'Game changer': Santos to invest $400m in Queensland gas project
Santos will invest more than $400 million in its Arcadia gas development in Queensland’s Bowen Basin to boost its Gladstone LNG project.
The $400 million investment is in addition to the nearly $1 billion Santos said in February it would spend to develop new gas fields in the Surat and Bowen basins to provide additional gas for GLNG.
“This initial phase of the Arcadia development will at its peak deliver in excess of 75 terrajoules a day to the gas supply for the GLNG project. This is great news for both the domestic gas market and our LNG exports,” Santos chief executive Kevin Gallagher said.
It is forecast to start production late next year and produce around 27 petajoules of gas by 2022.
"If you want to put downward pressure on gas prices, reducing the cost of supply is a good place to start," Mr Gallagher said.
The financial investment comes only weeks after Santos rejected a $14.5 billion takeover proposal from US private equity firm Harbour Energy, claiming the bid undervalued the Australian oil and gas company.
Knocking back the offer, Santos said was focused on the growth of its existing projects, which would bring more value to the company.
Citi research analysts believe Arcadia “is a game changer for Gladstone LNG” and will remove the GLNG's processing facility’s current reserve gas shortfall.
Wood Mackenzie principal oil and gas analyst Saul Kavonic said this investment should not be viewed as a new commitment to Santos' growth.
“The Arcadia development was already included within our models and valuation,” Mr Kavonic told Fairfax Media.
“Santos core growth areas in PNG LNG and Darwin LNG are not within its control, so for Santos to deliver a growth story will require some bold advances in CSG or Cooper Basin production well beyond existing expectations for ongoing investment.
“Otherwise Santos will need to pursue M&A. Absent a further big rally in oil prices – and hoping for oil prices to rise isn't a strategy – Santos' management now faces a difficult growth challenge as the share price is likely to trade well below the Harbour offer for some time to come,” he warned.
The Arcadia project is located near Injune, around 680 kilometres northwest of Brisbane. It will involve drilling 137 new wells, building a140-kilometre gas pipeline, a five-megawatt gas-fired power station, as well as roads.
Mr Gallagher said the $400 million in funding followed a positive 13-well pilot program in the region.
Santos share price jumped nearly 2 per cent on Thursday morning, rising from an opening price of $5.67 to reach $5.78 in early trading.