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Santos Aims to Sell 15% of $15 Billion LNG Project This Year

Santos Ltd., the Australian energy company planning a $15 billion liquefied natural gas project in Queensland, aims to sell at least 15 percent of the venture before committing to the first phase later this year.

Australia’s third-largest oil and gas producer expects to own a maximum of 45 percent of the proposed Gladstone LNG development when it makes a final decision to proceed, Adelaide-based Santos said in a presentation today. Santos currently owns 60 percent and Petroliam Nasional Bhd., or Petronas, the rest.

“LNG buyers are seeking good stakes in the project -- they are looking for real participation,” Santos Chief Executive Officer David Knox said in a call with reporters after the company posted a 94 percent gain in first-half profit. Santos plans to remain the largest shareholder in the venture, he said.

BG Group Plc, Origin Energy Ltd. and Santos intend to make decisions by the end of 2010 on projects that will convert coal-seam gas to liquid, targeting Asian demand for cleaner-burning fuels. Origin has reduced the gap with the competition in gaining regulatory approvals for its proposed venture with ConocoPhillips, Managing Director Grant King said yesterday.

Santos remains in talks with potential Asian customers to sell fuel and a stake in the venture, Knox said. While Santos is still interested in consolidation with other proposed LNG projects in Queensland, that will be difficult to achieve between now and a final investment decision, Knox said. He didn’t elaborate how rival ventures may cooperate.

Door ‘Not Closed’

Santos plans a final investment decision on the first gas-processing unit at Gladstone on the central Queensland coast in the fourth quarter.

“What I’m really focused on is delivering our FID later this year,” Knox said. Even so, collaboration is “not something I’ve closed the door on.”

Santos declined 0.1 percent to A$13.82 at 11:30 a.m. in Sydney trading, compared with a gain of 0.4 percent for the benchmark S&P/ASX 200 Index.

Selling a bigger stake in the project reduces the spending required for Santos, Di Brookman, an analyst at CLSA Asia-Pacific Markets in Sydney, said today. The Gladstone project, with two units, may cost A$16.4 billion, Melbourne-based Deutsche Bank analyst John Hirjee has estimated.

“In going to 45 percent, we’re selling at least 15 percent, and anything below that we have to make absolutely certain that it’s in shareholders’ interests,” Knox said on the conference call.

Korea Gas Talks

Korea Gas Corp., the world’s biggest importer of LNG, said Aug. 24 it will complete talks with Santos by the end of September on buying a stake in the Gladstone venture.

Santos said last month that it was in talks over potential LNG sales, selling an interest in the project and collaboration between ventures. Royal Dutch Shell Plc, which plans another LNG project in Queensland state, may seek to acquire a stake in a third or fourth production unit, Brookman said.

First-half net income rose to A$198 million ($175 million) from A$102 million a year earlier, Santos said. The company expected profit to be in a range of A$180 million to A$200 million, it said Aug. 9.

Santos maintained its 2010 production forecast of 49 million to 52 million barrels of oil equivalent. Finance costs would be lower than expected and tax expenses for its offshore oil and gas projects would be “heavily weighted” toward the second half of the year, Santos said this month.

BHP Billiton Ltd. and Woodside Petroleum Ltd. are Australia’s biggest oil and gas producers.

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