Santos Seeks Collaboration With Rivals Amid Rising Cost Threat

Santos CEO David Knox
Santos Ltd. Chief Executive Officer David Knox. Photographer: Sergio Dionisio/Bloomberg

Santos Ltd., building a liquefied natural gas project in Queensland state, plans to collaborate with rivals to cut costs as rising expenses threaten $156 billion of developments proposed by the industry in Australia.

“We’re all working together to see how we can drive costs out collectively and lots of things are being considered,” Chief Executive Officer David Knox said on yesterday’s Inside Business program on the Australian Broadcasting Corp. “Costs in Australia are extremely high and it is a concern.”

Santos, Australia’s third-biggest oil and gas producer, wants to “join forces” with competitors at a range of levels, Knox told the program, without being more specific. Some government regulations serve little purpose other than to drive up the Adelaide-based company’s costs, he said.

Santos is constructing the $18.5 billion Gladstone project in Queensland, one of seven liquefied natural gas projects being developed in Australia to meet rising Asian demand. Knox’s concern that rising costs put future investment at risk, a notion also raised by Australia’s resources minister last week, follows delays to projects and expansion by BHP Billiton Ltd. and Fortescue Metals Group Ltd.

Santos has fallen 11 percent in Sydney trading this year, trailing the 8.8 percent gain by Australia’s benchmark S&P/ASX 200 Index in the same period.

Wider Cooperation

Knox told the ABC that the natural gas industry is already sharing some resources, such as safety statistics and medical evacuation helicopters, to cut costs on the east coast of Australia, home to the Gladstone project. That kind of cooperation might spread to projects on the west coast, he said.

“Each one of us, in some respects, are seeking to join forces in both the upstream and the downstream where it makes sense,” Knox told the program. “We’re seeking opportunities to work together and you’re going to see that continue. There are opportunities to do exactly the same in Western Australia.”

Santos’s operations include the A$490 million ($509 million) Fletcher-Finucane oil project in the Carnarvon Basin off Western Australia, the Chim Sao oil field in Vietnam and assets in central Australia’s Cooper Basin.

Santos said last week it expects output to rise in 2013 after Fletcher-Finucane starts in the second half of the year. Santos forecast production of 53 million to 57 million barrels of oil equivalent next year, the company said in a Nov. 22 presentation. That compares with the company’s 2012 target of 51 million to 55 million barrels.

The company said it expects capital spending of A$4 billion next year, the peak for spending on the Gladstone project. That includes outlays on the Exxon Mobil Corp.-led LNG venture in Papua New Guinea. Exxon said earlier this month that the cost of that venture jumped 21 percent to $19 billion.

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