Santos Limited (STO)
BUY

Tiwi Islands tangle

 2 Dec 2022
Sector: Energy

FEDERAL COURT REJECTS APPEAL

Need to know

  • Federal Court rejected STO appeal on environmental plan decision.
  • STO to submit a new plan.
  • Decision raises development risks in Australian oil and gas projects.

STO has lost its appeal in the Federal Court over a prior decision that its environmental plan for the Barossa (WA) project was acceptable to the regulator.

STO will need to submit a new environmental plan to NOPSEMA (the National Offshore Petroleum Safety and Environmental Management Authority) in order to continue development of the project which is already 46% complete.

Drilling activities had been suspended while the appeal was underway.

Investment view

The Federal Court decision will set the Barossa project back by some months while the new environmental plan (already underway) is re-submitted to NOPSEMA.

The offshore Barossa field is approximately 140km north of the Tiwi Islands. The regulator had already accepted STO’s environmental plan, but the Federal Court decision and rejection of the appeal will mean the company must prepare a revised and scrupulous new plan.

This is a disappointing outcome that adds time and cost, but the project will eventually go ahead in our view. The Barrossa project is represents around 10% of our STO valuation.

We expect this decision by the Federal Court may have ramifications for many other similar projects around Australia, both onshore and offshore.

This issue certainly raises the bar on environmental risk factors for the industry and it may discourage future investment.

We retain our positive view on STO with a large and rising free cash flow profile set to unleash capital management initiatives for shareholders.

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Stock overview

Share Price

Company overview

Santos is an Australian-based oil and gas producer with assets in the Cooper Basin, PNG LNG (42.5%), Papua LNG (22.8%), Bayu-Undan and Darwin LNG projects (43.5%), Barossa (62.5% reducing to 50% on partial sale to JERA), Gladstone LNG (30%) and the Pikka Unit in Alaska (51%).

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