Australia’s Santos said on Aug. 17 it will move ahead with its partner Repsol to develop a $2.6 billion Alaska North Slope oil project in a surprise decision that sent the energy producer’s shares lower despite it posting a record first-half profit. Santos decided to go ahead with the Pikka project after failing to sell down its 51% stake, and also flagged it would sell a smaller-than-expected stake (5%) in its prized PNG LNG asset in Papua New Guinea, just 5%.
“What’s changed since February is we don’t have to sell anything at this point in time. We’re in a very strong place,” CEO Kevin Gallagher told Reuters, referring substantial profits from high energy prices. Surging oil and gas prices in the wake of the Ukraine war have boosted cash flows beyond expectations in February, which eased the pressure to sell assets. Pikka is an “outstanding project,” forecasting a strong 19% internal rate of return based on an oil price of $60 a barrel, he said.
The company remains willing to sell down its stake in Pikka during the development phase. First oil from the 80,000 barrel-per-day project is expected in 2026. Credit Suisse analyst Saul Kavonic said the company’s decisions were “significant disappointments versus expectations.” Santos’ share price fell 3.46% on Aug. 17.
