Santos Sells 15% Interest in GLNG to Total for A$650 Million (Australia)

Santos has today executed an agreement with Total for the sale of a 15% interest in GLNG for A$650 million. In parallel, PETRONAS has also entered into an agreement to sell a 5% interest in GLNG to Total.

Upon completion of the Santos and PETRONAS sale transactions, the ownership structure of GLNG will be: Santos 45%; PETRONAS 35%; Total 20%. Total is one of the world’s largest LNG companies with interests in eight producing LNG projects and one under construction.

In 2009, it had total LNG sales of 8.8 million tonnes. Total has interests in the Qatargas 1 & 2, Adgas, Yemen, Oman and Qalhat LNG projects in the Middle East, the NLNG and Angola projects in Africa, the Snohvit project in Norway, the Bontang project in Indonesia and the Ichthys project in Australia.

The GLNG transaction however represents the first major investment by Total in an LNG project using unconventional gas anywhere in the world. The Total led 6.7 mtpa Yemen LNG project commenced production in October 2009.

Santos Chief Executive Officer David Knox described the sale agreement with Total as a landmark agreement for the Australian LNG industry. “We are pleased to welcome Total into the GLNG project as a fully integrated joint venture partner,” Mr Knox said.

“Total brings substantial technical LNG plant and project management expertise with respect to major LNG developments,” Mr Knox said. Christophe de Margerie, President and Chairman of Total said: “In line with the Group’s partnership strategy, Total is teaming up with Santos for its expertise in gas production in Australia and with state-owned Malaysian oil and gas company PETRONAS for its experience in marketing LNG in Asia.

Total will bring to the project its experience in successfully managing major projects such as the construction of gas liquefaction plants, and its capacity to market LNG to the Asian market.” In addition, Santos and Total will explore potential further cooperation between the two companies with respect to commercialising Santos’ significant contingent resources in Australia.

Proceeds from the asset sale transaction will be used to fund Santos’ significant pipeline of growth projects combined with general corporate purposes consistent with its investment grade credit rating. This will include funding Santos’ 45% share of GLNG project costs.

The sale agreement is binding and subject only to Australian Foreign Investment Review Board approval and other customary consents and regulatory approvals.

Total and PETRONAS binding HOAs of 5 mtpa in aggregate underpin two train GLNG

GLNG has today also signed a binding Heads of Agreement for the sale of 1.5 million tonnes per annum (mtpa) of LNG to Total for a period of 20 years commencing in 2014. The Agreement provides for 1 mtpa of the contracted volumes to be delivered from GLNG train 1 and 0.5 mtpa from train 2.

In addition, GLNG and PETRONAS have increased the contracted volumes to 3.5 mtpa under their previously announced binding Heads of Agreement. The Agreement provides for 2.3 mtpa of the PETRONAS contracted volumes to be delivered from GLNG train 1 and 1.2 mtpa from train 2.

Other key terms of the Agreement remain in place including the 20 year term. In combination, the Total and PETRONAS binding Agreements now provide for the sale by GLNG of 5 mtpa of LNG in aggregate, underpinning the development of a two train project.

The combined value of the GLNG offtake agreements exceeds A$100 billion. “We are also delighted that PETRONAS have increased their offtake from 2 mtpa to 3.5 mtpa with offtake from both trains 1 and 2,” Mr Knox said.

“With 5 mtpa of LNG offtake now secured by binding agreements, GLNG has affirmed its leadership in CSG to LNG development. GLNG continues to target a final investment decision this year, subject to all regulatory and partner approvals being in place.”

GLNG remains in detailed ongoing discussions with a number of Asian parties in relation to further potential LNG sales and equity in the project. These parties include KOGAS, the world’s largest LNG buyer.

In light of the revised joint venture structure and increased LNG offtake obligations on PETRONAS (under the binding Heads of Agreement), PETRONAS will no longer make additional payments to Santos upon reaching final investment decisions for expansion trains.

Santos will retain its current role as GLNG upstream operator of the coal seam gas fields. The existing GLNG joint operating company will continue to operate the pipeline and LNG plant.

Total will have the opportunity to second staff into the GLNG project. The GLNG coal seam gas areas intended to supply gas to the project have been amended to include certain surrounding Santos CSG fields.

The revised joint venture arrangements also allow for the supply of gas to GLNG from Santos’ eastern Australia gas portfolio.

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Source: Santos, September 9, 2010