Santos targets Papua LNG project final decision in second half as Pikka, Barossa ramp-up lifts output

A decision on the massive Papua LNG project in Papua New Guinea is expected in coming months, Santos says, as its forthright boss takes a fresh swipe at the Albanese Government’s domestic gas reservation policy.

The energy producer gave an update on its next growth project while reporting a 3 per cent lift in first half production on Wednesday, with contributions from two new major operations, the Barossa gas project in the Timor Sea and the Pikka oil project in Alaska after initial commissioning delays.

While firing off a warning to the Commonwealth over the contentious gas reservation policy - ahead of expected draft legislation or further consultation next month - chief executive Kevin Gallagher confirmed a final investment decision on Papua was targeted for the fourth quarter.

Led by France’s TotalEnergies in a joint venture with US giant ExxonMobil, it would be the last big project Santos progressed for some time, Mr Gallagher said.

“I can’t see any major FIDs in the next couple of years here in Santos across the portfolio because we’ll be in watching and learning mode in Alaska,” he told a conference call, adding that Pikka had been a “bumpy” ride.

“Before we go and think about a phase two or an expansion project or anything like that, we have to get Pikka phase one up and running.

“Outside of Papua, I just don’t see us FIDing anything for the next two years.”

Mr Gallagher pointed out Australia’s gas supplies were projected to start declining from 2030.

“We have to invest in developing new gas supply sources now. That is why the investment signals being sent today matter,” he said.

“Projects that will supply the market in the early 2030s need investment decisions well before then.

“Policy settings need to support that investment, not to discourage it.”

After vociferously railing against the policy for months - telling the Australian Energy Producers annual conference in May that it would “kill” projects and companies - Mr Gallagher said Santos believed the Government was listening to the industry.

“... and trying to get the settings right, but undoubtedly it won’t be perfect because it’s very complicated,” he said.

“Ultimately, it has to be focused, in my view, on freeing up more supply.”

Mr Gallagher reiterated Santos would be open to increasing its stake in the Papua project, which was delayed by years after a massive cost blow-out prompted a major rethink, bringing the expected cost down from about $US18 billion ($25.45b) to $US14b ($19.8b).

Local media reports ExxonMobil is expected to take over as operator, while PNG Prime Minister James Marape says his Government will “fully exercise” a 22.5 per cent equity right.

Mr Gallagher said funding for the project was progressing well, with at least 60 per cent expected to come from debt financing facilities.

“The joint venture partners are all talking in detailed discussions as we approach FID on how to best execute the project,” he said.

“And any changes or updates on on how we’re going to do that, of course, I’d expect the operator to announce at the appropriate time.”

Santos, which has faced climate activist campaigns against the Barossa and Papua projects, expects second half production will be around 20 to 30 per cent higher than the first half as the new operations ramp towards plateau.