Santos Ltd (ASX: STO) has just made a final investment decision to go ahead with a major gas project in Papua New Guinea, which will start producing two years from now.
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All systems go
The Adelaide-based oil and gas company said in a statement to the ASX on Tuesday that it had decided to go ahead with the Agogo Production Facility (APF) Tie-In Project in PNG, following approval by the PNG LNG joint venture.
Santos said:
The APF Tie-In Project will deliver gas from the Santos-operated Agogo Production Facility to the PNG LNG gas pipeline via a new 19-kilometre pipeline, together with two new wells and associated production facility modifications. Santos' share of capital expenditure is approximately $160 million (gross capex approximately $400 million over three years). First gas is targeted second quarter 2028.
Santos Managing Director Kevin Gallagher said the project was a "highly value-accretive investment" which met the company's investment criteria.
He added:
The APF Tie-In Project is a high-quality development with strong economics and a clear role in our strategy to build and grow portfolio production. The execution of this project will convert Santos' 66 mmboe (million barrels of oil equivalent) 2P undeveloped reserves into developed reserves, delivering incremental net production of ~54 mmscf/d (million standard cubic feet per day) with significant upside potential depending on reservoir performance. With an expected internal rate of return of greater than 50 per cent and a payback period less than four years from FID, and approximately two years from first gas, the project is expected to be strongly value accretive, support our long-term production profile and sustain feed gas supply to PNG LNG.
The project has a 12-year production plateau, and Santos said it had the potential to continue production beyond 2050.
Santos said the key regulatory approvals were in place, the required land access had been secured, and all material joint venture approvals had been obtained.
Santos holds a 39.9% interest in the PNG LNG joint venture. The other joint venture partners are ExxonMobil PNG, ENEOS Xplora, Kumul Petroleum, and the Mineral Resources Development Company.
Shares looking attractive
Jarden last month published a research report into Santos, which said that while commissioning issues at the company's Barossa and Pikka projects were negatives, the company had delivered an "otherwise solid quarterly''.
The Jarden team added:
While we think Santos will eventually need to downgrade 2026 production guidance, it shouldn't stop the company from moving from its 5-year investment phase to serious cash flow generation in 2H26.
Jarden has a price target on Santos shares of $8.80 compared with $7.55 currently.
Santos is valued at $24.42 billion.
