LNG

Australian and Papua New Guinea liquefied natural assets owner Santos posted a first-quarter decline in LNG sales revenues as prices dropped in various operations, though reported progress in projects in Australia to boost gas resources. 

Santos said overall revenues in the first three months of 2024 fell to US$1.39 billion from US$1.63Bln in the prior-year quarter, including LNG, domestic gas, crude oil, condensate and liquefied petroleum gas.

Quarterly LNG sales alone amounted to US$901 million, down from US$1.07Bln in the same quarter of 2023.

LNG shipments

Santos’s LNG projects shipped 53 cargoes in the first quarter, of which five were sold on a Japan-Korea Marker-linked basis, all from PNG offtake.

The company said average realised LNG prices fell to US$12.68 million British thermal units in the first quarter from $14.46 MMBtu in the same quarter of 2023.

However, the LNG price was slightly higher than the prior quarter price of US$12.33 MMBtu to the end of December, while realised prices were higher for oil-linked sales contracts reflecting the lagged Japan Customs-cleared Crude (JCC) prices.

Three-month lagged JCC averaged US$92.29 a barrel in the first quarter of 2024 compared with US$83.08 a barrel in the fourth quarter of 2023.

The Gladstone LNG plant in Queensland sent out 27 cargoes, two fewer than in the previous quarter and the same as in the prior-year quarter.

Santos said 60 onshore coal-seam gas well were drilled and 47 connected for the Gladstone plant during the first three months of 2024 to maintain output from the Fairview, Arcadia and Roma CSG fields.

The PNG plant at Caution Bay operated by ExxonMobil Corp. shipped 27 cargoes compared with 30 in the previous three months and 28 in the prior-year quarter.

PNG expansion

“Steady production continued at PNG LNG, supported by strong production from Santos-operated fields. LNG production was down on the previous quarter due to a combination of Hides field natural decline and annual preventative maintenance undertaken at the Central Processing Facility during the quarter,” Santos explained.

French major TotalEnergies, operator of the Papua LNG project to expand PNG LNG production, has advised Santos that it would keep working with contractors to agree commercially-viable engineering, procurement and construction contracts to reach an expected final investment decision by 2025.

Santos Chief Executive Kevin Gallagher said the “strong underlying business performance, combined with a disciplined focus on operational excellence” delivered a “robust” first-quarter result.

“The first quarter brought strong free cash flow which provides a solid foundation for the year ahead. It positions us well to fund shareholder returns, backfill and sustain our existing business, complete our major projects and grow our Santos Energy Solutions business,” Gallagher said.

“I am very pleased that Barossa pipelaying activities are now almost complete and all other Barossa activities are progressing well with first gas expected in the third quarter of 2025,” said Gallagher on the project that will help resume LNG output at the Darwin liquefaction plant in the Northern Territories.

Barossa gas update

The existing Bayu-Undan field continued to produce gas for the Darwin plant through the first quarter for the domestic market.

“The asset is expected to reach end of field life in the second quarter of 2024,” said Santos.

The Barossa gas and condensate project to backfill Darwin LNG is currently 70.6 percent complete and the integration of the topside modules on the floating production storage and offloading (FPSO) platform continued in Singapore with 13 of 16 modules successfully loaded onto the hull.

The company added that installation of the gas export pipeline for Darwin LNG commenced in November 2023 with 213 kilometres of the 262km pipeline completed to the end of the first quarter. Full completion was expected before the start of May.

Gallagher said that the company’s Pikka oil project in Alaska had made excellent progress over the winter months and was on track for first production in 2026.

“Barossa and Pikka are world-class projects that will be transformative for Santos and set the company up with long-term, stable cash flows for the next 10-15 years at least,” the CEO said.

Gallagher explained that the company’s Moomba carbon-capture and sequestration project in south Australia was on scheduled for the first injections of CO2 this year and would “a game-changer for decarbonising” of Santos operations.

“We can now see line of sight to our major projects progressively coming online in 2024, 2025 and 2026, putting us in a strong position to deliver sustainable, long-term shareholder returns,” Gallagher stated. 

Indonesian state-owned oil and gas company Pertamina is preparing to acquire Shell’s stake in the Masela natural gas block that will underpin the Abadi LNG export project in Indonesia and boost future cargo availability in the Pacific Basin, while Shell is also selling all its assets in Pakistan in a pull-out from Asia's more difficult areas to do business.

Papua LNG, the joint venture expansion project in Papua New Guinea involving France’s TotalEnergies, US major ExxonMobil and Australia’s Santos, has launched a full front-end engineering and design (FEED) process to expand the existing PNG LNG plant’s production by up to 6 million tonnes per annum.

French oil and gas major Total and the Government of Papua New Guinea have agreed to proceed again with the Papua LNG project with natural gas mainly from the Elk-Antelope resources, among the largest onshore gas fields in Asia.

