Santos buys into AWE project

Oil and gas producer Santos Limited (ASX:STO) has announced that it is paying up to US$188 million for a 50% stake in the Ande Ande Lumut oil project in Indonesia.

The undeveloped Ande Ande Lumut oil field is estimated to contain proven and probable reserves of around 100 million barrels of oil. Santos Vice President Asia Pacific Martyn Eames said the acquisition was consistent with Santos’ strategy of focused growth in its core countries in Asia. “Ande Ande Lumut is a near term oil development project located in Indonesia, a country where Santos has a long track record, deep experience and demonstrated capability.”

Santos will make an initial payment of US$100 million to AWE Limited (ASX:AWE), and further payments of up to US$88 million to develop the field. Santos will also assume operatorship of the field.

Santos has been operating in Indonesia since 1997, and today produces natural gas and oil from three operated assets. Maleo commenced gas production in 2006, Oyong oil production in 2007 and gas in 2009, and Wortel gas prdocution in 2012. A fourth asset at Peluang is expected to commence gas production in the first half of 2014. Indonesia currently produces around 10% of Santos’ total production.

The Ande Ande project is expected to involve drilling 33 wells, which will produce more than 25,000 barrels of oil per day, and comparable to the largest oil field developments in Australia and New Zealand since 2000.

For AWE, it has found a partner with significant resources and experience developing and operating oil fields, while Santos is estimated to have paid around US$3.70 a barrel for its 50% stake. At full production, Ande Ande will go close to doubling Santos’ Indonesian oil production.

Foolish takeaway

Santos has many fingers in many pies, with two LNG projects it is involved in due to come on stream over the next two years – including PNG LNG with Oil Search Ltd (ASX:OSH), as well as significant oil and gas exploration and producing assets. No wonder it’s trading on a trailing P/E ratio of 26.7.

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Motley Fool writer/analyst Mike King owns shares in Santos.

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