PNG energy minister Sir Moi Avei told the Townsville Bulletin recently that Santos had made an agreement with the PNG goverment that was now simply awaiting finalisation by the company's board. But Santos has now said the deal is not yet close to being finalised.
“Santos confirms that it is continuing to undertake due diligence on project data, and is engaged in negotiations and discussions with various stakeholders,” the company said in its market statement today.
“Definitive agreements relating to the project have not yet been concluded.”
Shaw Stockbroking analyst John Colnan told PNGIndustryNews.net he did not expect Santos to make a final decision until April at the earliest. Colnan said he believed Santos would first be seeking to resolve several issues.
“Santos is currently negotiating with AGL with regards to sizeable contracts on their existing gas reserves in Australia. So why would they promote a project that currently goes against their own asset base? That has to be resolved,” he said.
Colnan said the final capital cost estimate for the project, estimated to be around $A2.5 billion for the gas project infrastructure and $A6 billion for the pipeline, would have a huge bearing on Santos’ possible involvement in the venture.
“The key item is capital costs. Capital costs in the industry have just gone through the roof. Everyone is going to be interested to see if AGL and Oil Search can keep costs down because a huge blowout in costs could impact the viability,” he said.
Colnan said another major concern Santos would be facing would be the prospect of being able to obtain better margins on selling gas to the Chinese market rather than to Australia.
“The grapevine was also telling us that the Chinese were looking around for potential LNG supply from PNG. Santos may be looking to provide its gas to a higher margin LNG project – that could be a factor,” he said.
“There are a lot of balls being juggled up in the air and they are probably not due to fall down until about April. You have got the AGL demerger to go through, you have got the feasibility with an update likely to be posted to the market in April – post demerger.”
Colnan also flagged the issue of political risk insurance, which was again thrust into the spotlight today after it was reported in PNG press that landowners threatened to shut down the Gobe oilfield if certain demands were not met.
