Australia's Santos Moves Forward with $2.6 Billion Alaska Oil Project
(Reuters) — Australia's Santos Ltd. said on Wednesday it will move ahead with developing a $2.6 billion Alaskan oil project in a surprise decision that sent the energy producer's shares lower despite it posting a record first-half profit.
The company decided to go ahead with the Pikka project in Alaska after failing to sell down its stake and also flagged it would sell a smaller than expected stake in its prized PNG LNG asset in Papua New Guinea.
That meant it would fall short of a target set in February to reap up to $3 billion from asset sales this year.
"What's changed since February is we don't have to sell anything at this point in time. We're in a very strong place," CEO Kevin Gallagher told Reuters.
Surging oil and gas prices in the wake of the Ukraine conflict beefed up cashflows beyond expectations in February, which eased the pressure to sell assets.
Santos also indefinitely delayed approval for its Dorado oil and gas project in Australia due to rising costs, shipyard backlogs, stressed contractors and reworking of project plans, Gallagher said.
Pikka, co-owned by Spain's Repsol SA, was an "outstanding project", forecasting a strong 19% internal rate of return based on an oil price of $60 a barrel, he said.
The company remains willing to sell down its stake during the development phase. First oil from the 80,000 barrel per day project is expected in 2026.
"Low-carbon oil projects like Pikka Phase 1 respond to new demand for OECD supply and are critical for global and United States energy security that has been highlighted since the Russian invasion of Ukraine," Gallagher said in a statement.
Santos shares fell 2.4% after all the announcements.
Credit Suisse analyst Saul Kavonic said the company's decisions were "significant disappointments versus expectations", with "capital management upside gone, sell down target maybe gone, Dorado delayed with no new timeline."
Gallagher said the company expects to reap proceeds from the 5% PNG LNG stake sale in line with analysts' valuations, which are around $1.5 billion.
"Whoever is going to get 5% off us will pay the market value ... or we wouldn't sell it," he told Reuters, when asked whether Santos was under pressure to give away 5% to PNG state-owned Kumul Petroleum.
Santos quadrupled its underlying net profit to $1.27 billion for the half year ended June 30, buoyed by soaring gas and oil prices and higher volumes with its takeover of Oil Search. The profit beat forecasts of around $1.13 billion, according to Visible Alpha.
The company boosted its interim dividend nearly 38% to 7.6 cents per share and increased its planned on-market share buyback to $350 million from $250 million.
Related News
Related News
- Keystone Oil Pipeline Resumes Operations After Temporary Shutdown
- Biden Administration Buys Oil for Emergency Reserve Above Target Price
- Freeport LNG Plant Runs Near Zero Consumption for Fifth Day
- Enbridge to Invest $500 Million in Pipeline Assets, Including Expansion of 850-Mile Gray Oak Pipeline
- Williams Delays Louisiana Pipeline Project Amid Dispute with Competitor Energy Transfer
- Evacuation Technologies to Reduce Methane Releases During Pigging
- Editor’s Notebook: Nord Stream’s $20 Billion Question
- Enbridge Receives Approval to Begin Service on Louisiana Venice Gas Pipeline Project
- Russian LNG Unfazed By U.S. Sanctions
- Biden Administration Buys Oil for Emergency Reserve Above Target Price
Comments