Santos takeover bid casts more doubt over Narrabri gas project

A $30bn bid for oil and gas giant Santos has cast more doubt over the company’s $3.6bn Narrabri Gas Project in northern NSW just weeks after a key approval.

The near $30bn takeover bid for oil and gas giant Santos has cast more uncertainty over the company’s $3.6bn Narrabri Gas Project in northern NSW, with more delays expected and the future of the controversial development in serious doubt.

The approach for Santos from a consortium led by Abu Dhabi National Oil Company (Adnoc) subsidiary XRG, and including US private equity firm Carlyle, has come just weeks after the Narrabri project cleared a key regulatory hurdle, with the Native Title Tribunal ruling in favour of granting land leases to Santos despite opposition from traditional owners and environmental groups.

The bidding group says it wants to further develop Santos’ pipeline of gas and LNG projects, both in Australia and the wider region, reinforcing Australia’s position as a “responsible energy partner and contributor to domestic and regional energy security”.

While the deep pockets of Adnoc would provide the financial firepower needed to progress the Narrabri development, MST Financial energy analyst Saul Kavonic said it could be used as a bargaining chip to win over the Foreign Investment Review Board.

“XRG is interested in the major LNG oil assets, they’re not interested in the relatively smaller domestic assets – that includes Cooper Basin, Moomba, Narrabri and Dorado,” he said.

A Narrabri gas project demonstrator protests outside the Supreme Court in Sydney in 2022. Picture: NCA NewsWire / Jeremy Piper

“From a FIRB approval perspective, it might be easier to get the approval for this deal if XRG agree that they will not own these domestic assets so they’ll spin it out to a non-foreign government owned entity.

“And if you look at the consortium which has bid here, it includes Carlyle the private equity firm. And we know that Carlyle’s been interested in domestic energy assets in Australia, so perhaps they’re in this bid in order to carve out those assets for themselves.”

The Narrabri project has become a flashpoint in the national debate over gas supply and energy security.

The Australian Energy Market Operator has warned that the east coast could face gas shortfalls by 2029 unless new sources are brought online. Narrabri could meet up to half of NSW’s gas needs, according to Santos, which has committed to reserving all production from the field for the domestic market.

The company still faces a number of regulatory and political hurdles, including approvals required for a pipeline connection to Australia’s east coast, and ongoing opposition from Indigenous groups and environmental activists.

Santos has previously indicated it would make a final investment decision by this year.

Santos managing director Kevin Gallagher. Picture: NCA NewsWire / RoyVphotography

However Mr Kavonic said the potential change in ownership of Santos would create more delays, and created more doubt over whether the project would go ahead at all.

“I think management’s going to be entirely focused on closing this deal, and then new ownership will need to make a determination on what their priorities will be and what they want to progress,” he said.

“Most people in the market have ruled out Narrabri almost altogether, or at the least expect material further delays because of approvals, priority of capital allocation and funding limitations.

“I’m sceptical that Narrabri is going to gain material traction in the next couple of years, with or without the XRG deal. That’s a personal opinion but I think broadly reflective of what most of the market think.”

Originally published as Santos takeover bid casts more doubt over Narrabri gas project