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Santos buys ConocoPhillips' Australian assets

14th October 2019

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Australian energy major Santos has struck a $1.39-billion deal to acquire ConocoPhillips’ northern Australian business, which includes its share in the Darwin liquefied natural gas (LNG) project, and the Bayu-Undan, Barossa and Poseidon assets.

“Santos was a founding partner with ConocoPhillips in Darwin LNG, which has been operating since 2006. The acquisition of these assets fully aligns with Santos’ growth strategy to build on existing infrastructure positions while advancing our aim to be a leading regional LNG supplier,” said Santos MD and CEO Kevin Gallagher.

“This acquisition delivers operatorship and control of strategic LNG infrastructure at Darwin, with approvals in place supporting expansion to ten-million tonnes a year, and the low cost, long life Barossa gas project.

“These assets are well known to Santos. It also continues to strengthen our offshore operating and development expertise and capabilities to drive growth in offshore northern and Western Australia.”

The transaction would see Santos acquire ConocoPhillips’ 37.5% interest in the Barossa project and Caldita Field, its 56.9% interest in the Darwin LNG facility and Bayu-Undan Field, its 40% interest in the Poseidon Field, and its 50% interest in the Athena Field.

Production associated with the assets being sold was approximately 50 000 barrels of oil equivalent per day for the first half of 2019 and proved reserves were approximately 39-million barrels of oil equivalent at year-end 2018.

In addition to the $1.39-billion transaction fee, ConocoPhillips will also receive a $75-million payment upon a final investment decision on the Barossa project.

ConocoPhillips will retain its 37.5% interest in the Australia Pacific LNG project and operatorship of that project’s LNG facility.

“We are extremely proud of our work in Australia-West over the last 20 years. We are pleased that Santos recognises the value of the existing business as well as the opportunity to develop Barossa and thereby continue Darwin LNG’s operations for another 20-plus years,” said ConocoPhillips executive VP and CEO Matt Fox.

“While we believe the Darwin LNG backfill project remains among the lower cost of supply options for new global LNG supply, this transaction allows us to allocate capital to other projects that we believe will generate the highest long-term value to ConocoPhillips.”

Santos on Monday told shareholders that the company was targeting pre-tax synergies of between $50-million to $70-million a year driven by the company’s operatorship and efficiencies, while also advancing Santos’ gold of taking a final investment decision on the Barossa project by early 2020.

“The acquisition is value accretive for Santos shareholders in year one following completion across a range of metrics and importantly further reduces our free cash flow breakeven oil price by approximately US$4 per barrel in 2020,” Gallagher said.

“As we have demonstrated following the acquisition and integration of Quadrant Energy into our offshore business, Santos’ low-cost operating model is creating opportunities for disciplined growth across Australia.”

He told shareholders that Santos intended to manage gearing within its stated operating range and is targeting to sell-down equity in Darwin LNG and Barossa to 40% to 50% in order to create alignment between joint venture participants as well as by optimising equity levels in its Western Australia assets.

“We are also in discussions with existing Darwin LNG joint venture partners to sell equity in Barossa and further equity in Darwin LNG and also with LNG buyers for offtake volumes. Santos will target the contracting of around 60% to 80% of LNG volumes for ten years prior to taking a final investment decision on Barossa, which is expected by early 2020.

“Discussions to date have demonstrated strong interest in Barossa LNG, given it is a brownfield upstream development located close to North Asian demand.”

Advisory firm Wood Mackenzie on Monday said that the transaction between Santos and ConocoPhillips was both logical and attractive.

It consolidates existing equity participation across the Barossa, Bayu-Undan and Darwin LNG assets. The deal will now act as a catalyst for further alignment of equity across the three projects. South Korea’s SK E&S is expected to make the first move and acquire 25% in Bayu-Undan and Darwin LNG. Gaining equity alignment across the Barossa project and the Darwin LNG plant would remove a key hurdle for taking FID on the Barossa project,” said Wood Mackenzie senior analyst David Low.

"This further consolidates Barossa as the leading backfill candidate for Darwin LNG, and puts in place an Australian operator for whom field development will be a portfolio priority. We do not expect this transaction to impact the 2020 final investment decision timeline for the Barossa project.”

Wood Mackenzie expected ConocoPhillips to redeploy the capital from this transaction into its North American unconventional and Alaskan positions. ConocoPhillips already allocates around 70% of its capital into its US operations, so this sale, following recent Timor Sunrise and UK divestments, is firmly in line with its strategy of reducing international exposure and increasing North American output.

 

Edited by Creamer Media Reporter

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