Santos has agreed to pay up to $US1.44 billion ($A2.12 billion) for ConocoPhillips’ northern Australia business, an acquisition Australia’s second-biggest independent oil and gas producer says will save it as much as $110 million a year.
Santos said on Monday it will pay $US1.39 billion up front for operating interests in the Darwin LNG, Bayu-Undan, Barossa and Poseidon gas assets, with another $US51 million contingent on a final investment decision on Barossa.
“This acquisition delivers operatorship and control of strategic LNG infrastructure at Darwin, with approvals in place supporting expansion,” Santos managing director and chief executive Kevin Gallagher said.
The acquisition will save Santos $US50 million to $US75 million a year ($A73.7m to $A110m), the company said.
At 1238 AEDT, Santos shares were up 6.5 per cent to a nearly five-year high of $7.915
Santos currently holds a minority stake in both Darwin LNG and the Barossa Project, a gas and light condensate field located about 300 km north of Darwin in East Timor waters.
Post-acquisition Santos will become operator of both projects, holding a 68.4 per cent stake in Darwin LNG and a 62.5 per cent stake in Barossa, but Mr Gallagher said Santos planned to sell down equity to around 40 to 50 per cent.
South Korea’s SK E&S Australia, which holds a 37.5 per cent share in Barossa, has signed a letter of intent to purchase a 25 per cent interest in Darwin LNG and is “highly supportive” of the transaction, Mr Gallagher said.
Barossa is the leading candidate to backfill the Darwin LNG when the Bayu-Undan gas field 500km northwest of the NT is exhausted, likely in 2022.
Santos wants to have most of the gas from Barossa contracted for the next 10 years before signing off early next year on developing Barossa.
So far Mr Gallagher said there’s been a “lot of appetite” for the gas, given the project is located so close to North Asian demand.
The plan is to develop Barossa using sub-sea wells tied back to a floating production storage and offloading supertanker for processing, Santos said.
A 260km gas pipeline would then transport gas to the Bayu-Undan pipeline for onwards transport to Darwin LNG, where it would be cooled until it liquefies at minus 161C for transport to Asian markets.
Santos plans to fund the transaction through its $US1.2 billion cash on hand and US$750 million in acquisition debt.
ConocoPhillips executive vice president and chief operating officer Matt Fox said while the company was proud of its work in western Australia, the sale “allows us to allocate capital to other projects that we believe will generate the highest long-term value to ConocoPhillips.”
Mr Gallagher said Santos has no current plans to develop the Poseidon gas field, located in waters 500m deep some 480km north of Western Australia.
Mr Gallagher said Santos looked forward to welcoming ConocoPhillips’ Australia-West employees to Santos.