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Santos USA Corp. Repositioning to the Texas Gulf Coast

Santos Ltd. (ASX: STO, NASDAQ: STOSY) announces a further step in repositioning the Santos Group’s North American efforts to focus on the onshore Texas Gulf Coast.

Santos USA Corp, a wholly owned subsidiary, has acquired from a number of parties, the following interests for total consideration of US$28.5 million:

  • an additional 33% working interest in the Runnells Gas Unit (RGU) and associated facilities,
  • an additional 33% working interest in the Ashland Deep Prospect,
  • a 33% interest in the Triple Play Prospect, and
  • 635 net acres of undeveloped land.

Pending partner approval Santos USA will also obtain operatorship of these properties all of which are in Matagorda County, South Texas.

Post acquisition, Santos USA Corp’s working interest is 62% in the RGU, 63% in the Ashland Deep Prospect, and 33% in the Triple Play Prospect.

Santos’ Managing Director, Mr John Ellice-Flint, said:

“This is part of Santos’ strategy of acquiring international assets with growth potential through reservoir optimisation and exploration. The area’s proximity to infrastructure creates a favourable environment for creating economic value since production can be established quickly.

While Santos’ previous US activity was relatively minor, we plan to leverage the US experience of the new management team to grow a business in this region.”

This acquisition follows Santos USA’s participation in the successful Runnells-3 and Runnells-5 wells in December 2000 and May 2001 respectively and the recent Runnells-7 appraisal well which logged 35 metres (115 feet) of net Frio gas sand proving a further 9 metres (30 feet) of the gas column. (After completion of Runnells-7, the rig will be used to drill Poole-1 in the Lafite Allen Dome, Brazoria County, South Texas, where Santos has a 40% working interest).

Santos USA Corp is acquiring estimated proved and probable reserves of 15.5 billion cubic feet (BCF) of natural gas and 700 thousand barrels of liquids (200 thousand barrels of natural gas liquids and 500 thousand barrels of condensate).

The transaction is effective 16 September 2001. At this date the RGU was producing approximately 30 million cubic feet per day (MMscfd) of gas (net revenue interest of 7.1 MMscfd to the interest purchased), and 1,310 barrels per day (bpd) of liquids from the two wells drilled to date, Runnells-3 and 5.

Earlier this year, during a period of higher gas prices, Santos USA Corp completed the sale of small non-operated interests in 57 wells on the Gulf of Mexico Shelf and in the Arkoma Basin. This divestment was in line with the corporate goals and growth strategy to use capital more effectively, operate assets, and concentrate efforts in basins with moderate risk but high-reward prospects.

Largely due to a 100% drilling success rate in the Texas Gulf Coast, Santos USA Corp production grew from 8 MMscfde in January (15% Santos-operated) to 15 MMscfde prior to this acquisition (30% Santos-operated). Santos USA Corp is forecasting a net production rate of 30 MMscfde (85% Santos-operated) by the end of 2001.