to take part in png gas project

From The Age

Speculation is growing that Santos will take part in the Papua New Guinea highlands gas project after ExxonMobil's decision last week to give the preliminary go-ahead to the much-delayed $3.5 billion, 3200 kilometre pipeline to carry gas to Queensland.

Santos has a 25 per cent interest in the Hides gas field, the largest field underpinning the proposed project, which moved to the crucial FEED (Front End Engineering and Design) stage after a seven-year wait with a contingent resource of 370 million barrels of oil equivalent.

Santos acquired the stake in 1999 from Oil Search for $85 million but has not been a member of the project's marketing consortium due to a perceived conflict of interest with its Cooper Basin gas assets in central Australia. But it is believed that Santos has been talking with project owners Oil Search, the PNG Government, and Nippon Oil Exploration, with ExxonMobil as the operator in discussions that could lead to the Adelaide group's Moomba gas plant in South Australia being used as a market hub for the project's gas.

"We believe that its interest in the Hides field will give it a 9.7 per cent unitised interest in the gas project," said Merrill Lynch's Stuart Smith. "We understand the company has been meeting its share of pre-FEED costs, implying (it) may still yet participate in the gas project."

While the highlands project has been viewed as a risk for Santos in the past, Mr Smith argues that due to the delays it will now come to market at a time when Cooper Basin "is in natural decline and the market needs the extra gas".

Santos sources also said Cooper reserves were now almost fully contracted, meaning they will not be put at risk by a new project.