Total to Invest in Australian LNG Project
Total of France has become the latest big oil group to place a bet on Australia’s unconventional gas sector with an agreement to buy a 20 percent stake in Australia’s Gladstone LNG project for nearly A$870m ($805m). It marks Total’s first big investment in the coal bed methane industry and comes as a handful of competing projects in the Australian state of Queensland race to sign up Asian energy customers before finally committing an estimated A$50bn ($46.2bn) to developing the gas reserves.
UK’s BG Group, Royal Dutch Shell, ConocoPhillips of the US and PetroChina - some in combination with Australian partners - are already big investors in Australia’s coal bed methane industry. The French group is buying a 15 percent stake in the Gladstone LNG project from Santos, the Adelaide-based oil and gas group, and a further 5 percent from Petronas, Malaysia’s state oil company.
The sale leaves Santos with a 45 percent share and Petronas with 35 percent. However, Santos is understood to be in talks with Korea Gas Corp, one of the world’s top LNG buyers, about the sale of a further equity stake in Gladstone LNG as well as an “offtake” LNG sales agreement. Santos shares fell 7 percent to close down 96 cents at A$12.79, reflecting concerns that the A$650m sale price for the 15 percent stake was lower than expected.
Investors fear that Santos may need to undertake a possible equity capital raising of A$2bn to fund its ongoing commitment to Gladstone LNG’s development. Xavier Grunauer, an analyst at Nomura, had estimated a 15 per cent stake in Gladstone LNG was worth closer to $1.5bn. He also said Total was buying in at a discount when compared to the $2bn paid by Petronas for its 40 per cent stake in 2008.
“Santos wanted to raise cash and Total has negotiated a very good price, and being Total they have a lot of pull,” he said. Total’s investment was a “good sign” for the sector, Mr Grunauer added. The energy industry was hobbled by uncertainty earlier this year over Canberra’s plans to hit the mining and onshore energy industries with a “super profits” tax.
Australia’s recently re-elected Labor government was forced to cave in to the relentless pressure from the mining companies. It has promised to fold the coal bed methane industry into the petroleum resource rent tax, an existing regime that already applies to the offshore energy industry.
Although some implementation details are yet to be finalised for the tax to be applied to the coal bed methane industry, executives generally welcomed the government’s decision.