Australia’s Santos said it is in talks to sell equity in its flagship Gladstone LNG project, triggering a surge in its shares on expectations it may soon sign a multi-billion dollar deal with Royal Dutch Shell and avert another equity raising. Santos said it was in “detailed ongoing discussions” with a number of parties on potential equity and liquefied natural gas sales, and on collaboration between projects, but there was no certainty of any agreements.
Santos was responding to two newspaper reports that said Shell has entered the fray to bid for a strategic stake in the Gladstone coal-seam gas-to-liquefied natural gas project.
The Australian Financial Review said Santos was close to inking a A$2 billion ($1.75 billion) deal with Shell to sell a 30-35 per cent stake in the Gladstone LNG project, while The Australian newspaper said Shell is competing with China’s Sinopec and Korea Gas Corp to buy a stake of between 9-20 per cent that could be worth as much as A$1 billion.
“Shell has indicated that they are open to consolidation and it is only logical for them to talk to Santos since Shell’s acreage is land-locked and is located right next to Santos’ project, which has a deep-water port good for LNG ship loading,” said Di Brookman, an energy analyst at CLSA Asia-Pacific Markets.
The reports sent Santos shares to close at a 12-week high of A$14.00, after gaining 9.7 per cent. Trading volumes of 16.2 million was also 3.5 times its 90-day average.
A deal with Shell could be among a long list expected in Australia’s resources sector after the government watered down plans for a disputed mining tax last week. A potential deal with Shell would greatly reduce Santos’ burden in funding its Gladstone project and alleviate investor concerns that it would need to carry out another equity raising.
Santos tapped investors for A$2.5 billion last year to cover its share of costs for another LNG project in Papua New Guinea.
It would also bring clout and certainty to the Gladstone project that major buyers need before they can commit to contracts worth tens of billions of dollars.
“If Shell joins Santos, the credit rating for the project would go up and that will also make it easier for them to sign on major customers,” Brookman said.
