One big reason to invest in Santos

New gas discovery could be the tip of the iceberg.

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Australian energy explorer and producer Santos (ASX: STO) confirmed last week it has hit gas pay at the company’s newest exploration well Bassett West-1 in the Browse Basin off Western Australia.

Using wireline logging and sampling, Santos confirmed the find of 7.5 meters of gas pay and gas condensate in Jurassic sandstones – an indication of the further potential gas reserves the site holds and welcome news for investors.

The discovery was made in the permit block known as WA-408-P, a site 475 km north of Broome, which Santos holds 30% rights to. The remaining rights are held by partners Total E&P Australia, a division of French oil and gas company Total (NYSE: TOT), and US-listed Murphy Oil.

It is the most recent find for Santos in the Browse Basin, an area which has the potential to yield big returns if a large discovery is made. In November last year the company announced a significant discovery just 90 km from Bassett West-1 of 61 meters of net gas pay. That find, from exploration well Crown-1, was located in a different permit area (WA-274-P) of which Santos also holds 30%.

While Santos does not currently have any production interests in the Browse Basin, the two discoveries give it a promising exposure to energy-rich area.

In the company’s media release Santos Head of Exploration Bill Ovenden said further work is still required to determine the composition of the gas and to discover additional potential reservoir segments in the vicinity.

The find bodes well for Santos however. Fellow major energy company Woodside Petroleum (ASX: WPL) has significant exposure to the Browse Basin area and is working on developing three gas fields as part of the company’s Browse LNG joint venture.

In April this year Woodside completed commercial evaluation of a proposed LNG development at James Price Point, rejecting the option in favor of exploring lower cost alternatives, particularly a floating LNG (FLNG) production plant.

Foolish takeaway

The rich reserves of the Browse Basin may seem like easy pickings, but spanning a massive 140,000 square km it takes a skill and experience to map, locate (and eventually extract) the energy resources it holds.

Santos’s exposure to the area and its two recent discoveries demonstrates the solid capability Santos has in exploration, a key step in the process of producing strong, long-term returns for investors.

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More reading

  • Santos prepares for oil, gas and LNG expansion
  • Directors buy up as share prices go down

Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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