08/12/2008 - 10:41

Santos confirms Reindeer deferral

08/12/2008 - 10:41

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Oil and gas producers Apache and Santos have officially deferred development of the $900 million Reindeer gas project, as forshadowed last week in WA Business News, with engineering company Clough likely to be the biggest loser.

Santos confirms Reindeer deferral

Oil and gas producers Apache and Santos have officially deferred development of the $900 million Reindeer gas project, as forshadowed last week in WA Business News, with engineering company Clough likely to be the biggest loser.

Santos issued a statement today advising that "the decision was made due to adverse changes in the global economic outlook that have impacted the proposed foundation gas customer".

The project involved the Reindeer offshore gas field development and the Devil Creek onshore gas plant, which was expected to substantially boost gas supplies in the WA domestic market.

Santos said deferral of the project "will require ths suspension or termination of certain engineering and construction contracts".

"Work, however, will continue on regulatory approvals to ensure a timely re-start of the project once gas sales agreements that support the development have been agreed," it said.

Engineering company Clough, which won major contracts for both the offshore and onshore projects, will be adversely affected by the decision.

Clough chief executive John Smith said in a statement that it will work with Apache to bring the work to an orderly halt in order to preserve the value of the investment made to date.

"Under our contracts all costs and commitments made will be fully reimbursed by Apache.

"The residual value of the contracts at termination is $390 million, which reduces the Clough work under contract to about $1.3 billion.

"The 2008-09 effect on planned earnings will be offset by improvements in other projects in partucular the unbudgeted repaid work on Varanus Island.

"We will redouble our efforts to secure replacement work for 2009-10."

Project manager Emerson Stewart is also expected to be adversely affected by the Reindeer decision, after being contracted to provide engineering services.

Santos has a 45 per cent interest in Reindeer with operator Apache holding the remainder.

Meanwhile, Santos was queried by the ASX today after its share price rose by nearly $2 to a high of $14.08 today.

There have been media reports that Santos was a takeover target but the company said this was pure speculation.

Santos said it is working on a range of potential initiatives but these are not sufficiently definite to warrant disclosure.

 






 

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