Santos to Raise Up to $2.3B for LNG Growth Drive
SYDNEY (Dow Jones Newswires), May 11, 2009
Santos Ltd. (STO.AU) said Monday it plans to raise up to A$3 billion (US $2.3 billion) from a deeply discounted equity raising and may sell a stake in its Gladstone liquefied natural gas project to help fund its gas export strategy.
Santos is already in a strong cash position, having sold 40% of its planned LNG processing plant at Gladstone in Queensland state to Malaysia's Petroliam Nasional Bhd. (PET.YY), or Petronas, in May last year for up to US$2.51 billion.
But a steep fall in the oil price is putting pressure on energy companies balance sheets and Santos also has to help fund the construction of the US$16 billion-plus Exxon Mobil Corp.-led (XOM) PNG LNG project in Papua New Guinea.
The Adelaide-based oil and gas producer said it will raise a minimum A$1.65 billion from an underwritten institutional component of an equity raising, and may raise up to A$1.35 billion from a non-underwritten retail component. Shares are being issued at A$12.50 per share, which is a 27% discount to Friday's close at A$17.09.
An analyst from a large international investment bank, who wished to remain anonymous, said that the larger-than-expected discount will increase the size of the raising's take-up, and could be designed to prevent Santos from having to return to the equity market for funding.
The raising also follows a two-month rally in Australian shares, fueled by hopes the global economy has bottomed, that has prompted other companies like real estate investment trust GPT Group (GPT.AU) to tap the market for capital.
Santos' raising, however, has much to do with meeting imminent capital-intensive commitments and the company is fortunate that its stock has risen to the occasion.
Non-recourse project financing for PNG LNG is currently about 70% complete at US$11.5 billion and Santos has to guarantee its US$1.6 billion share while maintaining a BBB+ credit rating, all by the fourth quarter of this year when a final investment decision is due to be made on the project.
PNG LNG, in which Santos currently has a 17.7% stake, will get A$1.05 billion of the raised funds, while another A$600 million will go towards redeeming some hybrid securities, called FUELS, by a Sept. 30 deadline.
The up to A$1.35 billion left over will be used to fund "other growth projects", including the multibillion dollar Gladstone LNG project, Santos said.
Santos said it's on track to make a final investment decision on Gladstone LNG in the first half of next year and is currently trying to find LNG customers. Analysts say it could have a tough time, given that the LNG market is still suffering despite tentative signs of global economic recovery.
In a positive sign, Santos said Monday that marketing discussions are "at a reasonably advanced stage."
"Santos may, in combination with an offtake agreement, sell a further minority interest in the project," it said.
Chief Executive David Knox said in February that Santos could sell up to 9% of Gladstone LNG without permission from partner Petronas and Citigroup analysts have already flagged that they expect a further equity sale.
The PNG LNG and Gladstone LNG projects are two of nearly a dozen planned LNG facilities in the Asia Pacific region. Their construction is premised on supplying fuel-strapped Asian customers nearby with gas. PNG LNG is making better progress, having already agreed to an offtake deal with a large Chinese customer, and is considered by most analysts as a frontrunner alongside the Chevron Corp.-operated (CVX) Gorgon LNG project offshore Western Australia state.
Santos on Monday also reiterated its 2009 production guidance of 53 million-56 million barrels of oil equivalent and said it intends to maintain its 2009 per-share dividend in line with 2008 which was 42 cents.
Copyright (c) 2009 Dow Jones & Company, Inc.
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