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Australia's Santos Mulls Plans Amid Takeover Action

Australian oil and gas producer Santos said on Friday it was considering potential strategic initiatives as it comes under pressure to grow amid moves towards consolidation in the sector.

BG Group this week made a A$12.9 billion (US$12.1 billion) proposal to buy coal seam gas producer Origin Energy, sending Santos shares up sharply on speculation it might also be a potential target once a 15 percent shareholder cap is removed in November.

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Santos did not elaborate on the initiatives, but analysts said one could be a decision on a joint venture partner for a A$7.7 billion, 3-4 million tons a year liquefied natural gas (LNG) plant using coal seam gas at Gladstone in Queensland state.

"The next game plan for Santos will be to make a partnership agreement soon," said an analyst who asked not to be identified. "The race to build LNG projects on the east coast has stepped up and BG has jumped ahead of the race in its bid for Origin, which will allow it to secure reserves and significant production capacity."

BG is seeking to secure more coal seam gas resources for its planned coal seam gas-powered LNG plant, also at Gladstone. Origin holds the largest coal seam gas reserves in Queensland.

Santos said in February it expected to make a decision on the partner for Gladstone project, but has not revealed which firms have been shortlisted. Analysts have named Royal Dutch Shell, BP and ConocoPhillips as likely candidates.

Shares Jump

Shares in Santos retreated 1.3 percent to A$17.14 on Friday, having jumped 9.3 percent the previous session to close at a life high of A$17.36. The jump was fuelled partly by a belief that Santos will be a takeover target once the shareholding limit, imposed by the South Australian state government in 1979 to prevent any disruption to state gas supplies from a takeover, is removed.

The Australian newspaper said on Friday that oil majors Exxon Mobil, Shell, BP and Total Oil were all potential bidders for Santos.

China's Sinopec and Japan's Osaka Gas, Mitsui & Co and Itochu were also in the frame, the report said.

Separately, Santos told shareholders at its annual general meeting on Friday that it sees scope to build a second LNG plant at Gladstone within a few years of starting the first facility, which is targeted to start shipments in 2014.

"Our aspiration is to ultimately be exporting 10 million tons per annum to the premium markets in Asia-Pacific," Acting Chief Executive Officer David Knox said in a statement.

Knox also said it has enough coal seam gas resources to fuel its Gladstone LNG project without acquiring other companies.

He added that Santos and its partners in the ConocoPhillips-led Darwin LNG project in northern Australia are also discussing plans to expand the plant by adding a second production unit.

Santos reiterated its 2008 production forecast of between 56-58 million barrels of oil equivalent, down from 59.1 million last year, but added that it expects to return to production growth in 2009 as new projects come online.