Australia’s Santos plans multi-billion-dollar LNG disposals

The Adelaide-based oil and gas producer is looking to auction off non-core assets next year in a move likely to attract interest from the infrastructure investor community.

Australian energy group Santos has confirmed plans to dispose of a natural gas pipeline in Gladstone, Queensland, as it strives to replenish its coffers in the context of low oil and gas prices.

A spokesperson for the firm confirmed to Infrastructure Investor that the sale was scheduled for next year – once the pipeline becomes operational – and that the disposal of other infrastructure assets in the company’s portfolio were likely to follow, in a move likely to attract interest from a wide range of infrastructure investors.

Santos has suffered substantial losses with the near-halving of oil prices last year and is reported to have had to dispose of these assets to finance other projects, adding to plans of a $700 million hybrid capital fundraising.

“Gladstone will provide positive free cash flow with oil prices as low as $40 per barrel […] and that’s after sustaining capital and paying our tax bill,” Knox was reported by local press to have said at a conference yesterday.

Although Knox acknowledged that the time for disposals was not ideal, he said the company was aiming at reshaping its portfolio by exiting non-core assets, conceding that others may be better equipped to manage those. The sale is expected to raise several billion dollars.

The Gladstone liquid natural gas (LNG) project comprises several production sites for coal seam natural gas in the Surat and Bowen basins in eastern Queensland as well as a pipeline 435-kilometre-long linking them to a gas liquefaction plant on Curtis Island.
Gas production started this week in the Roma hub, and the entire LNG project is on track to be fully operational by the third quarter of this year, according to Knox.

Despite the company’s credit downgrade by Standard & Poor’s from BBB to BBB- last month, he expressed confidence that the company was in a good position to fund its next investments from its own pocket should the market continue to be adverse, most of its mature debt having been paid off. Company reports cite $2.6 billion in liquidity reserves and minimal debt maturities until 2017.