With Santos up for sale, a long-term, committed buyer is essential

Santos has a special place in the development of Australia’s oil and gas industry.

Santos, it is speculated, is on the block. The 61-year-old Adelaide-based explorer and producer has a special place in the development of Australia’s oil and gas industry.

It even boasts Australia’s great explorer, the geologist Sir Douglas Mawson, as an inaugural director.

But will Santos be needed when it turns 64?

Founded in 1954, and named after the acronym for South Australia Northern Territory Oil Search, Santos discovered gas in the Cooper Basin in the early 1960s and went on to become a major gas supplier to eastern Australia.

Today, the company is an international player of significance in Australasia’s liquefied natural gas industry with interests in Queensland, the Northern Territory and Papua New Guinea.

The oil price collapse and the recent gas business environment have led to speculation that Santos, a leading onshore operator in Australia, is ripe for the picking, or a bargain for predators.

It is not my intention to defend, promote or dwell nostalgically on Santos. Rather, it is timely to reflect on why Australia needs strong operators in its oil and gas fields and that a wary eye should be kept on the cashed-up predators who see a bargain, especially in the Cooper Basin.

Strong operatorship is about upstream capability and, ultimately, energy security as the east coast gas market tightens.

Santos, like BHP Billiton, Woodside, Oil Search, Origin and Beach Energy, is among Australia’s big players when it comes to exploration, development and production.

Each of these companies is an excellent operator and has accumulated vast knowledge of its respective region of interest, especially in geology and operations, that newcomers would find difficult or impossible to match.

Over its 61 years, Santos has created thousands of careers for explorers, engineers, marketers, financiers, accountants, data analysts, operators, community liaison officers and land access professionals.

This is characteristic upstream operator capability.

In the ebb and flow of business cycles, renewal and retirement, low and high prices, we will inevitably have the cut and thrust of takeovers, mergers, predators, acquisitions and divestments.

That is capitalism at work and it’s a good thing. But new operators in Australia’s oil and gas business need to have a demonstrated capability of growing long-term sustainable businesses, with the right workforce who understand that oil and gas exploration and production is highly specialised, long-term, difficult, expensive and high-risk.

It requires commitment to a long-term, enduring vision and an acknowledgment that oil prices will rise and fall.

Over the years, Australia has been well served by strong operating companies.

BHP Billiton long ago forged an enduring relationship with Exxon in developing the Bass Strait fields, which set the Australian firm on a path to joining the North West Shelf Venture.

Woodside and Shell, in particular, have had a connection for more than 30 years that gave us the North West Shelf and introduced other long-term players such as Chevron, BP, Mitsubishi, Mitsui and, more recently, CNOOC.

Santos teamed up with ConocoPhillips in developing Darwin LNG; with Total in Gladstone; and, along with Oil Search, it has a strong relationship with Exxon in Papua New Guinea’s first LNG project.

And, of course, Origin and Conoco have just brought our third Gladstone LNG project into production.

Industry consolidation has resulted in Shell spending $70 billion to take out BG Group, yet in doing so it has maintained a strong and valuable operator capability on the east coast.

Strong firms play their part in the industry’s future and inevitably create competitive opportunities for local talent, as illustrated by Santos’s $25 million contribution to the University of Adelaide 15 years ago to establish the world-class Australian School of Petroleum. As the oil and gas industry reshapes itself in a new era of lower prices, rationalisation and consolidation are essential.

But we need to be sure that short-term opportunism does not come at the expense of a commitment to the long-term development of our oil and gas resources.

This is particularly the case as we brace for a tighter gas market and higher year-round gas demand on our east coast.

Policymakers, ministers and premiers should have a wary eye on cashed-up predators, and maintain a clear view of the need to keep a strong operator in the Cooper Basin.

It may not be Santos but the operator must be capable of working in a highly regulated, sensitive and demanding environment and not only be playing the short-term game of private equity.

Gary Gray is the opposition spokesman for resources