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Highlights
- Santos reports a 20% cost increase in its Alaska oil project.
- Moomba carbon capture and storage (CCS) project is now fully operational.
- Barossa gas project reaches over 82% completion with production set for 2025.
Santos Limited has reported a significant cost overrun of approximately 20% for its Pikka oil project in Alaska, resulting in an additional $800 million to the original $US2.6 billion budget. This increase was highlighted in the ASX energy stock's report for the September quarter, sparking concerns that were earlier raised about rising project costs. The revised budget comes as oil prices remain volatile and inflationary pressures continue to affect large-scale infrastructure developments globally.
Santos (ASX:STO) owns a 51% stake in the Pikka oil project. According to CEO Kevin Gallagher, the project still holds promising returns despite the higher-than-expected costs. The project could begin production up to six months ahead of schedule, which may help counterbalance the inflated expenses. Even with the current cost increase, at an oil price forecast of $US75 per barrel, the project is expected to deliver strong returns. The cost escalation is primarily due to accelerated work on the pipeline and rising inflation since the project’s final investment decision.
In addition to updates on the Pikka project, Santos announced that its Moomba carbon capture and storage (CCS) project in South Australia has successfully started operations. The project, which aims to store CO₂ in depleted gas fields, is seen as a major development in reducing carbon emissions for industries across the country. Santos expects to inject 250,000 tonnes of CO₂ into these fields this year, and interest from potential customers could lead to further expansion of the project. Gallagher called the Moomba project a "potential game-changer" for Santos and industries with limited options for emissions reduction.
Santos’ financial performance for the September quarter showed mixed results. The company’s sales revenue dropped by 3% to $US1.27 billion, and production also saw a 3% decline compared to the previous quarter. Despite this, free cash flow from operations rose to about $US400 million, supporting Santos’ ability to fund ongoing projects and explore new opportunities in the energy sector.
Another critical project in Santos’ portfolio is the Barossa gas project in the Timor Sea. This project, which has faced multiple legal challenges, is over 82% complete, with production expected to start by the third quarter of 2025. The Barossa project also experienced cost overruns earlier this year due to delays and regulatory hurdles, increasing its budget by up to $US300 million.
Santos recently appointed a new chief financial officer, Sherry Duhe, a former executive from Newcrest and Woodside, to help navigate these financial challenges as the company continues to focus on growth and sustainability initiatives.
