Bloomberg News

Santos May Invest A$16 Billion Developing NSW Coal-Seam Gas

December 20, 2011

(Updates to add executive’s comment in third paragraph.)

Dec. 20 (Bloomberg) -- Santos Ltd., Australia’s third- biggest oil producer, and partners may spend more than A$16 billion ($16 billion) on coal-seam gas development in New South Wales state, a report released today by the company shows.

Santos and its partners plan to invest A$1 billion within five years exploring coal-seam gas reserves in the northwest part of the state, according to the Allen Consulting Group study commissioned by Santos. The development may “transform New South Wales into a gas-exporting state,” supply as much as 30 percent of east coast demand and contribute A$15.2 billion to the state economy through 2035, the report found.

“There is large opportunity, a very large prize, but before you can access that prize you have to make sure the gas is there and can be brought up safely and sustainably,” James Baulderstone, the company’s vice president for eastern Australia, told reporters in Sydney today. “The most important thing for us is we’re allowed to continue to explore.”

Coal-seam gas producers globally are facing opposition from political and environmental groups concerned their drilling methods may harm water supplies. Santos is building a $16 billion development in Australia’s northern Queensland state to liquefy gas from coal deposits for export to Asia.

Santos rose 1 percent to A$12.30 at 1:09 p.m. in Sydney. The shares have fallen 6.7 percent this year, compared with a 14 percent decline for the benchmark S&P/ASX 200 Index.

Eastern Star

The Adelaide-based company agreed in July to acquire the shares in Eastern Star Gas Ltd. it didn’t already own for about A$730 million and is betting that demand for eastern Australian natural gas will more than triple by 2020.

Santos’s partners include TRUenergy Holdings Pty, a unit of Hong Kong-based CLP Holdings Ltd., which agreed in July to buy 20 percent of Eastern Star’s permits in the state’s Gunnedah Basin for A$284 million. Santos and partners have the potential to invest more than A$16 billion in northern NSW on coal-seam gas by 2035, the report said.

New South Wales, Australia’s most populous state, has maintained a temporary ban on hydraulic fracturing, or fracking, for three more months to strengthen standards for the process used to extract natural gas from coal deposits. Fracking is the process in which water and chemicals are injected into rock formations to free the trapped gas.

AGL Energy Ltd. also has coal-seam gas operations in New South Wales.

Santos said last month it will withdraw an Eastern Star Gas application for the Mullaley pipeline route in New South Wales amid concerns about coal-seam gas expansion. Santos plans to invest A$500 million to drill 50 wells in the state over three years, mainly in the Narrabri area in the state’s north, it said.

--Editors: Keith Gosman, Aaron Sheldrick

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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