Santos clear to resume $5.8b Barossa gas project after Federal Court decision

After nearly 18 months of dealing with legal issues, Santos (ASX: STO) is now free to continue progressing the $5.8 billion Barossa gas project off the north coast of Australia.

The company and broader energy industry have both welcomed the decision by the Federal Court of Australia to dismiss an application and discharge an injunction that prevented pipe-lay activities on a large section of the 262km natural gas pipeline.

The export pipeline is a key component of plans to transport gas from the Barossa project in the Timor Sea to the Darwin Liquefied Natural Gas (DLNG) plant in the Northern Territory.

“As per the ruling and in accordance with the environment plan in force for the activity, Santos will continue pipelaying activity for the Barossa Gas Project,” the company said in a short note to the ASX.

Frustrating run of legal issues

The decision in Santos’ favour has been applauded by the local oil and gas industry, which has been increasingly frustrated by recent legal and regulatory issues that have threatened billions in new gas projects such as Barossa and Woodside Energy’s (ASX: WDS) Scarborough field off the WA coast.

Australian Energy Producers (AEP, formerly APPEA) said that importantly the court decision has reaffirmed key environmental approvals for the Barossa project and is a positive step toward restoring investor and business confidence.

“This brings to an end a period of significant uncertainty, substantial delays and costs incurred for the project as a result of a broken offshore environmental regulatory system,” AEP chief executive Samantha McCulloch said.

“Australia’s oil and gas industry has always sought better regulation, not less regulation.”

“Comprehensive and effective consultation with traditional owners has been an important part of the work of our sector for decades and we are committed to it.”

“However, vague and ambiguous regulations cannot be allowed to continue holding up important energy projects, postponing new supply that is needed to deliver energy security, emissions reduction and substantial economic returns for Australians.”

Ms McCulloch said the green light for this project will deliver significant and wide-ranging economic benefits while supporting thousands of new jobs, delivering critical stimulus into local communities and producing much-needed new gas supply to underpin energy security in Australia and its region.

Ready to move on

Although its Barossa activities have been impacted by the ongoing legal activities, Santos is still is expected to be able to meet its timetable to have the project up and running in 2025.

It has been able to focus on other aspects of the project while the legal issues were going on.

The first gas output from the offshore project is expected to be achieved in the first half of 2025 with an estimated annual production rate of 3.4 million tonnes of LNG.

Critically it will feed into the DLNG facility which now needs a large, reliable supply of gas after the recent shutdown of the aging Bayu-Undan field.

Santos paid ConocoPhillips $4.7b to acquire the project in 2021. In early 2022, Japanese energy giant Jera – one of the world’s largest importers of LNG – completed the acquisition of a 12.5% stake in the project.

The Australian company is now the operator and owns 50% of the Barossa project. South Korean energy company SK E&S owns 37.5% and Jera owns the remaining 12.5%.

Long time coming

Highlighting the length of time major LNG projects can take to get off the ground, Barossa was discovered by ConocoPhillips in 2006 with the drilling of the Barossa-1 exploration well.

The nearby Caldita field was discovered in 2005. Successful appraisal programs at both fields confirmed their potential to supply a world-class LNG project.

Barossa will be developed using infrastructure comprising a floating production storage and offloading (FPSO) facility, a subsea production system supporting in-field subsea infrastructure, the Gas Export Pipeline and Darwin Pipeline Duplication.

Up to eight subsea wells are planned to be drilled in the Barossa field (six wells from three drill centres, with contingency plans for an additional two wells).

Gas and condensate would be gathered from the wells through the subsea production system and then brought to the FPSO facility via a network of subsea infrastructure.

Initial processing would occur at the FPSO facility, to separate the natural gas, water and condensate extracted from the Barossa field.

The dry natural gas will then be transported through the gas pipeline for onshore processing at the DLNG facility.

Condensate would be transferred from the FPSO to specialised tankers for export.