A MAJOR shake-up is looming on Barrow Island as work accelerates on the $43 billion Gorgon gas project, with oil producer Santos considering the sale of its stake in the separate oil venture on the island.
A MAJOR shake-up is looming on Barrow Island as work accelerates on the $43 billion Gorgon gas project, with oil producer Santos considering the sale of its stake in the separate oil venture on the island.
The potential sale of Santos’ 28 per cent stake in the Barrow Island oil joint venture comes as the Adelaide-based producer narrows its focus in Western Australia to the domestic gas market.
Santos bought its Barrow stake from Shell in a $240 million deal in 2000. Gorgon operator Chevron manages the oil venture, with 57 per cent, while US giant ExxonMobil holds the other 14 per cent.
Barrow Island has produced more than 300 million barrels since 1967 but now produces only about 6,000 barrels of oil a day.
However, at current oil prices it has sufficient reserves to continue operating for several more years. Barrow Island crude is also extremely high quality, fetching a substantial premium over other regional oil products.
Santos flagged a review of its non-core assets in WA in November and is now understood to be “selectively testing” interest in the Barrow stake. It is also considering the sale of its matching interest in the nearby Thevenard Island oil project, and its stakes in the maturing Mutineer-Exeter and Legendre oil operations elsewhere in the Carnarvon Basin.
The entry of a new player on Barrow Island could have major implications for Gorgon operator. Chevron, which holds 47 per cent of the LNG project, and fellow Gorgon partners Shell and ExxonMobil (24 per cent each).
Though the oil and gas ventures on Barrow are completely separate, the Gorgon project is heavily dependent on shared access to the island and key infrastructure owned by the oil joint venturers, including roads, the airstrip, marine channels and landings.
Two years ago, the Gorgon partners and Santos were at loggerheads over access to the island, including the deep saline reservoirs beneath the island slated for geo-sequestration of millions of tonnes of carbon dioxide produced by the Gorgon LNG plant.
The dispute was ultimately resolved in late 2008, when the Gorgon partners sold the offshore Spar gas field nearby to Santos to gain access to the island.
Santos is now evaluating development options for Spar to supply the WA domestic market after its Devil Creek joint venture with Apache Energy comes on-stream next year.
Given the importance of the ongoing relationship between the oil and gas joint ventures on Barrow, it is unlikely the Gorgon partners would want a new player on the island, making Chevron or one of its Gorgon partners the most logical bidder for Santos’ stake.
Chevron and ExxonMobil, as existing partners in the oil venture, are also believed to hold pre-emptive rights to acquire Santos’ interest. However, canvassing alternative buyers would help Santos achieve the optimum price.
While the Barrow stake has strategic appeal, finding a buyer for Thevenard may prove more difficult, given its limited reserve life and daily output of just 2,000 barrels a day.
Chevron scrapped its own plan to sell its 51 per cent stake in Thevenard, 75 kilometres south-west of Barrow, in 2007 after failing to attract any acceptable offers.
Nonetheless, Thevenard remains a major offshore processing hub with surplus processing capacity should any new discoveries be made in the surrounding area.
Santos, Chevron, Shell and ExxonMobil all declined to comment on possible changes to the Barrow oil joint venture.