Australian LNG project operator Santos is on its way to making Chief Executive Keven Gallagher one of the highest paid executives in the country as he develops projects in five key natural gas basins in Australia.

Feb 12 (LNGJ) - French major Total, operator of the Papua LNG feed-gas assets, and joint venture partners ExxonMobil and Australia-listed Oil Search have signed a Fiscal Stability Agreement with Papua New Guinea. “The Fiscal Stability Agreement is the final step envisioned under the Papua LNG Gas Agreement to guarantee Papua LNG fiscal stability,” said Oil Search. It follows the amendments to Acts passed by the PNG Parliament in November 2020.

   “We are pleased to see further progress achieved on Papua LNG,” said Keiran Wulff, Oil Search's Managing Director in regard to the PNG LNG expansion project to more than double current output. “It also demonstrates increasing alignment between the PNG Government and the joint venture partners. We look forward to progressing Papua LNG and announcing further milestones consistent with our Strategic Review,” added Wulff.

The Papua New Guinea LNG expansion proposal to more than double current output could proceed with the single Papua Gas Agreement signed with the Government and consist of two new processing Trains instead of three Trains.

Oil Search, the Australian-listed company based in Papua New Guinea, said that discussions were continuing between PNG LNG plant operator ExxonMobil and the Oceania nation’s government on the LNG expansion project as cargo deliveries increased in the third quarter.

Oil Search, the Australian-listed Papua New Guinea LNG shareholder with a stake in the expansion project, plans to write off up to $US400 million, mostly on exploration assets and a gas-to-power project in PNG due to the outlook for oil and gas prices.

The PNG-focused oil and gas company will record a non-cash, pre-tax charge of between $US360M ($A518 million) and $US400M ($A576M) in its half-year results that would not impact its cash earnings, according to a statement to the Australian Securities Exchange.

Oil Search said that a strategic review found that a number of assets in PNG were now of low priority either due to lower prospectivity or less than optimum project economics and as a result, would not be currently pursued.

The LNG plant, located northwest of the capital Port Moresby, produced at an annualised rate of 8.7 million tonnes per annum in the first three months of 2020, Oil Search noted in its first quarter earnings.

“Oil Search has assessed the carrying value of the company’s assets for impairment as at 30 June 2020, in accordance with the relevant accounting standards and after taking into account the potential longer-term impact of prevailing economic conditions and the outlook for oil and gas prices,” said the company.

“The impairments that are expected to be recognised largely relate to PNG exploration licences,” explained the PNG-based company whose other main assets are in Alaska.

“As part of the Strategic Review currently underway and in line with the company’s commitment to prioritising capital allocation, a number of exploration and evaluation assets in PNG have been identified as being of reduced priority due to lower prospectivity or sub-optimal economics,” explained the report signed by Oil Search Managing Director Keiran Wulff.

“As there is no current intention to pursue activities on these assets, the full value of these exploration assets is expected to be written down,” he stated.

“An immaterial impairment relating to exploration leases in Alaska, which are scheduled to be relinquished, also is anticipated,” he explained.

Oil Search has previously said it was well placed to withstand a prolonged period of oil price weakness and advance its growth projects when market conditions improve.

The company noted in its previous earnings that formal negotiations had been suspended in January 2020 on the LNG expansion between ExxonMobil, on behalf of the P'nyang co-venturers, of which it is part, and the PNG Government.

“Given the ongoing gas supply uncertainties resulting from the recent suspension of mining activities at the Porgera Project (gold mine), the carrying value of the Hides Gas-to-Electricity Project is also expected to be fully impaired,” said Wulff.

“The expected impairment expense is a non-cash item and will not impact cash earnings or cashflow,” he added.
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“The final impairment expense to be recognised is subject to the finalisation of the half-year accounts and completion of the half-year review by the company’s auditor,” stated Wulff.

The two existing LNG Trains at the PNG plant have a nameplate capacity of 6.9 MTPA, though have consistently produced more and will be the site of any future expansion.

Three new liquefaction Trains are proposed in the delayed expansion plan.

The five Trains when operational would have capacity of nearly 20 MTPA and would give PNG a more substantial role as a regional producer.

The P’nyang gas field licence, controlled by PNG LNG plant operator ExxonMobil, also includes Australian-listed Santos as well as Oil Search.

The separate Papua Gas Agreement for other feed-gas resources has already been approved and signed.

This comprises holders of the onshore PNG Elk-Antelope gas field licence, led by Total and also including shareholders in the P’nyang field lease, ExxonMobil as well as Oil Search.

Elk-Antelope onshore gas fields are covered by petroleum retention licence PRL15 and by the Papua Gas Agreement and the P’nyang onshore gas fields are in the PRL3 licence area of PNG.

Oil Search, the Australian-listed company with a stake in the Papua New LNG export plant and its expansion project, said there had been no disruption of operations during the coronavirus crisis, while it has helped in the fight against the pandemic in PNG and Alaska.