Santos sees momentum building for Australian LNG projects revival

Australian gas giant Santos has given the go-ahead to a $300 million drilling project in the Timor Sea, marking its first new investment decision since last year’s oil and gas price crash.

As prices for liquefied natural gas (LNG) cargoes in Asia bounce back from multi-year lows, Santos managing director Kevin Gallagher on Tuesday said the company would begin a drilling program involving three wells at the Bayu-Undan joint venture to develop additional reserves and sustain export volumes of the super-chilled fuel from its Darwin LNG processing plant.

Santos will begin drilling new gas wills using the Noble Tom Prosser jack-up rig.
Santos will begin drilling new gas wills using the Noble Tom Prosser jack-up rig.

The green light for the drilling program, off the coast of Timor-Leste, comes after Santos and other ASX-listed oil and gas companies were forced to slash their spending budgets, cut back drilling and halt growth plans last year as coronavirus restrictions began hammering energy demand and prices.

Mr Gallagher said the Bayu-Undan drilling program announced on Tuesday would add more than 20 million barrels of oil-equivalent in reserves and support export volumes in the coming years by reducing the downtime the Darwin LNG plant would experience before Santos’ long-delayed Barossa gas field comes on steam. Santos’ $5 billion Barossa project was previously put on hold as part of a spending pull-back to weather the enormous pressure of COVID-19.


“We are delighted to be able to pursue an opportunity that wasn’t on the table 12 months ago, which will optimise field recovery, extend production and deliver significant value to both the Bayu-Undan joint venture and the people of Timor-Leste,” he said.

Santos became operator of the Bayu-Undan joint venture in May last year through its $1.6 billion acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets.

Australia’s exports of LNG, a fuel widely used in power generation, heating and manufacturing, are forecast to drop sharply from nearly $50 billion to $31 billion in 2020-21 due to weaker prices and export volumes. But benchmark prices have begun to recover in Asia, rocketing from historic lows under $US2 per million British thermal units to back above $US12.

Analysts are now predicting the recovery in Asian LNG demand should offset the revenue hit from low oil and LNG prices and allow producers such as Woodside, Origin Energy and Santos to revive their capital spending and reach final investment decisions for significant LNG projects suspended during 2020.

“After doing everything possible to tighten belts this year, Australian operators will open their wallets and start spending,” Wood Mackenzie senior analyst Daniel Toleman said.

“The backlog of final investment decisions will begin to clear as a fresh round of projects are sanctioned.”

Wood Mackenzie expects at least $US11 billion ($14 billion) of new Australian gas projects to reach a final investment decision in 2021.

Mr Gallagher said the Bayu-Undan drilling project “builds on the momentum” toward Santos’ hopes of sanctioning the Barossa development in the first half of this year. In a major development in December, Santos and a wholly owned subsidiary of Japan’s Mitsubishi Corporation inked a 10-year supply deal for Barossa LNG.

“It has been a big couple of months for the Barossa project and Santos’ role in the Territory,” he said.

The Bayu-Undan wells will be drilled using the Noble Tom Prosser jack-up rig, the company said on Tuesday. First production from the new wells is expected in the September quarter.

Business Briefing

Start the day with major stories, exclusive coverage and expert opinion from our leading business journalists delivered to your inbox. Sign up for the Herald‘s here and The Age‘s here.

Most Viewed in Business

Source: Thanks