Australia’s gas-focused Santos has finally admitted that the legal challenges that derailed work on its Barossa giant gas project have impacted both the budget and onstream date.

Santos on Thursday said that it expects the project will require an additional US$200 million to US$300 million in capex, bringing the total investment for Barossa — including the Darwin Pipeline Duplication (DPD) to between US$4.5 billion to US$4.6 billion.

“Following judgement in Munkara v Santos NA Barossa, and [Australia’s offshore regulator] NOPSEMA accepting the revised drilling and completions environmental plan, Santos as operator has revised cost and schedule for the Barossa project,” the company stated.

Santos added that first gas is now expected in the third quarter of 2025, rather than before the end of June that year as per the original schedule.

The additional capital expenditure for Barossa will be incurred in calendar year 2025.

Despite the cost increase and project delay, work is now getting back on track and the Barossa project is now 66.4% complete. Following approval of the revised drilling and completions EP on 15 December, drilling has recommenced.

Meanwhile, the Federal Court on 15 January discharged the injunction preventing pipelaying along part of the Barossa Gas Export Pipeline route, and one-third of the pipeline has been installed to date.

“I am very pleased to see that the Barossa pipelaying and drilling activities are now fully under way with first gas still expected in 2025. Given the challenges of the past two years, we have updated our cost and schedule guidance for the project. The team has done a great job in keeping Barossa close to the original schedule and managing the costs of delay,” commented Santos chief executive, Kevin Gallagher.

The DPD project, which will transport Barossa’s gas to Darwin LNG and free up the existing Bayu-Undan pipeline to transport Barossa reservoir CO₂ for carbon capture and storage in depleted reservoirs at the Bayu-Undan field, received Northern Territory environmental approval on 22 December. The Bayu-Undan CCS project front-end engineering and design work is 85.5% complete, and legislation has been passed in the Australian parliament to enable cross-border transfer of CO₂ to and from Australia.

Santos confirmed that the Bayu-Undan CCS project continues to progress towards the final investment decision in 2025 and first injection by 2028. The operator and its joint venture partners are continuing to engage on regulatory and commercial frameworks with Timor-Leste to enable to project to proceed.

Evaluating options

In tandem, Santos is evaluating options to accelerate value for its shareholders — one option on the table is a merger with compatriot Woodside Energy, which could create an Australian energy behemoth with a market capitalisation of more than US$50 billion.

“As previously announced Santos is in early-stage discussions to evaluate the merits of a potential merger with Woodside. The parties have agreed to exchange information to assess the benefits for our shareholders. Santos continues to consider alternative options to accelerate value for shareholders. There is no certainty that any transaction will eventuate from these discussions,” Gallagher said on Thursday.

Santos posted sales revenue of US$1.5 billion in the fourth quarter of 2023 on the back of production totalling 23.4 million barrels of oil equivalent, with output being slightly higher than the previous three months. Full-year production was 92.2 million boe — at the top of the company’s guidance.

Fourth quarter sales volumes were higher than the prior quarter due to higher liquefied natural gas and condensate volumes, offset by lower crude oil volumes across the company’s portfolio.

However, while Q4 production and sales revenues respectively increased by 1% and 3% versus the previous three months, Santos’ full-year output and sales revenues slumped by 11% and 24% respectively year-over-year.

An upbeat Gallagher said the strong underlying business performance, combined with a disciplined focus on operational excellence, delivered a strong fourth quarter finish for 2023.

“The fourth quarter brought free cash flow for the full year to US$2.1 billion, an outstanding achievement in what has been a challenging year. It positions us well to deliver shareholder returns, backfill and sustain our existing business, complete our major projects — Barossa and Pikka, progress our decarbonisation plans and grow our Santos Energy Solutions business,” he said.

“Our operational focus for 2024 is the execution of the Barossa, Pikka and Moomba CCS projects whilst maintaining a strong balance sheet.”

Santos’ 2024 guidance envisages production of between 84 million and 90 million boe, sales volumes in the range of 87 million to 93 million boe, capital expenditure — sustaining including decommissioning — of approximately US$1.25 billion and capex for major projects including Santos Energy Solutions of around US$1.6 billion.

Santos will release its results for the year ended 31 December 2023 on 21 February.