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Santos Acquisition of ConocoPhillips’ northern Australia interests

14 Oct 2019 12:04 PM | Sonia Harvey (Administrator)

Santos media Centre

Key Highlights

  • Acquisition of ConocoPhillips’ northern Australia business with operating interests in Darwin LNG, Bayu-Undan, Barossa and Poseidon for US$1.39 billion plus a $75 million contingent payment subject to FID on Barossa
  • Value accretive acquisition of operating interests in long-life, low cost natural gas assets and strategic LNG infrastructure consistent with Santos' core asset growth strategy
  • Fully funded from existing cash resources and new committed debt
  • Materially accretive: ~16% expected earnings per share accretion and ~19% EBITDAX accretion in 20201
  • Increases pro-forma production by ~25%, pro-forma 2P reserves by ~5% and pro-forma 2C contingent resources by ~27%2
  • Reduces forecast 2020 free cash flow breakeven oil price by ~US$4 per barrel
  • Targeting pre-tax synergies of US$50-75 million per annum (excluding integration and other one-off costs) driven by Santos operatorship and efficiencies
  • Acquisition delivers operatorship and control of strategic LNG infrastructure with growth potential
  • Acquisition advances and supports Santos’ goal of taking Barossa FID by early 2020. Santos is prepared to sell down equity in Barossa and Darwin LNG to a target ownership of 40-50% to achieve increased partner alignment
  • Barossa partner SK E&S is highly supportive and has signed a Letter of Intent to acquire a 25% interest in Bayu-Undan and Darwin LNG
  • Santos is also in discussions with existing Darwin LNG joint-venture partners for equity in Barossa and in advanced discussions with LNG buyers for Barossa offtake volumes, including with an existing partner in Darwin LNG

Santos Managing Director and Chief Executive Officer Kevin Gallagher said Santos has enjoyed a long-established relationship with ConocoPhillips which has operated its northern Australia natural gas assets for many years.

“Santos was a founding partner with ConocoPhillips in Darwin LNG, which has been operating since 2006. The acquisition of these assets fully aligns with Santos’ growth strategy to build on existing infrastructure positions while advancing our aim to be a leading regional LNG supplier,” Mr Gallagher said.

“This acquisition delivers operatorship and control of strategic LNG infrastructure at Darwin, with approvals in place supporting expansion to 10 mtpa, and the low cost, long life Barossa gas project.

“These assets are well known to Santos. It also continues to strengthen our offshore operating and development expertise and capabilities to drive growth in offshore northern and Western Australia.”

“Santos is also committed to be Australia’s leading domestic gas supplier and we will be pursuing domestic gas opportunities in the Northern Territory from our broader northern Australia gas portfolio where we have significant resource potential both onshore and offshore.”

“Santos intends to manage gearing within our stated operating range and is targeting to sell-down equity in Darwin LNG and Barossa to 40-50% in order to create alignment between joint venture participants as well as by optimising equity levels in our Western Australia assets.”

“We are also in discussions with existing Darwin LNG joint-venture partners to sell equity in Barossa and further equity in Darwin LNG and also with LNG buyers for offtake volumes. Santos will target the contracting of ~60-80% of LNG volumes for 10+ years prior to taking FID on Barossa, which is expected by early 2020. Discussions to date have demonstrated strong interest in Barossa LNG, given it is a brownfield upstream development located close to North Asian demand.”

“The acquisition is value accretive for Santos shareholders in year one following completion across a range of metrics and importantly further reduces our free cash flow breakeven oil price by approximately US$4 per barrel in 2020.”

“As we have demonstrated following the acquisition and integration of Quadrant Energy into our offshore business, Santos’ low-cost operating model is creating opportunities for disciplined growth across Australia.”

“We look forward to welcoming ConocoPhillips’ Australia-West employees to Santos and combining the two businesses to create one high performing team with a wide range of exciting career opportunities across Santos,” Mr Gallagher said.

1   Expected pro-forma accretion in 2020 assuming US$65 per barrel oil price and full-year of ownership. Assumes Santos interest of 68.4% in Bayu-Undan/Darwin LNG and 62.5% in Barossa (i.e. pre sell-down to SK E&S).

2   2018 pro-forma based on Santos’ 2018 production and reserves and resources. Production adjusted for a full-year of Quadrant ownership. Assumes Santos interest of 68.4% in Bayu-Undan / Darwin LNG and 62.5% in Barossa (i.e. pre sell-down to SK E&S).

ConocoPhillips Northern Australia Portfolio Overview

ConocoPhillips holds a high-quality portfolio of operated production, development and exploration assets in northern Australia. It also operates and is the majority owner of the Darwin LNG facility, which has a capacity of 3.7 million tonnes per annum of LNG and significant expansion potential.

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