The smaller company, Carnarvon, which holds 20% of the oil project in the Bedout Sub-basin, released the news to market this morning, trying to put a brave face on things by noting how much engineering work had already been done, but the market was less than impressed, driving its share price down by some 16%.
Initially Santos had hoped to take a positive FID mid-2022.
Speaking to analysts this morning after releasing half-year results to market that included record free cash flow and a tripling of profit over last year Santos chief Kevin Gallagher noted "at least" one of the contractors on the project had already filed for Chapter 11.
"I mean, the shipyards' environments across Asia, the contractors' availability, the impacts of COVID are still there with some of the workforces, and of course, the labor shortages," he said.
"All are (part of) a very inflationary environment. In addition to that, we've seen volatility in the contractor environment."
In contrast to this the company announced sanction of the Pikka oil project it shares with Repsol on Alaska's North Slope in tandem with its results, despite not managing to sell down part of its 51% stake prior to FID. Gallagher said at Pikka his company had already been able to "lock in very competitive rates".
The Dorado project was one of the most compelling reasons for the company's takeover of the private Quadrant Energy in 2018 and it has already seen sanction pushed back once so the JV could add an appraisal campaign to its field work. This saw wells Pavo and Apus drilled this year, with one success and one failure.
Gallagher said today the project would now be reimagined as an integrated oil and gas project from the get-go, rather than an oil project with a gas upside that would have initially seen reinjection at wells to spur liquids production.
This works out well for the larger company as further gas appraisal at the field could backfill its domestic gas project Varanus Island, which Carnarvon does not share.
"We believe that are very significant gas reserves in the basin and if we can get a development that gets us backill for Varanus Island for the longer term, without having to go spending significant CapEx up and down the Carnarvon Basin chasing backfill, we see that as an optimal outcome for all parties," the Santos chief executive said.
For its part Carnarvon said it was "keen to see the timely sanctioning" of the oil field but the venture had adopted a "prudent approach".
"Given the current regional inflationary pressures and supply chain challenges, the risks of cost escalation is unacceptably high and requires fiscal discipline until this environment shows signs of stabilising," Carnarvon managing director and CEO Adrian Cook said.
Engineering work for the well-head platform and FPSO is essentially complete, according to Carnarvon.
Initial development would have incorporated 10 wells drilled into four reservoirs tied back to a well head platform and FPSO. The FEED studies have indicated further tie-backs from other nearby discoveries such as Pavo can be included in the development.
"It is important that this work scope is carefully contracted and managed especially in the current supply chain environment," Carnarvon said.
Carnarvon shares tumbled more than 16% to 16.7 cents following the announcement. The company had a market cap of $360 million. Without Dorado the company has little in its future save a renewable diesel project with costs of just a few million dollars.
Operator of Dorado, Santos, which released its half yearly, was trading down 2.5% at $6.90 per share.
