* Gladstone LNG sustaining capex uncertain
* Train 1 on schedule, train 2 seen online end 2015
* GLNG to ramp up to fully contracted level by 2017 earliest
By Rebekah Kebede
PERTH, Dec 4 Santos Ltd, Australia's
No. 2 energy company, could face more than $1 billion in
additional costs to drill enough wells to bring its $18.5
billion Gladstone liquefied natural gas (LNG) export plant up to
The project is part of a $190 billion surge in new LNG
capacity development under way in Australia, but costs have
already blown out by around 16 percent from an original estimate
of $16 billion.
Santos told an investor briefing on Wednesday it would have
to drill about 300 wells in two years to 2015, and another 200
to 300 wells a year thereafter to source enough coal seam gas to
fuel the plant, which is due to come on stream in 2015.
While well costs have fallen in the past three years, if
drilling costs remain the same, the drilling programme would
lead to additional capital expenditure for Gladstone of $1.2 to
$1.6 billion through 2018, according to Reuters calculations.
"While the $18.5 billion number hasn't changed ... we're
going to have 200 to 300 wells with ongoing costs probably being
in the order of $400 to $500 million a year," said Johan
Hedstrom, an analyst with Canaccord Genuity Australia in Sydney.
This would be in sharp contrast with offshore projects such
as the North West Shelf in Western Australia which had ongoing
capital costs of about $10 to $20 million a year, Hedstrom said.
Gladstone LNG is one of three coal seam gas to LNG export
projects on Australia's eastern seaboard, with BG Group
bringing its Queensland Curtis Island LNG plant online in 2014
and Origin and ConocoPhillips' Australia Pacific LNG
bringing a plant online in 2015.
Unlike offshore LNG projects, which rely on a few large
reservoirs, coal seam gas projects have to source gas from
thousands of wells spread over a large area and the market has
been closely watching the projects following a series of cost
Santos executives said the cost of getting the company's
flagship project fully up and running would depend on the number
and cost of wells, as well as the availability of gas from third
Current costs per well have fallen 30 percent from 2010
levels to $1.35 million, and the cost could change over time.
"The average cost (per well) is a difficult one to tie down
and this really will be a year by year proposition," said Trevor
Brown, a vice president at Santos in Queensland.
Santos said Gladstone LNG was on schedule to deliver its
first cargo of LNG in 2015, but may take until late 2017 or 2018
to ramp up to its fully contracted capacity of 7.2 million
tonnes per year.
It expected capital expenditure of A$4 billion in 2013,
falling to A$3.5 billion in 2014.
Santos owns 30 percent of the project, while Malaysia's
Petronas and Total own 27.5 percent each.
GLNG has binding offtake agreements with both Petronas and South
Korea's KOGAS for 3.5 mtpa over 20 years.
Santos also said its 2013 production would come in around 51
million barrels of oil equivalent (mmboe), slightly below its
earlier forecast, but output would rise to 52-57 mmboe in 2014
as the massive PNG LNG project with Exxon Mobil in Papua
New Guinea comes onstream in the second half.