Foster Wheeler-Bechtel FEED Studies Keep Santos-Petronas LNG Project on Schedule

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Researched by Industrial Info Resources (Sugar Land, Texas)-- Santos Limited's (NASDAQ: STOSY) (Adelaide, Australia) plans for setting up a project to turn coal seam gas (CSG) into liquefied natural gas (LNG) in Gladstone, Queensland, is advancing with the selection of Indonesia's state-owned hydrocarbons utility Petronas to become a 40% partner in the development, operation and marketing of the Gladstone LNG entity. Petronas will initially invest $2 billion and then $500 million more upon reaching a final investment decision for a second LNG train. The agreement establishes a new benchmark for the value of eastern Australian gas resources and secures sales of 33% of Santos' proven and probable reserves, and less than 11% of Santos' oil and gas reserves.

In April, Santos awarded two parallel pre-front end engineering and design (FEED) contracts. One went to Foster Wheeler Limited (NASDAQ:FWLT) (Clinton, New Jersey), and the other went to Bechtel Group Incorporated (San Francisco, California). Foster Wheeler will undertake a six-month evaluation study on the Air Products C3MR process technology for Gladstone LNG, and Bechtel will separately evaluate ConocoPhillips' (NYSE:COP) (Houston, Texas) optimized cascade process. This concurrent evaluation process enables Santos to maintain the project schedule to enter FEED in late 2008 and reach the final investment decision by the end of 2009 or early 2010. The first LNG from the $7 billion project will then be expected in 2014.

The 60:40 joint-venture agreement between Santos and Petronas aligns the interests of both companies across all strategic elements of the value chain, from resources to plant development, operation and LNG marketing. CSG resources will be drawn from Santos' Greater Fairview and Roma fields with Santos remaining as the upstream partner. The joint venture will develop and operate the 450-kilometer gas pipeline to Gladstone, develop and operate the LNG-liquefaction plant on Curtis Island at Gladstone with an initial capacity of 3 million tons per year with technical expertise provided by Petronas. The partners will undertake all marketing activity, accessing Petronas' established customer base in Asia's three largest LNG markets: Japan, South Korea and Taiwan.

Santos' acting CEO David Knox said that the partnership offers a clear scope for broader regional cooperation and that proceeds from the transaction will be used to fund Santos' significant pipeline of growth projects, combined with general corporate purposes consistent with the company's policy to maintain an investment-grade credit rating.

Petronas is the largest LNG producer in Asia and the third largest in the world. The Bintulu complex, Sarawak, is one of the world's largest integrated LNG sites with an annual capacity of 23 million tons from eight LNG trains. The company is the world's largest single owner-operator of LNG vessels.

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