on Friday, but Santos said it was reworking the environment plan and faced no “material” delay or cost hit.
“Santos has always sought to meet its consultation responsibilities and is continuing the process of revising the Drilling Environment Plan to address the matters contained in the judgement,” Santos said.
“Further, Santos will now proceed with applications for all remaining approvals in accordance with the guidance provided by the Court. As a result, Santos does not anticipate any material cost or schedule impact, and first gas from the Barossa Gas Project remains on track to be delivered in the first half of 2025.”
Still, Credit Suisse said the gas producer would face a “material delay” in developing Barossa.
“This may cause material delay to Barossa, as a new consultation process is undertaken and a new environmental plan is submitted and assessed by the National Offshore Petroleum Safety and Environmental Management Authority,” Credit Suisse analyst Saul Kavonic said.
“This could potentially take several months or longer, as NOPSEMA need to consider a novel consultation framework and are under heightened scrutiny. Alternatively, the Government could step in and alter regulations to streamline the path forward.”
RBC also pointed to a cost hike and delay to Barossa.
“Santos has previously claimed the ban on Barossa drilling is not on the project critical path, and the added cost has potential to be absorbed by the contingency (typically 15 per cent in the project),” RBC analyst Gordon Ramsay said.
“We estimate a Barossa drilling delay of around three months could cost Santos around $US70m based on moving to a standby rig rate, pullback on contract spending and reduced costs.”
Santos shares closed down 3.8 per cent at $7.15.
The National Offshore Petroleum Safety and Environmental Management Authority said it was “considering the implications” of the court decision.
“NOPSEMA has been applying the Federal Court’s earlier decision by Justice Bromberg and will be applying the appeal decision from now on,” a spokesman added.
By upholding the ruling, it is expected all environmental plans would need to go through a much tougher consultation process, hitting both Australia’s offshore oil and gas players and the nation’s nascent offshore wind industry.
Mr Tipakalippa said Tiwi Islanders wanted their voice to be heard.
“We have fought to protect our sea country from the beginning to the end and we will never stop fighting. Our sea is like our mother — we are part of the sea and the sea is part of us. Santos and every other gas company must take note that this is our country and we must be consulted,” Mr Tipakalippa said.
The Environmental Defenders Office said the decision “sends a message to all gas companies that they cannot sideline First Nations people.” It previously said in September the ruling was a huge victory and would have global implications for consultation with First Nations people on resource projects.
Santos has previously said “consistent with previous practice” it had discussed the proposed drilling activities with the Tiwi Land Council, a representative body with statutory authority under the Aboriginal Land Rights Act 1976.
It also held talks about the proposed drilling activities with the Northern Land Council, the Native Title representative body for the Tiwi Islands.
NOPSEMA had given the green light for Barossa but the September court ruling had found it failed to assess whether the drilling plan demonstrated that Santos consulted with each person that it was required to under regulations.
The offshore authority told Senate Estimates in November that it was now required to apply a far broader definition of “relevant persons” since the Barossa decision.
It revealed it had issued 43 decision notices since the court judgment on environment plans under assessment, requiring companies to consult in line with the court decision.
