The COVID-19 pandemic’s impact on demand for oil and gas, on top of the destabilising price war in March and April and the slump in global prices, has come to the aid of Santos.
The lower prices and uncertain outlook for oil demand has helped Santos get a small discount on the announced purchase price for ConocoPhillips’s Northern Australia and Timor-Leste assets
Santos will now pay $US1.265 billion, a discount to the $US1.39 billion price announced last October.
The trade-off is a higher contingent payment of $US200 million (before it was just $US75 million), subject to Santos’ final investment decision on the Barossa gas field development. Work on the final investment decision (FID) for Barossa has been deferred as a cost-saving.
The net settlement amount of $US655 million at completion is also lower than Santos’ prior guidance of $US800 million, mainly due to the lower up-front payment and the net out of accumulated cash in the business over the 17 months from the start of 2019.
Santos’ purchase will be funded from available cash and a new $US750 million two-year acquisition debt facility.
Santos said in yesterday’s statement to the ASX that “The acquisition delivers operatorship and control of a high-quality portfolio of low-cost, long-life natural gas assets and strategic LNG infrastructure.”
“Santos’ interest in Bayu-Undan and Darwin LNG increases to 68.4% at completion and will provide a significant boost to 2020 production and cash flows. Santos’ interest in the Barossa project to backfill Darwin LNG increases to 62.5%.
CEO Kevin Gallagher said in the statement he was pleased to complete the acquisition which is fully-aligned with Santos’ strategy to build on existing infrastructure positions around Santos’ core assets.
“As a foundation partner in Bayu-Undan and Darwin LNG, and an existing partner in Barossa, we know these assets well. We are delighted to assume operatorship and continue to progress the Barossa project so that a final investment decision can be made when market conditions permit,” he said.
Santos has previously announced an agreement to sell a 25% interest in Darwin LNG and Bayu-Undan to SK E&S for US$390 million and the signing of a letter of intent to sell a 12.5% interest in Barossa to JERA.
“Santos continues to build alignment between the Darwin LNG and Barossa joint ventures. Following completion of the previously announced sell-downs to SK E&S and JERA, Santos will hold a 43.4% interest in Darwin LNG and a 50% interest in Barossa,” Mr. Gallagher said.
“We are continuing to advance discussions with other parties for the sale of further equity in the Barossa project in line with our previously stated target ownership level of around 40% to achieve increased partner alignment and prudent future allocation of growth capital. We are also in discussions with buyers for Barossa LNG volumes.”
Santos shares fell 3.2% to $5.44 after world oil prices eased overnight Wednesday and into Thursday.