The Santos Ltd (ASX: STO) share price is under pressure on Wednesday despite the release of a positive announcement.
At the time of writing, the energy producer’s shares are down 2% to $7.02.
What did Santos announce?
This morning Santos provided the market with an update on the Barossa joint venture. This is the company’s offshore gas and light condensate project in the Northern Territory which it owns along with ConocoPhillips and SK E&S Australia. The US$3.6 billion project aims to backfill Darwin LNG.
According to the release, the company has now awarded the project’s major contract for the construction, connection, and operation of the Floating Production, Storage and Offloading vessel (FPSO).
The FPSO services contract has been awarded to international vessel builder and operator BW Offshore (BWO).
Positively, management revealed that through extensive and intensive contract review processes, Santos has achieved a significant financial saving as well as significant energy efficiency improvements. This contract is expected to achieve an overall reduction of approximately US$1 billion in capital expenditure.
Santos’s Managing Director and Chief Executive Officer, Kevin Gallagher, commented: “The decision to proceed with an FPSO services contract maintains a low ongoing operating cost while engineering enhancements have significantly reduced the project’s carbon footprint. This reduction in capital expenditure makes Barossa one of the lowest cost of supply projects in the world for LNG and will provide new supply into a tightening LNG market.”
“At the end of last year, we announced that transport and processing agreements had been finalised for Barossa gas to be tolled through Darwin LNG and we signed a long-term LNG sales agreement with Diamond Gas International, a wholly-owned subsidiary of Japan’s Mitsubishi Corporation.”
Though, it is worth noting that despite the above, a final investment decision on the Barossa project has not been made. However, it is anticipated in the coming weeks, with the first gas targeted for the first half of 2025 if it goes ahead.
Why is the Santos share price tumbling lower?
While this announcement is good news for the company, it hasn’t been enough to stop the Santos share price from tumbling lower today.
This decline has been driven by a significant pullback in oil prices overnight amid demand concerns following lockdowns in Europe.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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