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Petronas Buys Stake in Santos Australia Gas Project

Malaysia's Petronas will buy a 40 percent stake in Australian energy firm Santos' Gladstone liquefied natural gas project in Australia for $2.51 billion, sending Santos' shares up 10 percent.

Petronas' investment in the project, which plans to use coal seam gas as a feedstock, follows the UK's BG Group's $12 billion proposed bid for Australia's Origin Energy last month and is seen as a vote of confidence for Asia's nascent coal seam gas industry.

Natural Gas
Natural Gas

"Petronas is the ideal partner to help develop Santos' coal seam gas to LNG strategy and their investment significantly advances the project," Santos Chairman Stephen Gerlach said in a statement.

Santos said Petronas will make an initial cash investment of $2.01 billion, plus a further $500 million on reaching a final investment decision for a second LNG train at the Gladstone project, located in Queensland state.

The deal marries Santos's reserves with the marketing power of Petronas, the third-largest LNG producer in the world. Santos shares jumped 10.12 percent to a record high of A$20.90 in the afternoon session.

The race to build coal seam gas-fuelled LNG plants on Australia's east coast has stepped up after BG proposed a takeover of Origin, which holds the largest coal seam gas resources in Queensland state.

Santos, which also has a stake in a proposed Exxon Mobil-led LNG project in Papua New Guinea and a share in an operating LNG plant in northern Australia, has been seeking to expand its LNG business in a bid to gain from rising prices and a forecast surge in global demand.

The transaction sells a third of Santos' coal seam gas proven plus probable (2P) reserves and less than 11 percent of Santos' total proved and probable (2P) oil and gas reserves, Santos said in a statement.

Under the agreement, Santos and Petronas will form a joint venture company to develop and operate a 450 kilometre gas pipeline and an LNG plant at Gladstone. The plant will have an initial capacity of 3 million tons a year.