Via the AFR:
Santos chairman Keith Spence said the substantial rise in the oil price since US predator Harbour Energy made its indicative buyout overtures will need to be reflected with a higher proposal if it makes a firm and binding bid after due diligence is finished in the next two weeks.”I’d say clearly the oil price impact, of oil price increases in recent times, must have some impact on the perception of value,” Mr Spence said after the Santos annual meeting in Adelaide on Thursday.
Mr Spence said the Foreign Investment Review Board issue was something the Santos board would also need to consider in its deliberations of any firm offer.
…”You’ve got Santos in a very exposed position,” he said. He expected the main issues which FIRB would focus on were ownership structures and national security of gas supply.
STO is the nucleus of the east coast gas cartel. It was STO that lied most openly that it had enough gas to fill its LNG white elephant on Curtis Island:
As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.
“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told investors in August 2010 when asked why the plan was to sanction just one train first up.
“In order to do it (approve the second train) we need to have absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”
But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.
…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.
…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.
“We have plenty of gas,” he told investors. “We have the reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”
But even then, and unbeknown to investors, Santos was planning more domestic gas purchases, from a domestic market where it had wrongly expected prices to stay low. This was revealed in August 2012, after the GLNG budget rose by $US2.5bn to $US18.5bn because, Santos said, of extra drilling and compression requirements.
David Knox is long gone with his ill-gotten gains. But the entire east coast economy is left with the legacy of his lies as:
- gas prices have spiked from $3Gj to $8-10Gj (down from $20Gj last year);
- because gas sets the marginal cost in the National Electricity Market (NEM), STO is directly responsible for soaring power costs as well;
- which has completely derailed Australia’s energy sector decarbonisation plan, and
- the over-investment has also caused Asian LNG prices to collapse as STO is ships our cheapest gas to competitors across Asia at huge all-in cost losses.
Unscrambling this total collapse in the east coast energy market will be made even more difficult if STO is passed to new ownership.
Handing it to any foreign buyer would thus be perfectly insane. But to hand it to your Chinese customers and strategic rival would be stark raving mad, from Mark Samter at Credit Suisse:
FIRB MUST block the STO takeover. Anything else would bring into question why it even exists. Indeed, why Australia itself exists as a sovereign entity.
