Australian-based independent oil and gas producer Santos has agreed to acquire ConocoPhillips’ northern Australia business for $1.39 bill.
This will give Santos operating interests in Darwin LNG, Bayu-Undan, Barossa and Poseidon. A further contingent payment of $75 mill is subject to FID being taken on Barossa.
The company said it was targeting pre-tax synergies of $50-75 mill per annum (excluding integration and other one-off costs) driven by Santos operational efficiency.
Barossa partner SK E&S was said to be highly supportive of the deal and has signed a Letter of Intent to acquire a 25% interest in Bayu-Undan and Darwin LNG.
Advanced talks
Santos also said it was in discussions with existing Darwin LNG joint-venture partners to take equity in Barossa and in advanced discussions with LNG buyers for Barossa offtake volumes, including with an existing partner in Darwin LNG.
Santos Managing Director and CEO, Kevin Gallagher, said; “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.
“This acquisition delivers operatorship and control of strategic LNG infrastructure at Darwin, with approvals in place supporting expansion to 10 mill tonnes per annum, and the low cost, long life Barossa gas project.
“Santos intends to manage gearing within our stated operating range and is targeting to sell-down equity in Darwin LNG and Barossa to 40-50% in order to create alignment between joint venture participants as well as by optimising equity levels in our 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 60-80% of LNG volumes for 10+ years prior to taking FID on Barossa, which is expected by early 2020.
“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 said.
ConocoPhillips is the majority owner and operator of the Darwin LNG facility, which has a capacity of 3.7 mill tonnes per annum of LNG and significant expansion potential.
Barossa is to be developed using subsea wells tied back to an FPSO for gas processing and condensate export. A 260 km gas export pipeline will transport gas to the existing Bayu-Undan pipeline for onwards transport to Darwin LNG.
The new development is expected to extend the operating life of Darwin LNG by more than 20 years. Life extension capex at Darwin LNG of around $600 mill (2019 real) is expected to be incurred between Bayu-Undan end of field life and the commencement of production at Barossa.
Credit Suisse (Australia) Limited and JB North & Co are acting as financial advisers to Santos and Allens is acting as legal adviser to Santos.
