Santos pushes the gas envelope

Age
Wednesday 4/6/2008 Page: 5

UNCONVENTIONAL sources of natural gas, such as coal seam and shale, are likely to increase their contribution to supplies of the fuel, according to oil and gas producer Santos. These forms of gas made up about a third of the US's annual gas consumption and would become more important in Asia, Santos acting chief executive David Knox said yesterday at an investor briefing. Santos could book its first unconventional gas resources this year, said Rick Wilkinson, vice-president of Santos' commercial operations.

Gas demand in eastern Australia might more than double in the next decade, driven by the introduction of carbon trading and the start-up of liquefied natural gas export projects in Queensland, Santos said. Rising consumption would boost prices, said the company, which operates the Cooper Basin project, Australia's biggest onshore source of gas.

This price increase will drive conventional reserves and unconventional resources growth in the Cooper Basin," Mr Wilkinson said at the investor briefing. "It's not just a coal seam gas story. We've got a fantastic footprint to take advantage of that." The Cooper Basin could hold up to 7 trillion cubic feet of unconventional gas, Mr Wilkinson said. Santos shares gained 0.9% to $21.92 yesterday but fell back to close unchanged for the day at $21.77.

The company said in a presentation lodged with the stock exchange that Santos could have stakes in four LNG ventures by 2020: at Gladstone, in Queensland; the Conoco-Phillips operated plant in Darwin; the Browse Basin off the north-west coast; and at the Exxon Mobil-operated Papua New Guinea project. The four ventures could provide Santos with net LNG output of as much as 10.3 million tonnes a year by the end of the next decade, it said.

Santos last week agreed to sell a 40% stake in coal seam gas assets and the proposed Gladstone LNG project to Malaysia's Petroliam Nasional Bhd for $2.51 billion. The sale, assuming it takes effect on August 31, would reduce forecast 2008 output by about 500,000 barrels of oil equivalent, cutting the full-year production target to 55.5-57.5 million barrels, Santos said in the presentation. It would also trim Santos' forecast capital expenditure this year by $75 million to $1.425 billion it said.