Shares in gas and oil giant Santos Ltd [ASX:STO] have fallen today upon the company announcing it has given the green light to extend gas supplies for its maturing Darwin LNG plant.
The infill drilling project will be the first major new spending commitment for STO since the oil price crash in March.
The STO share price has steadily recovered since the crash in March thanks to the company’s positive sentiment around its output and costs.
At time of writing, STO shares are down 1.01% or 6.5 cents to trade at $6.37 per share.
Bayu-Undan final phase gets $300 million
STO today announced the US$235 million (AU$306 million) of offshore drilling in the Timor Sea to extend gas supplies for its Darwin LNG plant.
The program comprises of three production wells and will develop additional natural gas and liquids reserves, extending field life as well as production from the offshore facilities and the Darwin plant.
STO also said the new campaign will help minimise the downtime faced by the Darwin plant before a new source of gas is developed at the delayed US$3.6 billion Barossa Project.
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STO CEO Kevin Gallagher said:
‘We are delighted to be able to pursue an opportunity that wasn’t on the table 12 months ago, which will optimise field recovery, extend production and deliver significant value to both the Bayu-Undan Joint Venture and the people of Timor-Leste.
‘This infill drilling program adds over 20 million barrels of oil equivalent gross reserves and production at a low of cost of supply and extends the life of Bayu-Undan, reducing the period that Darwin LNG is offline before the Barossa project comes on stream.’
Where to for the Santos share price?
This is positive news for STO investors, although a dip in crude oil prices overnight appear to have out weighted today’s good news.
It’s difficult to pinpoint where the STO share price will head in 2021, with the short-term forecasts for oil not looking particularly promising.
This is despite a strong recovery over the past few months.
Although LNG prices are looking a little more positive.
After a 4% drop in 2020, natural gas demand is expected to progressively recover in 2021.
Albeit at a lower-than-expected rate as the COVID-19 crisis is tipped to have repercussions on the medium-term growth potential according to International Energy Agency.
Source: International Energy Agency
With China and India being two of the key primary drivers for LNG demand, Australia’s already shaky relations with China could impact the STO share price.
So, it could be a rocky year for STO.
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