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    Santos sanctions Barossa project

Summary

The US$3.6bn Barossa gas and condensate project offshore Australia's Northern Territory will help extend the life of the Darwin LNG project.

by: Shardul Sharma

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Santos sanctions Barossa project

Australia’s Santos has taken the final investment decision (FID) to proceed with the US$3.6bn Barossa gas and condensate project, located offshore the Northern Territory, it said on March 30. 

Barossa will provide the next source of gas for the existing Santos-operated Darwin LNG (DLNG) plant once current reserves from the Santos-operated Bayu-Undan field in the Timor Sea have been depleted. 

Santos said that the Barossa FID also kick-starts the US$600mn investment in the DLNG life extension and pipeline tie-in projects, which will extend the facility life for around 20 years. The Santos-operated DLNG plant has the capacity to produce approximately 3.7mn metric tons/year of LNG. 

The Barossa development will comprise a floating production, storage and offloading vessel, subsea production wells, supporting subsea infrastructure and a gas export pipeline tied into the existing Bayu-Undan to DLNG pipeline. First gas production is targeted for the first half of 2025, Santos said. The company had deferred the FID on Barossa last year due to a pandemic-induced oil price crash.  

The Barossa FID is the final condition required for the completion of the 25% equity sell-downs in DLNG and Bayu-Undan to South Korea’s SK E&S, which is also a partner in Barossa. Completion of the SK transaction is expected to occur at the end of April. The stake sale is expected to result in net proceeds of about US$200mn to Santos, the company said. 

Meanwhile, Santos said it continues to progress the binding sale and purchase agreement for Jera to acquire a 12.5% interest in Barossa. 

Completion of the sell-downs to SK E&S and Jera will see Santos’ interests in Bayu-Undan field and DLNG change to 43.4%, and in the Barossa project to 50%. 

Wood Mackenzie research analyst Shaun Brady said that the decision makes a lot of sense given the significant LNG demand expected across Asia Pacific through the next two decades. 

“As Barossa was the only logical backfill option for DLNG, the Darwin facility would have had to shut down for an extended period if it was not sanctioned, with partners incurring significant decommissioning costs,” Brady said. "Barossa is an economically attractive 'backfill' investment because it can utilise the existing DLNG infrastructure. As a result, it can compete with greenfield global projects that need to construct expensive new LNG infrastructure.” 

Brady said that 2021 is shaping up to be the most important year in Australian upstream investment in over a decade. Barossa is the single largest upstream project to be sanctioned since 2012. With Woodside also targeting Pluto T2 and Scarborough FID in the second half, and Chevron aiming to sanction additional subsea spend at Gorgon LNG, 2021 could define the upstream capital landscape in Australia for the rest of the decade, he said.  

"With the Barossa FID made, it will be interesting to see if Santos can compete the Jera sell down and if it will reduce the equity of other assets in its portfolio," Brady said.