Santos Reassures on Costs at $18.5B Gladstone LNG Project


MELBOURNE, Nov 26 (Reuters) - Australia's Santos Ltd said on Wednesday it is on track to produce first liquefied natural gas from its $18.5 billion Gladstone LNG project in the second half of calendar 2015, looking to reassure doubters who fear it may face cost overruns.

Investors are nervous about potential delays and hiccups at Gladstone LNG (GLNG) as it is one of three LNG projects in Australia's Queensland state opening in the next two years that will be the first in the world to be supplied by coal seam gas.

"We're going to make first LNG in the second half of next year. And we're going to do it for $18.5 billion. Nobody in this room should be in any doubt that that's going to occur in 2015," Managing Director David Knox said at an investor briefing.

Santos sparked fears it may be facing capital cost blowouts or considering an acquisition when it tapped Deutsche Bank, Goldman Sachs and JPMorgan this week to sound out investors for a hybrid debt raising.

Santos' chief financial officer tried to put those concerns to rest, saying the company was being proactive in the face of a 30 percent slide in oil prices since June and would use any money raised to pay down existing debt.

"We're facing a volatile, uncertain oil price outlook," CFO Andrew Seaton said. "So this is not M&A related at all. This is not capex overrun-related at all."

Santos warned the outlook for its gas output next year would hinge on how quickly all three of the CSG-LNG projects, including BG Group Plc's Queensland Curtis LNG and Origin Energy and ConocoPhillips' Australia Pacific LNG, ramp up and pull gas supplies out of the domestic market.

It narrowed its output guidance for 2014 to 53-55 million barrels of oil equivalent (mmboe), with one month to go, and said it expects production of 57-64 mmboe in 2015.

Once GLNG is up and running, Santos expects to be producing 80-90 mmboe by 2020, with its fate tied more to Asian LNG demand and pricing, than the Australian domestic market.

"I would argue that that's a much more robust and a higher priced market than the domestic Australian market has historically been and gives us the opportunity to increase our margins in the very long term," Knox said.

Santos shares were down 0.2 percent at A$11.81 in morning trade, while the benchmark S&P/ASX 200 index was up 0.8 percent.

(Reporting by Sonali Paul; Editing by Richard Pullin)


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