Santos Ltd., Adelaide, signed a deal to acquire the northern Australian assets of ConocoPhillips for $1.39 billion. In addition, Santos will pay a further $75 million contingent on a final investment decision being taken on the Barossa gas field development in the Timor Sea.
The assets bought include operating interests in four major projects:
• 56.9% of the 3.7 million tonne/year Darwin LNG plant.
• 56.9% of Bayu-Undan gas field in the Timor Sea which supplies the Darwin LNG plant.
• 37.5% of the Barossa development project proposal which will supply gas from Barossa via a 260-km pipeline connection to the existing Bayu-Undan gas line to Darwin.
• 40% of the Browse basin (Western Australia) permits WA-315-P and WA-398-P containing the yet-to-be-developed Greater Posesidon gas discoveries.
Santos already has 11.5%, 11.5%, and 25% respective interests in Darwin LNG, Bayu-Undan, and Barossa.
The acquisition has an effective date of Jan. 1. Completion is subject to third-party consents and regulatory approvals.
Kevin Gallagher, Santos managing director and chief executive officer, said the buyout will deliver operated interests in long-life, low-cost gas assets. It also brings operatorship of a strategically located LNG hub with substantial expansion potential and longer-term opportunities to monetize Santos’ material resources in the northern Australian region.
In the immediate future the transaction will increase the company’s pro-forma production by about 25% and reduce its forecast 2020 free cash flow break-even oil price by about $4/bbl.
Gallagher also noted that Santos intends to sell down its new equity in Darwin LNG and Barossa to 40-50% to “create alignment between joint venture participants as well as by optimizing equity levels in our Western Australian assets.”
On that note Santos and South Korean company SK E&S have signed a letter of intent for SK E&S to acquire a 25% interest in Bayu-Undan and Darwin LNG. SK E&E already has a 37.5% interest in the Barossa project and the LOI will further align the two companies towards the development of Barossa.
Santos said it expects to reach a final investment decision on Barossa by early 2020 and bring the project on stream in 2024. Development costs are put at $4.7 billion.
The project is expected to extend the life of the Darwin LNG plant by more than 20 years. Planning approvals are in place for an expansion to 10 million tpy of LNG.
The Greater Poseidon fields in the Browse basin lie on trend to the northeast of the Woodside Petroleum group’s Torosa, Brecknock, and Calliance gas-condensate fields. They are also adjacent to Santos’ 2012 Crown gas-condensate discovery and its 2014 Lasseter gas-condensate discovery both of which are in WA-274-P.
Poseidon and Kronos fields were discovered in 2009-10, while the Boras, Zephyros, Proteus, Pharos, and Poseidon North discoveries were made in 2014. They have an estimated 2C resource of 410 million boe.