Santos in talks to sell Gladstone LNG stake
Release Date: 2010-07-12
Santos, the Australian energy group, is holding talks with several companies interested in buying part of its stake in the Gladstone liquefied natural gas project, the company said on Friday.The statement followed Australian media reports that Santos was close to sealing a deal with Royal Dutch Shell under which the Anglo-Dutch energy company would pay about A$2bn ($1.75bn) for a third of the Queensland–based Gladstone project.
With the uncertainty of Australia’s proposed resources super tax removed, such a deal would probably hasten consolidation of the LNG industry in Australia.
Di Brookman, an oil and gas analyst at CLSA, said a Shell deal would be good for Santos shareholders.
“It reduces operational risk by bringing in an experienced LNG operator and ... reduces the need for Santos to issue new equity,” said Ms Brookman. “The net affect is a significant reduction of risk to Santos shareholders.”
Shell declined to comment. Santos also refused to comment because discussions were incomplete. However, the company did say there was “collaboration between projects” although it did not provide any detail.
The Santos statement fuelled speculation that a deal with Shell would be followed by a merger of Gladstone LNG and rival Arrow coal-seam-gas-to-LNG project. A joint venture between Shell and PetroChina is in the process of acquiring Arrow for $3bn.
The Arrow project involves building up to four LNG processing plants with capacity of about 4m tonnes a year. Gladstone LNG has plans for two plants with capacity of about 3.6m tonnes a year each. Combining the two projects would save on infrastructure and equipment costs.
Analysts expect a tie-up could spur a similar pairing of the other Queensland LNG consortiums – Australia’s Origin Energy and ConocoPhillips, and BG Group.
China’s Sinopec Corp and South Korea’s state-run Korea Gas Corp are also expected to buy small stakes in the Gladstone project. According to Australian media, they are close to signing long-term sales agreements with Santos.
Analysts say a tie-up with Shell would cut the chances of Santos having to tap the debt market or raise equity. With rising capital costs to build the LNG conversion facility, the market has been worried that Santos would again go to the equity market to raise substantial capital.
Santos has been trying to sell part of its stake in Gladstone over the past year to reduce its funding requirements. It wants to secure new LNG buyers for the project, which will develop reserves of coal-bed methane to produce liquefied natural gas in the Australian state of Queensland.
Analysts claim Santos has struggled to find buyers and would have difficulties in developing the LNG plants.
Santos now holds a 60 per cent stake in Gladstone LNG, while Malaysian state-owned energy giant Petronas owns 40 per cent.
The Gladstone project, which will have an initial production capacity of 3.4m tonnes a year, is slated to start production in 2014.
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