Summary
Santos Supports Possible 20TCF Timor Sea Gas Development
Santos Limited has entered into agreements with Natural Gas Australia Limited (“NGA”), which will enable it to obtain up to a 40% economic interest in the substantial Evans Shoal gas field in the Timor Sea.
The field contains estimated recoverable dry gas of approximately 6.6 trillion cubic feet (TCF) and is one of four major Timor Sea fields, which have combined resource potential of over 20 TCF.
The Managing Director of Santos, John Ellice-Flint, said the acquisition was an important strategic initiative, which would facilitate development of a region with immense gas potential.
To obtain this interest, Santos proposes to acquire by scheme of arrangement all outstanding shares and options in NGA, whose major asset is a 15% stake in the Evans Shoal gas field.
NGA has also accepted Shell Development (Australia) Pty Ltd’s (“Shell”) offer to acquire a 25% interest in the field by exercising its pre-emptive rights. Santos will provide NGA funding of up to US$25 million to acquire up to the offered 25% interest.
Santos Managing Director, John Ellice-Flint, said,
“Natural gas is the fuel of the new millennium and increasingly an internationally traded commodity. The Timor Sea has the potential for a world-class 20 TCF gas project, which would have great benefits for Australia and the new nation of East Timor”.
“Santos is supporting this vision by broadening its interests in the region from two to three of the four major fields”.
“The most efficient way to develop Timor Sea gas is for all of the companies involved to work together on a cooperative basis “.
The Evans Shoal gas field is located adjacent to shallow water, which could possibly be used to enhance field development through accommodating upstream and downstream processing facilities.
The timing of the field’s development will be dependent upon gas demand from existing gas users, fuel switching and commissioning of greenfields projects.
Total consideration for a 40% interest is approximately A$80 million, comprising approximately A$30 million equivalent in Santos shares and US$25 million in cash.
At a 40% interest, Santos will acquire approximately 2.6 TCF of gas at an average price of approximately US1.5 cents per thousand cubic feet (mcf), increasing the company’s stake in Timor Sea gas from around 1.5 TCF at present to approximately 4.1 TCF.
Background
Evans Shoal
The Evans Shoal gas field is located in NT/P 48, approximately 300 km north of Darwin in Australian waters. The field was discovered in 1988. Evans Shoal-2, which was drilled in April 1998, delineated the presence of a 229 metre hydrocarbon column.
The field is operated by Shell, which has had a 75% interest in the field. The other interest holders are NGA (15%) and Osaka Gas (10%). Osaka Gas acquired its interest from Shell in July 2000.
Mean recoverable volumes for the Evans Shoal accumulation have been estimated at 6.6 TCF of dry gas and 31 million barrels of condensate.
Transaction Details
Santos has agreed to acquire all outstanding shares and options in NGA, to be effected by schemes of arrangement. The consideration will be, subject to working capital adjustments, approximately 6.39 Santos shares for every 100 NGA shares and approximately 2.82 Santos shares for every 100 NGA options on issue, making a total issue of approximately 4.464 million Santos shares.
The issuing of Santos shares to acquire NGA is transaction specific. Capital management issues for Santos generally are under separate consideration as part of the current strategic review.
NGA has given notice to Shell that it has exercised its pre-emptive rights in relation to the sale of the 25% interests in NT/P47 and NT/P48. The consideration for purchase of the 25% interests is US$25 million.
In order to provide NGA with funding, Santos has entered into:
- a conditional placement agreement to subscribe for approximately 7.2 million NGA shares at $0.25 per share. Following completion of the placement Santos will hold approximately 13.0% of NGA issued capital; and
- a US$ 25 million note subscription agreement assuming a 40% economic interest.
Other Santos Timor Sea Gas Interests
Santos has an 11.8% interest in the Bayu Undan gas field, located in Area A of the Timor Gap Zone of Cooperation between East Timor and Australia, approximately 500 km northwest of Darwin. The 160km2 field was discovered in 1995 and overlays adjacent contract areas ZOCA 91-12 and ZOCA 91-13.
The proven plus probable reserves of Bayu Undan are approximately 3.4 Tcf of gas and 400 million barrels of liquid hydrocarbons (LPG and condensate).
In July 1999 the Bayu Undan field was unitised and Phillips was appointed operator.
In November 1999, the Bayu Undan participants approved a liquids recovery/gas recycle project. Commercial production is scheduled to commence in early 2004, with daily production expected to peak at 110,000 barrels of condensate and LPG. Capital expenditure for the liquids stripping phase of development is estimated at US$1.5 billion and facilities to export up to 750 million cubic feet per day of gas by pipeline are included in the design.
The Bayu Undan participants have also progressed commercial gas development opportunities.
The Petrel and Tern fields are located in the Bonaparte Basin, 255 km west of Darwin. The Petrel field overlays retention leases NT/RL1 and WA-6-R and the Tern field is located in permit area WA-18-P.
Santos is operator of the Petrel and Tern fields, with an equity interest of 95% of Petrel and 100% of Tern.
Six wells have been drilled at Petrel and five at Tern. Combined proved and probable reserves are in excess of 1 Tcf with significant upside reserves potential in the Petrel Field.
The Petrel and Tern fields represent a significant gas resource within close proximity to Darwin relative to other Timor Sea gas fields.
