Argus Media Limited

09/08/2021 | News release | Distributed by Public on 09/07/2021 23:53

Merger to fund energy transition: Australia’s Santos

Australia's Santos said its proposed A$21bn ($15.5bn) merger with fellow Australian independent Oil Search will provide sufficient cash flow to fund the combined firm's energy transition to less greenhouse gas (GHG) emissions-intensive fuels.

'The size and scale that comes from this merger and the cash generative nature of our base business is what will help us fund the transition to net-zero emissions,' said Santos chief executive Kevin Gallagher, who will lead the merged company, in a speech to the Energy Club WA (Western Australia) in Perth.

The combined Santos-Oil Search, whose merger is scheduled to be completed by the end of the year, would have output of about 318,000 b/d of oil equivalent this year, making it Australia's second-largest upstream producer behind Australian independent Woodside Petroleum once it merges with the petroleum arm of UK-Australian resources firm BHP.

Santos has a target to reach net-zero GHG emissions by 2040, having set an original target two years ago of achieving this by 2050. 'Just a few years ago, net zero by 2050 was the gold standard around the world and a target which countries representing nearly 75pc of the global economy have signed up to. Today the world is demanding an even faster transition,' Gallagher said.

The company intends to continue to invest in domestic gas and LNG projects to maintain the cash flows. It made a positive final investment decision in March on the $3.6bn Barossa gas backfill project that will provide feedstock for the 3.7mn t/yr Darwin LNG in Australia's Northern Territory (NT). The Barossa gas field in the Bonaparte basin offshore the NT has a carbon content of around 18-19pc and is estimated to produce around 3.4mn t/yr of carbon dioxide equivalent (CO2e) from extracting the gas from the field and a further 2mn t/yr of CO2e from processing the gas into LNG.

Santos also announced in June that it had started initial engineering on the Dorado oil project offshore WA that will produce an average rate of 75,000-100,000 b/d during its first phase.

It plans to develop a 1.7mn t/yr carbon capture and storage (CCS) venture at Moomba in the Cooper basin in South Australia to bury some of the CO2 produced from the Barossa field, although the investment is dependent on CCS projects been accredited with carbon credits issued by the Australian government. 'I understand it is on track to be implemented this month, paving the way for Santos to take a final investment decision on our Moomba project, which will be one of the biggest CCS projects in the world,' Gallagher said.

Legal challenge

But Santos' discussions on its energy transition have been legally challenged by investor advocacy group the Australasian Centre for Corporate Responsibility (ACCR), disputing the firm's claims in its 2020 annual report that natural gas provides clean energy and that it has a credible and clear plan to achieve net-zero emissions.

The ACCR argues this constitutes misleading or deceptive conduct under Australia's Corporations Act and Australian consumer law, said Australian environmental legal centre the Environmental Defenders Office (EDO), which will act on behalf of ACCR.

The court case will be a legal test case to the viability of CCS and the environmental impacts of blue hydrogen, increasingly promoted as a key element in gas companies' path towards net-zero emissions, the EDO said. Blue hydrogen is hydrogen produced from using natural gas but with its carbon emissions being captured and stored or reused.

By Kevin Morrison