Argus spoke to Kevin Gallagher, chief executive of Australia's second-largest listed oil and gas producer Santos, about the company's outlook for its most prospective assets located in Australia, Papua New Guinea and the US state of Alaska. Edited highlights follow:
The Barossa project, which is backfilling Darwin LNG and came on line in February, has faced some issues. Are you confident these have been resolved?
There's been a few bumps along the road, some fouling on our heat exchangers. We now know what caused it, we've cleaned the heating exchangers back up to factory spec, and importantly, we know how to prevent it, and we're now currently producing around 70-75pc of full planned rates for this year and we look forward to getting 100pc of production rates over the next month or so.
I detect a bit of urgency regarding a potential phase two of the Pikka oil project. Can you explain your thinking regarding how that Alaska North Slope (ANS) basin is going to develop for Santos?
I think that urgency that you detected is just my natural nervous energy that you've picked up on. But we're very excited by it, Pikka's about to come on line and ramp up to full production. It's a tier one basin, and Pikka is most likely a billion-barrel field. We have a 51pc equity in it and if you look at Quokka [field] that's a potential to be the same, and Horseshoe [field] potentially the same again.
We will look to get Pikka established, we're not going to rush forward but I'd say the expansion of Pikka, from 80,000 b/d to 120,000 b/d, is a very strong competitor to be one of the next projects.
In terms of the cash flow that asset produces, how critical is that going to be for these new phases?
Our business is built on maximising free cash flow from our assets, and we do that by controlling the costs as best we can, fighting against those inflationary pressures. One of the great things about Pikka is that that ANS crude is commanding very strong premiums to Brent, it peaked in March of this year with a $20/bl premium to Brent.
Back in Australia, the 7.8mn t/yr Gladstone LNG (GLNG) will be under the gas reservation policy, just how much does that expedite the need for Beetaloo, in your thinking, as a prospect to backfill GLNG?
We'll appraise three wells thoroughly and properly, and it'll come along at the right time for us. We'll produce it for 9-12 months into the market, and that will give us a good feel for the economics, depletion curves et cetera.
From my perspective the Beetaloo has the potential to supply our LNG assets and the east coast [domestic] market fully for the next 50-plus years. Taking our time to get this right is important, because if we get it right, it's a game changer for Santos and Australia, absolute game changer, and it will ensure all this noise about the east coast market becomes a distant conversation.
You have discussed potential expansion of Darwin LNG to 10mn t/yr capacity through additional trains. How critical are these three initial Beetaloo wells to that decision?
Very critical, we want to prove up the resource. We want to prove the economics and the performance and the deliverability of the reservoir then thirdly, that cost of supply. These initial wells will be quite expensive because they're very standalone, they're very remote, but we will get the indications from that as to what we can get those well costs down to when we scale up for a full-scale development.
On the $14bn Papua LNG's final investment decision (FID), what exactly must happen between the development forum, which is likely scheduled for late June or early July and getting to that FID?
It's really just the financing. There's a couple of regulatory approvals that come following the development forum but nearly everything's in place. The contracts are all there, my view is once the development forum is out of the way, if everything goes to plan there, I expect it will move very quickly thereafter.
On achieving FID-ready status for the 10mn t/yr Bayu-Undan CCS project this year, what are the key hurdles?
It's really more just about getting the regulatory framework in place for CCS, because they don't exist today. East Timor's ministers are taking a very personal interest in this project now. And then it comes down to government-to-government, getting the arrangements in place to facilitate the transport of CO2 across borders. And that's ultimately the more critical path.
The US-Iran war, how has it confirmed your thinking about the oil and gas business and how has it challenged that thinking in the last couple of months?
I think what it's done is highlighted that the world runs on oil and gas, the energy mix globally is still around 83pc fossil fuels. For all the trillions of dollars we're investing in renewables, it's taking up a portion of the additive energy demand, not replacing the demand for fossil fuels.
Gas will grow considerably between now and 2050. Some of the latest estimates I'm seeing are up to 60pc in the Asian region alone. Everything we do is built on a foundation of fossil fuels. If that's the case, decarbonisation needs to be a priority, as opposed to defossilisation. AI's going to require a lot more energy in the future, and every country's committing 3pc of their GDP to defence budgets. Ships, tanks, aeroplanes, that's a lot of steel, that's a lot of energy. So that's going to take more energy at demand, add more to demand.
I think it's a great opportunity for CCS to grow, because if we're going to decarbonise, we need to get serious about supporting technologies like CCS and not dreaming about technologies that are going to replace fossil fuels.
