have santos bitten-off too much?, page-3

Santos slumps on LNG cost blow-out


June 28, 2012 - 10:43AM Read later
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Santos has hiked the cost of its Gladstone LNG project in Australia by 15 per cent to $US18.5 billion ($18 billion) to fund increased drilling for coal seam gas to supply its plant in Queensland in time for the planned start-up in 2015.

Santos said the extra $US2.5 billion in spending had been slated for after 2015 but was being brought forward in order to drill 300 extra wells before the end of 2015.

The company's shares fell on the news, dropping 4.2 per cent, or 46.5 cents, to $10.575.

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Gladstone LNG is one of $50 billion worth of coal seam gas-to-liquefied natural gas (CSG to LNG) projects facing a raft of challenges, including soaring costs due to skills shortages, patchy drilling results, regulatory hurdles and potential competition from cheap US gas.

"The key challenge facing the CSG to LNG projects is upstream field deliverability in the early stages of project ramp-up," Santos chief executive David Knox said in a statement.

Santos said it would be able to fund its $US750 million share of the extra spending and had no need or plan to raise additional debt or equity for Gladstone LNG or any other of its approved projects.

It reaffirmed it expects to spend $3.75 billion in capital in 2012.

The Gladstone LNG project is 30 per cent owned by Santos. Malaysia's Petronas and France's Total each own 27.5 per cent and Korea Gas Corp owns 15 per cent.

Developers of Australia's new gas export projects are under pressure to deliver, having sold most of the gas from the first phase of the three coal seam projects to Asian customers through long-term deals starting around 2015.

All three projects - BG Group's Queensland Curtis Island LNG (QCLNG), Santos' Gladstone LNG and Origin Energy's Australia Pacific LNG (APLNG) - have consistently held they are on schedule to export gas between 2014 and 2015.

Reuters


Read more: http://www.smh.com.au/business/mining-and-resources/santos-slumps-on-lng-cost-blowout-20120628-213uh.html#ixzz1z2sO6VIQ