Santos signs $585 million Sino Iron gas supply contract

07 January 2009

Australian oil and gas producer Santos and its joint venture partner Apache Corp have revived a contract to supply natural gas to Hong Kong conglomerate Citic Pacific's, Sino Iron project, a world scale magnetite mining project in Western Australia.

The $585 million contract with Citic Pacific is for the supply of gas from the Reindeer gas project offshore Western Australia through a new 105 km offshore pipeline and a new onshore sales gas processing facility at Devil Creek, located approximately 45 km southwest of Dampier. The Reindeer project will have the capacity to produce 215TJ of gas per day.

The Reindeer project was deferred in early December following delays in the execution of the gas sales agreement.

Under the new contract, Santos would supply the Sino Iron project 75PJ of gas over seven years commencing the second half of 2011. The contract is subject to conditions which if fulfilled will enable Santos and its joint venture partner Apache Corporation to recommence the Reindeer project.

The contract price for the first three years is a fixed price with periodic adjustments for changes in the consumer price index. Beginning the fourth year, the price will be indexed to international oil prices. The revenue will be denominated in US dollars. Assuming an oil price of $50 per barrel, Santos' net share of the expected revenue over the seven years of the contract will be approximately $585 million.

''We are pleased we were able to sign this new gas sales contract with CITIC Pacific'', Santos chief executive David Knox said.