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Santos Expects Australia’s First Shale Gas Sales in October

Santos Ltd., Australia’s third-largest oil producer, said it will begin sales from the nation’s first commercial shale gas project after successful drilling results, driving the stock to the highest level in two months.

The energy company expects first sales in October following the drilling at the Moomba-191 well in the Cooper Basin of central Australia, Adelaide-based Santos said today as it reported a 48 percent decline in first-half profit.

Santos is building the $18.5 billion Gladstone liquefied natural gas project, or GLNG, one of three being developed in Queensland state to meet rising Asian demand for the fuel. The company is among domestic and overseas explorers seeking to tap what the Australian government estimates nationally is almost 400 trillion cubic feet of shale gas resources.

“The Moomba well is an exciting result,” Philipp Kin, a Sydney-based analyst at Royal Bank of Scotland Group Plc, said in a phone interview. Further development of its shale gas resources could “put to bed a few of the questions remaining about whether they have enough gas for GLNG,” he said.

The shares rose 3.2 percent to A$11.78, the highest since June 20, while the benchmark index gained 0.9 percent.

Outback Region

Gas flowed at a rate of 2.6 million standard cubic feet per day at the Moomba well, located about 8 kilometers (5 miles) northeast of the company’s Moomba gas plant, Santos said. Santos plans to drill its first horizontal shale gas well in the outback region straddling Queensland and South Australia states early next year, according to the statement.

“This is unambiguously an excellent result and clearly a significant step in Australia’s shale gas future,” James Baulderstone, the Santos vice president for eastern Australia, told analysts today on a conference call. “More work is required to prove a substantial commercial shale play.”

Santos last year projected that commercial shale gas production wouldn’t begin until 2015, Baulderstone said.

Net income fell to A$262 million ($274 million) in the six months ended June 30, from A$504 million a year ago, Santos said. That compares with the A$269 million median estimate of five analysts surveyed by Bloomberg News. Earnings in 2011 were boosted by a A$246 million one-time gain from asset sales.

Profit, excluding one-time items, rose 20 percent to A$283 million on higher gas and liquids prices. RBS expected underlying profit of A$298 million, Kin said.

Santos also maintained its annual production forecast at 51 million barrels to 55 million barrels of oil equivalent.

The company in June increased its capital spending estimate for the Gladstone project by 16 percent on plans to drill an additional 300 wells. Santos’s partners in Gladstone are Total SA, Petroliam Nasional Bhd. and Korea Gas Corp.

The company expects a cost of A$45 million to A$65 million in the year ending in June 2013 because of the government’s price on carbon emissions. Australia on July 1 started charging polluters a price of A$23 a metric ton for their emissions.

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