Santos sticks to gas, earmarking $1bn for Narrabri development
Santos says it will remain a gas company for decades to come, eschewing a strategic shift into renewables and electricity.
Santos plans to spend more than $1bn on its Narrabri project over the next five years and says it will remain a gas company for decades to come, eschewing a strategic shift by energy giants into renewables and electricity.
The South Australian producer has received federal and state approvals for the Narrabri coal-seam gas development in NSW and has now started a two-year appraisal process costing $US90m ($122m), drilling 10 gas wells ahead of a final investment decision in the first half of 2023.
It would then move on to a $US650m first-phase development spread over three years, reflecting a staged investment plan and less than a third of the original $3.6bn capital cost previously slated for the overall project.
Santos said that before it gave Narrabri the green light, it wanted to appraise the supplies before it officially recorded gas on a proven and probable basis, known as 2P reserves in the industry.
Santos chief Kevin Gallagher said it had learned lessons from its GLNG project in Queensland, which has had problems over its reserves position. Gas is now expected to start flowing from Narrabri in the first half of 2025.
“We want to take a 2P booking at the final investment decision. That’s a rule we have in Santos. It wasn’t always a rule but we think the big difference between here and the coal-seam gas development in Queensland is that we’re going to appraise the fields first before we make the 2P bookings,” Mr Gallagher said at its annual investor day on Tuesday.
“Some people would like it faster but we’re going to know what we’ve got before we press the button on a development.”
The oil and gas producer also declared it had no plans to follow an emerging trend among energy majors to pivot into adjacent sectors such as renewables and electricity generation.
French energy giant Total revealed plans in May to supply electricity for large industrial customers in a major Australian expansion while Australia has been identified as one of six target markets where Shell will look to create a fully integrated electricity supply business.
“We’re not an electricity company. So we’re not going to make a big announcement about going into renewables. Why? Because I don’t see much money in it, No 1. And No 2 it’s already a very, very crowded space. Electricity markets and retail markets are very crowded. We will continue to operate in fuels,” Mr Gallagher said. “The world is going to need fuels for a very, very long time. We believe the next few decades gas plays a massive part in reducing global emissions.”
Santos revealed a slimmed-down budget for the Barossa brownfield LNG project, which it aims to also start in the first half of 2025 at a gross cost of $US3.6bn compared with an earlier $US4.7bn forecast. A final investment decision is due in the first half of 2021 with the sale of a 12.5 per cent equity stake to Japan’s JERA nearly completed. JERA already owns 6.1 per cent of Barossa.
Barossa will underpin gas volumes for Darwin LNG and follows the Adelaide producer scooping up ConocoPhillips’ northern Australia business for $2bn last year, giving it control of Darwin LNG and Barossa.
Santos had deferred the Barossa project earlier in 2020 over the oil plunge and coronavirus ructions which shook the industry.
“We’ve seen a shutdown of the global economy and demand earlier in the year like I have never experienced in my career and I’m sure none of us have ever seen in oil markets,” Mr Gallagher said.
Santos shares closed at $6.21, up 0.8 per cent.
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