07-05-09 Despite the global economic slump, Santos, Australia's third largest oil producer, plans to invest A$ 1.5 bn ($ 1.13 bn) in 2009 for its exploration and development activities including the prestigious multi-billion dollar Gladstone liquefied natural gas (LNG) project.
''We are going to invest A$ 1.5 bn this year, so we are in a very strong position and really moving forward with real pace,'' Santos chief executive David Knox told in Adelaide after the annual general meeting. ''When the recovery does come, and goodness knows when that will be, then there will be a shortage of energy and that will be a real concern.'' Knox added.

Santos is developing a $ 7.7 bn project at Gladstone in Queensland-the world's first project for conversion of coal seam gas (CSG) to LNG on a large scale. The company forecast a production target of 53 to 56 mm boe for 2009 and expects a further surge in production in 2014.
Santos chairman Stephen Gerlach told the annual general meeting: ''We are expecting steady production levels in the near term before a step-change in 2014 when the Gladstone LNG and Papua New Guinea LNG projects come online.''

In a year of unprecedented stock market volatility, Santos shares outperformed the market and was one of only eight ASX100 companies whose share price rose during the severe stock market downturn in 2008 when the overall market fell by more than 40 %, Gerlach said. The company achieved a record revenue of A$ 2.8 bn in 2008 on a production of 54.4 mm boe. The net profit soared 42 % to A$ 572 mm.
Gerlach said Santos is well positioned to take advantage of future growth in demand for natural gas with three world class LNG projects in its portfolio, Darwin, Gladstone and Papua New Guinea.

During unprecedented volatility in the oil price, Santos' revenues in 2008 had been cushioned by the weaker Australian dollar, Knox said.
''I won't try to predict the oil price, but I would like to say that our strategy is underpinned by our fundamental confidence in the long-term outlook for Australian and Asian energy demand,'' he added.

In May 2008, Santos joined hands with Malaysian oil and gas major Petronas, who operates the largest LNG plant in Asia as well as the world's largest fleet of LNG tankers, by offloading 40 % stake of Gladstone LNG for $ 2.5 bn, an investment which significantly advanced the project.
Knox said the company not only increased its total oil and gas reserves by the equivalent of several years' production, but also generated a cash surplus of $ 1.5 bn in 2008.

Consolidation of Gladstone LNG plants
Apart from Santos, ConocoPhillips / Origin joint venture and the BG group have major LNG projects at Gladstone. On the possible consolidation of the three big projects, Knox said the maximum synergies would come from speedy merger of the projects at the design stage, before the final investment decision due in the first half of 2010.
''What we're saying to both the ConocoPhillips/Origin joint venture and the BG group is, we would welcome collaboration if it could be managed,'' Knox said at the company's AGM. ''In the event of it not happening... we have a very good project and we are moving that forward,'' he added. In addition, Shell and LNG Ltd too intend to put up LNG plants in Gladstone, though smaller.

On carbon trading
Santos management appreciated the Australian government's efforts to introduce carbon trading scheme and welcomed the decision to delay it by one year telling that it would improve the transition.
''Emissions trading will bring forward the use of gas and therefore, when you step back, it will be hugely helpful for Santos,'' Knox said.

LNG based power stations produce about 70 % less carbon emissions compared to coal fired plants. They also use much less water. Knox said the carbon trading scheme will be more profitable for the company as it would make gas financially more attractive. The CSG from Gladstone is low in carbon dioxide and, Papua New Guinea, still has not introduced any penalties for carbon emissions.
''If we are to move forward as an energy company we have to work to provide cleaner energy,'' Knox said.

The present Santos chairman Gerlach is finishing his eight year term at the end of the year and his deputy, Peter Coates will succeed him as the company's new chairman.