Santos Ltd has joined an ExxonMobil-led consortium looking to exploit vast gas resources in Papua New Guinea through a proposed $A8 billion (US$6.6 billion) liquified natural gas (LNG) development.

Oil producer Santos will work with ExxonMobil, Oil Search Ltd and Nippon Oil to jointly progress a detailed study of a stand-alone LNG project in PNG.

The consortium is investigating the viability of a stand-alone LNG operation after shelving its troubled $8 billion PNG-to-Australia gas pipeline project in February.

Santos managing director John Ellice-Flint said the decision to join the consortium would give the company more exposure to the expanding LNG market.

"Santos is committed to working with the PNG government, ExxonMobil and the other project partners to progress LNG development options in a timely manner, and in a way which will maximise the value of the large contingent gas resources in PNG," he said.

The consortium is expected to spend about US$60 million (A$72.73 million) evaluating the merits of a five million to 6.5 million tonne per annum LNG facility.

The facility could cost up to US$7 billion (A$8.49 billion) to develop.

Santos said the Hides gas and condensate field was expected to underpin the gas volumes required, with additional gas potentially sourced from the nearby Juha and Angore fields.

The three fields hold a combined gas reserve estimated at about 7.5 trillion cubic feet.

"Santos has been involved in exploration and production in PNG for more than thirty years and we look forward to playing a role in evaluating the LNG development option for our gas resources at the Hides field," Mr Ellice-Flint said.

The evaluation is expected to be completed by the end of 2007, with first LNG shipments targeted for 2012 to 2013.

Oil Search managing director Peter Botten said the study represented a step forward to the exploitation of the vast gas reserves.

"This agreement represents another step forward in the commercialization of the large PNG gas resources through the development of a world scale LNG industry in PNG," he said.

"We see these studies as highly complementary to our other gas commercialization efforts in PNG."

As part of the agreement, Santos will reimburse Oil Search to the tune of $9 million for costs incurred on initial work to develop the fields, while Oil Search will pay ExxonMobil $3.7 million for similar work.

Fat Prophets analysts Gavin Wendt said ExxonMobil while would probably prefer the facility to be bigger than the proposed five million to 6.5 million tonnes per annum, the development would still be material for the company.

"The most important thing is they want to know there is enough gas there at Hides to be able to supply base case offtake and then grow it from there," he said.

"I think the idea is it may well start at that point and ratchet upwards to something they could incrementally add on to as contracts were added."

Santos shares rose one cent to $10.26 while Oil Search gained five cents to $3.55.

(C) 2007 Asia Pulse Pte Ltd.

Related Project
PNG LNG Project
Facility Type: LNG Owner: ExxonMobil; Oil Search Limited; Santos; Nippon Oil Exploration; AGL; MRDC); Eda Oil
Scope: New Construction Location: Port Moresby Papua New Guinea