Santos steps on gas with $2.2b ConocoPhillips buy

Oil and gas group Santos will gain control of the Darwin LNG plant after buying a range of northern Australian assets for $2.2 billion from United States giant ConocoPhillips, as chief executive Kevin Gallagher shifts further into growth mode three years after rescuing the company.

ConocoPhillips becomes the second big US player to sell down assets in the volatile Australian gas market, after ExxonMobil said last month it would seek a buyer for all its Bass Strait oil and gas operations in a move that could trigger a multibillion-dollar shake-up of the east coast industry.

Tensions are rising between manufacturers and gas producers over the structure of the Australian market. It has become much more export-focused since late 2015 after $80 billion was invested in three large LNG plants near Gladstone in Queensland, leading to accusations that domestic users are second in line, prices are higher than they should be and a raft of closures threatens the industry.

Santos announced on Monday it would pay $US1.39 billion ($2.05 billion) to buy the ConocoPhillips assets in northern Australia, along with an extra payment of $U$75 million, contingent on a final investment decision being made on the $7 billion-plus Barossa natural gas project, about 300km north of Darwin. A decision on a go-ahead is expected in early 2020.

Santos shares jumped by almost 7 per cent by noon on Monday to $7.93 as investors enthused about the logic of the deal and the price. The stock closed up 5.7 per cent at $7.85.