Santos mulls sale of pipeline from Australia's Gladstone LNG

By BRETT FOLEY and JAMES PATON
Bloomberg

Santos, Australia’s third-largest energy producer, has invited pitches from investment banks on the possible sale of the pipeline at its $18.5 billion Gladstone LNG project, people with knowledge of the matter said.

Santos met investment banks last week to discuss options for the 420-kilometer (261-mile) pipeline, including a sale, the people said, asking not to be identified as the information is private.

Its stake in the asset, which stretches from inland gas basins to the Queensland coast, could be valued at A$1.5 billion ($1.2 billion), Citigroup wrote in a Dec. 12 report.

A plunge in crude prices has put pressure on Santos before the scheduled startup later this year of the gas export project at Curtis Island. The energy producer in December slashed spending plans and flagged asset sales to cope with the downturn in the oil market.

BG Group agreed in December to sell the pipeline supplying its LNG project, which is next to Santos’s plant, for about $5 billion.

“A sale of the pipeline is a very logical thing,” said Nik Burns, a Melbourne-based analyst at UBS Group. “The joint venture would have been surprised with the price BG was able to achieve for their pipeline, and I think that would increase their interest in selling it.”

Selling the pipeline may help the Adelaide-based company shore up its credit position after its rating was lowered one level by Standard & Poor’s in December, according to the Citigroup report.

The Gladstone LNG project is more than 90% complete and is scheduled to start operations in the second half of this year, Santos said Jan. 23. It will produce 7.8 million metric tons of LNG when fully operational, according to its website.

A financial adviser hasn’t been appointed yet, according to the people. Santos’s project partners Petronas, Total and Korea Gas Corp. also own stakes in the pipeline, they said.

“In December we announced that asset divestments remain under consideration as part of the company’s ongoing portfolio management provided fair long term value is realized,” Santos said in an e-mailed statement. “The GLNG pipeline represents one of those options.”

Santos owns 30% of the LNG plant and is the operator, according to its website. Petronas, as Malaysia’s state-owned oil company is known, and France’s Total own 27.5% each while Korea Gas holds 15%.

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