Total Buys 20% of Australian LNG Project to Gain From Asian Energy Demand

Total SA, Europe’s third-largest oil producer, agreed to acquire 20 percent of Santos Ltd.’s proposed liquefied natural gas project in Australia’s Queensland state for more than A$860 million ($790 million).

The transaction marks Total’s first “major” investment in an LNG venture that relies on unconventional gas resources, Adelaide-based Santos said in a statement today. The Paris-based company gains a stake in one of more than a dozen proposed LNG developments in Australia targeting Asian demand for cleaner- burning alternatives to coal and oil.

For Total, also a partner in the Ichthys LNG project in Australia operated by Japan’s Inpex Corp., the agreement is a “great way to tap Asia’s growth,” Xavier Grunauer, an analyst at Nomura Holdings Inc., said today from Sydney. “It makes a lot of sense for them to get into Australia.”

The Gladstone LNG venture has supply contracts worth more than A$100 billion that will underpin two production units and clear the way for a final investment decision later this year, Santos said. Origin Energy Ltd., in partnership with ConocoPhillips, and BG Group Plc also plan developments in Queensland to convert coal-seam gas to liquid for export to Asia.

Gladstone LNG has “space for another partner” and more gas to sell from the first two processing units, known as trains, Chief Executive Officer David Knox said by phone today. Santos remains in talks with Asian companies, including Korea Gas Corp., for potential fuel supplies and sales of equity in the project, he said. The venture may cost A$16.4 billion, Deutsche Bank says.

Shares Slump

“I would very much like to sell out both my trains before I sanction the first one,” he said. “We are in discussions with Kogas, and we’d like to see those discussions progress to a successful conclusion, but also with other Asian parties.”

Santos shares fell 7 percent to A$12.79 by the 4:10 p.m. close in Sydney, the most since May 2009, after Australia’s third-largest oil and gas producer said it would sell 15 percent of the gas project to Total for A$650 million.

Grunauer, the Nomura analyst, said he had expected Santos to get as much as $1.5 billion for a stake that size. The proceeds from the Total deal won’t be enough to fund Santos’ share of the costs to develop the project, and the company may need to raise about A$2 billion by selling shares, he said.

Korea Gas, the world’s biggest LNG buyer, was close to an accord with Santos to buy 10 percent of the project for $1.5 billion, Yonhap News said Aug. 27, citing a company official it didn’t identify.

Reduced Stakes

Total is buying the other 5 percent from Santos partner Petroliam Nasional Bhd. The two companies may reduce their stakes in the venture further, Knox said.

Total agreed to purchase 1.5 million metric tons of LNG annually over 20 years, starting in 2014. Its shares fell 0.7 percent to 38.39 euros at 9:55 a.m. in Paris.

Petronas, as the Kuala Lumpur-based company is known, will increase the amount of fuel it will buy to 3.5 million tons a year from 2 million. There remains as much as 2.2 million tons a year to sell from the first two processing units, Knox said.

Santos and Total will explore further cooperation in Australia, the Australian company said. The Gladstone project plans to tap coal-bed methane, regarded as an unconventional resource along with shale gas and tight gas held between rocks.

Total said it is joining with Santos for its expertise in gas production in Australia and with Petronas for its experience in marketing the fuel in Asia. “Total will bring to the project its experience in successfully managing major projects such as construction of gas liquefaction plants,” Total President Christophe de Margerie said in a statement.

‘Big Time’

After the transactions are completed, Santos will be left with 45 percent of the project, Petronas will have 35 percent and Total 20 percent, according to the statement.

Santos was in negotiations with Total for “many months,” Knox said. “Total identified the opportunity and they were keen to get into coal-seam gas. They’re in a conventional resource in Australia big time, and now an unconventional resource in eastern Australia. It reflects that both of these resources have significant value in the eyes of a super major.”

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

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