Santos and Drillsearch to cash in on partnership

Energy exploration and production is one of very few industries where partnerships and collaboration for mutual benefit are common practice.

The latest partnership between Santos (ASX: STO) and Drillsearch Energy (ASX: DLS) is a great example of energy industry collaboration. The two companies last week announced several new long-term deals including shared ownership of exploration blocks and a long-term gas sales agreement that should benefit both companies.

The first deal will see Santos ‘earn’ a 60% interest and operatorship of Drillsearch’s Western Cooper Wet Gas Project by funding a $75 million exploration and appraisal program in one block, and a $45 million program in a second block that will include the drilling of six exploration wells.

The two blocks contain prospective wet gas resources of over 100 billion cubic feet (bcf). Santos will also provide development assistance in the construction of surface production facilities to export the output. This is of significant benefit to Drillsearch, reducing the risk of having to secure additional funding, and lets it leverage Santos’s existing expertise.

The second deal, a long-term gas sale agreement, will let Drillsearch secure a buyer for future gas production and set Santos up with a new source of supply for growing domestic LNG demand.

In the company’s ASX release, Drillsearch Managing Director Brad Lingo noted that as operator and joint venture partner in the Western Cooper Wet Gas Project, Santos will help to “materially accelerate the development of both conventional and unconventional wet gas resources” in the blocks.

Shareholders of both companies will win as a result and it builds on an already productive relationship between the two companies. Shares in Drillsearch surged 6% to $1.24 on the news, while Santos climbed 1.9%.

Foolish takeaway

The deals between Santos and Drillsearch are well designed to share expertise and maximise the return of each company’s assets. The partnership will result in Santos getting a new source of gas to take advantage of the significant growth in demand from both Asia and Australia’s East Coast, while Drillsearch gains certainty over cashflows — a brilliant result for shareholders in both companies.

In the market for high-yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.