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What Santos’s new exploration investment means for investors

Two of the country’s top energy producers, Woodside Petroleum (ASX: WPL) and Santos (ASX: STO) have taken new steps in the last week to up their investment in exploration to sniff out new oil and gas sources across Australia.

That’s great news for investors at a time when almost $150 billion worth of energy and mining projects have been delayed or cancelled in the last year, according to the Bureau of Resources and Energy Economics (BREE).

Santos has plans to invest $100 million in a new phase of oil and gas exploration in central Australia over the next 12 months targeting the Mereenie field in the Amadeus Basin, 250 km west of Alice Springs. Santos already has 57 production wells in the area and will consider further investment if the exploration is successful.

Figures from the Australian Oil and Gas expo website show investments in the Mereenie field to date have been fruitful ones; the areas has produced more than 16 million barrels of oil and condensate, and over 240 billion cubic feet of gas since 1984.

For investors the Santos investment is a sign (albeit a small one) that the oil and gas industry is not being stung as heavily as the mining sector where falling commodity prices and rising costs have forced companies to scrap any aspirations they had for growth to a focus on protecting profit margins.

Big miners including BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Newcrest Mining (ASX: NCM) have in the last year cut back heavily on new investment, closing or selling off mines, laying off staff and closing offices.

Even though the $100 million represents just a fraction of the forecast $4 billion Santos will invest in projects in 2013, it is an optimistic sign. It is also a prudent move given the company already has facilities in the areas, so any finds will require less future investment to develop.

Woodside is also making tentative steps towards new exploration. The company last week beat five other bidders to win a new permit to explore a block known as WA-483-P in the northern Exmouth sub-basin.

Foolish takeaway

Spending on exploration for energy companies is the equivalent of research and development spending for tech or healthcare companies. The initial cost can be huge, but it is a necessary evil if the company wants to continue to grow and unlock new revenue streams for shareholders.

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

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