Australia's Santos takes FID on Darwin LNG Barossa backfill project

Sydney — Australia's Santos has given the greenlight to the $3.6 billion Darwin LNG Barossa backfill project, which is expected to extend the export facility's operations to 20 years, the company announced March 30.

Darwin LNG, which was the first LNG project in the state of Northern Territory and the second in Australia, is currently supplied by the Bayu-Undan field where reserves have been depleting, and is expected to run out by the early 2020s.

The Barossa project is designed to backfill Darwin LNG before it runs out. A final investment decision had been delayed since 2020 due to the disruption in global energy markets caused by the pandemic, which led to companies slashing capital expenditures and holding back project plans.

Following the FID on Barossa, it is scheduled to supply first gas to the 3.7 million mt/year DLNG project in the first half of 2025. "The project represents the biggest investment in Australia's oil and gas sector since 2012," Santos said.

Santos was not immediately available for comment on the likely timeframe between when Bayu-Undan is exhausted and Barossa starts up.

The Barossa FID underscores the resumption of large-scale LNG projects as oil and gas companies recover from COVID-19's impact. Australia is expected to move ahead with other key upstream and brownfield projects in coming months.

The first post-pandemic FID was Sempra Energy's Energía Costa Azul LNG export project in Mexico, which announced FID on Phase 1 of its project late last year, Jeff Moore, manager, Asian LNG Analytics, S&P Global Platts, said.

"This [Barossa] is the first FID on an LNG supply project in 2021 though, and will help support Australian exports for the next several decades," he said.

"This will help offset declines particularly from Northwest Shelf, and Platts Analytics expects Australian LNG exports to bottom out at 93 Bcm during this decade, but this backfill project will certainly help prop up exports once it comes online," Moore added.

The FID on Barossa was the final condition for the completion of 25% equity sell-downs in DLNG and Bayu-Undan to SK E&S, which is also a partner in Barossa. "Santos and JERA continue to progress the binding sale and purchase agreement for JERA to acquire a 12.5% interest in Barossa," Santos said.

The company added that the sell-downs to the two partners will see Santos' interests in Bayu-Undan and DLNG change to 43.4%, and in Barossa to 50%.

"The Barossa investment decision will see approximately 380 million barrels of oil equivalent resources commercialized to 2P reserves at Santos' expected 50% interest in the project following the sell-down to JERA," Santos said.

RBC Capital Markets analyst Gordon Ramsay said in a research note March 30 that with Barossa targeting a cash cost of production of roughly $2/MMBtu, it is now the lowest cost new Australasian supply at about $5.50/MMBtu.

"It is supported by a 10-year JKM-priced LNG sales agreement with Mitsubishi subsidiary Diamond Gas International," he said.

"Less than a year since we completed the acquisition of ConocoPhillips' northern Australia and Timor-Leste assets and despite the global economic impact of a one-in-a-hundred-year pandemic, it is a great achievement to have extended the life of Bayu-Undan following the approval of the infill drilling program, and now to have taken FID on the Barossa project," Santos CEO Kevin Gallagher said.