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Origin Energy and Santos agree to share infrastructure

Two of Australia’s largest LNG projects – Australia Pacific LNG and Gladstone LNG – which are part owned by Origin Energy (ASX: ORG) and Santos (ASX: STO) respectively have announced the signing of gas swap and infrastructure connection agreements.

According to the release, the agreements will make gas transportation more efficient between the two projects’ Surat Basin gas fields in Queensland, and reduce the need for additional pipeline infrastructure. As Santos’ Vice President Queensland Mr Trevor Brown stated – “it’s a win-win for both projects and puts us in a strong position as we work towards the delivery of first LNG in 2015.”

Proving that the agreements are providing sensible and efficient outcomes for each party, management estimates that the agreements between the two parties will save the need to each develop and build an extra 140 km of additional pipelines and multiple connection points at compressor stations to deliver gas to Curtis Island.

The opportunity to share infrastructure stands to create a significant saving for both energy companies, a saving which Oil Search (ASX: OSH) and its joint venture partners haven’t had the luxury of forming on the PNG LNG Project. Given the virgin terrain and lack of other projects in the PNG Highlands, the PNG LNG Project  – which is on track for completion during 2014 – has had to ‘go it alone’ to develop its assets.

Foolish takeaway

The market appeared to like the news, with Origin’s share price up over 2.5% after the announcement, while Santos’ shares price rallied around 1.5%. In contrast the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) was up just 0.34% by late morning.

With the development costs associated with these major project running into the tens of billions of dollars, even relatively small savings such as infrastructure sharing or an improved rate achieved from the refinancing of debt can lead to meaningful saving for shareholders and improve the expected rates of returns on investment in these LNG projects.

The potential step change in the earnings profile of the above energy producers once their respective projects come on line could lead to substantially higher dividend payments within the next few years. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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