Santos splits future energy team, commits to large scale fossil fuels “into the 2040s”

Australian oil and gas major Santos is flagging a potential 10% fall in oil and gas production next year, but is showing no signs of backing away from any of its major fossil fuel projects, even as it splits its “future energy” business into a new entity.

In an investment briefing on Tuesday, Santos CEO Kevin Gallagher predicted the world energy transition “will only accelerate”, but sought to assured investors that it would replenish and sustain its core assets – mainly large-scale fossil fuels projects — “into the 2040s.”

Production was likely drop in 2023 to 91-98 million barrels of oil equivalent from 103-106 million barrels this year amid the end-of field-life at Bayu-Undaan in the Timor Sea and lower Western Australia domestic gas production, as well as the timing of the planned sale of a 5% stake in PNG LNG, according to the company.

Santos is splitting its five-year-old future energy solutions team from its more profitable core assets division, saying it will better allow it to build a decarbonisation and carbon management services business, but it only appears to be creeping forward to a clean energy future.

“Energy security is a top priority for countries in our region,” Gallagher said.

“Given the strong customer demand for our product now and into the future, we will seek to backfill and sustain our core assets to deliver the critical fuels the world needs into the 2040s.

“But we will also decarbonise these critical fuels, in-line with our target of net-zero emissions (scope 1 and 2, equity share) by 2040, and produce clean fuels as customer demand evolves.”

A “transform-build-grow” strategy that has been in place since 2016 at the company has been replaced by a new strategy of “backfill and sustain-decarbonisation — clean fuels”, Gallagher said.

Production was likely drop in 2023 to 91-98 million barrels of oil equivalent from 103-106 million barrels this year amid the end-of field-life at Bayu-Undaan in the Timor Sea and lower Western Australia domestic gas production, as well as the timing of the planned sale of a 5% stake in PNG LNG, according to the company.

Upstream Gas and Liquids brought in US$2.6 billion of earnings before interest, taxes, depreciation amortisation, and exploration expense in the first half of 2022, while Santos Energy Solutions recorded US$149 million of earning before interest, taxes, depreciation and amortisation, company figures show.