Australia's Santos approves development of Indonesian project
Australia's Santos approves development of Indonesian project
Angela Macdonald-Smith, Bloomberg, Sydney
Santos Ltd., Australia's biggest natural gas producer, and its
partners in the Oyong oil and gas field in Indonesia agreed to
develop the US$130 million project, with oil production expected
by the year-end.
The project off East Java will be in two phases, initially
involving only oil production, with gas output starting around
the end of 2006, Adelaide-based Santos said today in a statement.
Singapore Petroleum Co. and Cue Energy Resources Ltd. own stakes
in the field.
Santos agreed in 2003 to sell the gas from Oyong to PT
Perusahaan Listrik Negara for use at PT Indonesia Power's
generator at Grati. The field was originally due to start up in
late 2004 and has been restructured to start with oil output to
benefit from high prices. Oyong is one of four oil and gas
projects starting up this year that Santos has a stake in.
"This is another building block that contributes to Santos's
strong earnings growth over the medium term," said Luke Smith, an
oil and gas analyst at ABN Amro Australia Ltd. "It's positive
that they're going to monetize the project, though the
contribution to forecast profits is minor."
Smith estimates the project accounts for about 2 percent of
his A$9.55 valuation of the stock.
Shares in Santos, which have risen 25 percent in the past six
months, fell 16 cents, or 1.7 percent, to A$9.10 on the
Australian Stock Exchange.
Oyong contains recoverable reserves of an estimated 8 million
barrels of oil and 130 billion cubic feet of gas. Initial oil
production will be about 20,000 barrels a day, while gas
production will be between 40 million and 60 million cubic feet a
day, Santos said.
"Oil production from Oyong comes at a time of high oil prices
and adds to the company's improving production," Santos Managing
Director John Ellice-Flint said in the statement, which was
lodged with the Australian Stock Exchange. The project is
Santos's first operated offshore project in Indonesia, he said.
Oil from the project may sell at a similar price to Tapis
crude, an Asian benchmark, Cue Chief Executive Robert Coppin said
in an interview. Tapis traded at $56.45 a barrel yesterday,
according to data compiled by Bloomberg. The value of the project
may include the investment required for dismantling work at the
end of its life, he said.
The investment required is about $120 million in the
production project, excluding the costs of leasing a moored barge
that will be used for oil and gas processing, said Kathryn
Mitchell, a Santos spokeswoman.
Santos bought its first production project in Indonesia last
year when it purchased stakes in the Brantas and Kakap areas from
Novus Petroleum Ltd. Santos on Feb. 23 forecast a 15 percent
increase in output this year.
Santos owns 45 percent of Oyong, while Singapore Petroleum
owns 40 percent and Cue 15 percent.