Announced this morning, the final investment decision on the project also kick-starts a $785 million investment in the Darwin LNG life extension and pipeline tie-in projects to extend the facility life for around 20 years.

The Santos-operated Darwin LNG plant has the capacity to produce approximately 3.7 million tonnes of LNG per annum.

The Barossa gas and condensate project is located about 300km north-west of Darwin and is said to be one of the lowest cost, new LNG supply projects in the world.

The development will comprise a Floating Production, Storage and Offloading vessel, subsea production wells, supporting subsea infrastructure and a gas export pipeline tied into the existing Bayu-Undan to Darwin LNG pipeline.

First gas production is targeted for the first half of 2025.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said Barossa and Darwin LNG life extension would create 600 jobs throughout the construction phase and secure 350 jobs for the next 20 years of production at the Darwin LNG facility.

“As the economy re-emerges from the COVID-19 lockdowns, these job-creating and sustaining projects are critical for Australia, also unlocking new business opportunities and export income for the nation,” he said.

“The Barossa and Darwin life extension projects are good for the economy and good for local jobs and business opportunities in the Northern Territory.”

Santos, South Australia’s largest listed company, holds a 62.5 per cent operated interest in the Barossa joint venture along with partner SK E&S (37.5 per cent).

Santos is finalising an agreement to sell a 12.5 per cent interest in Barossa to Darwin LNG partner JERA and has a binding agreement to sell 25 per cent interests in Bayu-Undan and Darwin LNG to SK E&S.

Barossa FID is the final condition required for completion of the 25 per cent equity sell-downs to SK E&S.

Completion of the sell-downs to SK E&S and JERA will see Santos’ interests in Bayu-Undan and Darwin LNG change to 43.4 per cent, and in the Barossa project to 50 per cent.

The SK transaction is expected to be completed at the end of April and result in net funds to Santos of approximately $261 million, being the sale price of $510 million less the forecast cashflows from the 25 per cent interests from the effective date of 1 October 2019 to completion.

At the end of last year, Santos announced the tolling arrangements had been finalised for Barossa gas to be processed through Darwin LNG and that Santos had signed a long-term LNG sales agreement with Diamond Gas International, a wholly-owned subsidiary of Mitsubishi Corporation, for 1.5 million tonnes of Santos-equity LNG for 10 years with extension options.

Gallagher said FID on Barossa was consistent with Santos’ strategy for disciplined growth utilising existing infrastructure around the company’s core assets.

“Our strategy to grow around our five core asset hubs has not changed since 2016. As we enter this next growth phase, we will remain disciplined in managing our major project costs, consistent with our low-cost operating model,” he said.

“Less than a year since we completed the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets and despite the global economic impact of a once-in-a-hundred-year pandemic, it is a great achievement to have extended the life of Bayu-Undan following the approval of the infill drilling program and now to have taken FID on the Barossa project.”

The Barossa investment decision will see approximately 380 million barrels of oil equivalent resources commercialised to 2P reserves at Santos’ expected 50 per cent interest in the project following the sell-down to JERA.

The announcement caps a challenging 12 months for the oil and gas giant after its share price bottomed out at $2.75 on March 23 as world oil prices plummeted in the early part of the coronavirus pandemic last year.

The company recovered alongside improving oil and gas prices in the second half of the year but still posted a $460 million loss for 2020.

Announced in February, the result was despite a record production year and was a massive nosedive from the $868 million profit it announced for 2019.

Santos’ shares were up slightly to $7.23 in early trade this morning following the Barossa announcement.